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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1995
Commission File Numbers 0-9115 and 0-24494
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, $1.00 par value NASDAQ National Market System
Class B Common Stock, $1.00 par value None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of November 30, 1995 was $135,057,615.
As of November 30, 1995, shares of common stock outstanding were:
Class A Common Stock 4,961,660 shares
Class B Common Stock 3,888,690 shares
Documents incorporated by reference: None
The index to exhibits is on pages 58-60.
2
PART I
ITEM 1. BUSINESS.
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 following table sets forth sales and operating profit for the three
business segments of the Company for the past three fiscal years. Detailed
financial information relating to business segments and to foreign and domestic
operations is presented in Note 15 (Segment Information) to the Consolidated
Financial Statements included in Part II of this annual report on Form 10-K.
Fiscal Year Ended September 30,
--------------------------------------------------------
1995 1994 1993
--------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Sales to unaffiliated
customers:
Bronze $ 80,032 48.0% $ 75,065 47.3% $ 70,601 46.7%
Graphic Systems 42,360 25.4 43,025 27.1 39,310 26.0
Marking Products 44,356 26.6 40,610 25.6 41,183 27.3
------- ----- ------- ----- ------- -----
Total $166,748 100.0% $158,700 100.0% $151,094 100.0%
======= ===== ======= ===== ======= =====
Operating profit:
Bronze 18,171 74.3 17,508 73.2 15,264 86.9
Graphic Systems 4,254 17.4 5,083 21.3 2,775 15.8
Marking Products 2,033 8.3 1,318(1) 5.5 (473)(2) (2.7)
------- ----- ------- ----- ------- -----
Total $ 24,458 100.0% $ 23,909 100.0% $ 17,566 100.0%
======= ===== ======= ===== ======= =====
(1) Fiscal 1994 operating profit for the Marking Products segment reflected
unfavorable charges of approximately $450,000 representing inventory,
currency exchange and other adjustments of its Italian operation.
(2) Operating results of Marking Products for fiscal 1993 were unfavorably
affected by charges approximating $1 million in connection with inventory
write-offs and other adjustments, including a provision for restructuring
the segment's Canadian operations, and the impact of approximately
$800,000 for a change in the amortization period of goodwill for Matthews
Swedot AB (See Note 1 of the Notes to Consolidated Financial Statements).
3
ITEM 1. BUSINESS, continued.
In fiscal 1995, approximately 81% of the Company's sales were made from the
United States, and 8%, 5% and 6% were made from Europe, Canada and Australia,
respectively. Bronze operations are primarily conducted in the United States
and Canada with 6% of the segment's revenues coming from Australia. Graphic
Systems products are manufactured and primarily sold in the United States.
Marking Products sells equipment and consumables directly to industrial
consumers and through distributors throughout the world. This segment has
manufacturing and marketing facilities in the United States, Canada and Sweden
with additional sales and distribution facilities in France, Germany and
Australia. Approximately 52% of Marking Products sales were made to locations
outside the United States in fiscal 1995.
The Company's employs approximately 1475 people and has its principal executive
offices at Two NorthShore Center, Pittsburgh, Pennsylvania 15212. Its
telephone number is (412) 442-8200.
PRODUCTS AND MARKETS:
Bronze:
The Bronze segment manufactures and markets in the United States, Canada and
Australia cast bronze memorial products used primarily in cemeteries. The
Bronze segment also manufactures and markets cast bronze and aluminum
architectural products used to identify or commemorate people, places and
events.
Memorial products, which comprise the majority of the Bronze segment's sales,
include flush bronze memorials, flower vases, crypt letters, cremation urns,
niche units and cemetery features, along with other related products. Flush
bronze memorials, which represent approximately two-thirds of the segment's
memorial product sales, are bronze plaques which contain vital information
about a deceased individual such as name and birth and death dates. These
memorials are used in cemeteries as an alternative to upright granite
tombstones. The memorials are even or "flush" with the ground and therefore
are preferred by many cemeteries for easier mowing and other maintenance.
The Bronze segment manufactures a full line of memorial products for cremation,
including urns in a variety of sizes, styles and shapes. In addition, the
Company manufactures bronze niche units which are comprised of numerous
compartments used to display cremation urns in mausoleums and churches. The
Company's other bronze memorial products include flower vases and, in order to
provide products for the granite memorial market, bronze plaques and letters
that can be affixed to tombstones, mausoleums and crypts.
Bronze segment sales in the United States account for over 85% of the segment's
revenues. Principal customers for memorial products are cemeteries, memorial
parks and monument dealers, which in turn sell the Company's products to the
consumer.
Within the Bronze segment is a wholly-owned subsidiary, Sunland Memorial Park,
Inc. ("Sunland"). Sunland, located in Sun City, Arizona, is a cemetery and
mortuary used by the Company to better understand the needs of its customers in
the memorial industry and to test new products in a cemetery environment. The
revenues of Sunland represent approximately 7% of the Bronze segment's sales.
4
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Bronze, continued:
Architectural products include cast bronze and aluminum plaques, etchings and
letters that are used to recognize, commemorate and identify people, places,
events and accomplishments. The Company's plaques are frequently used to
identify the name of a building or the names of companies or individuals
located within a building. Such products are also used to commemorate events
or accomplishments, such as military service or financial donations. The
principal markets for the segment's architectural products are corporations,
fraternal organizations, contractors, churches, hospitals, schools and
government agencies. These products are distributed through a network of
independent dealers including sign suppliers, recognition companies and trophy
dealers.
Raw materials consist principally of bronze and aluminum ingot, sheet metal and
coating materials and are generally available in adequate supply. Ingot is
obtained from various North American and Australian smelters.
Graphic Systems:
The Graphic Systems segment provides printing plates and related products and
services used in the corrugated packaging industry (manufacturers of printed
corrugated boxes) for decorating and identifying corrugated packaging. The
Graphic Systems segment also provides custom identification-related products
and services used in the flexible packaging industry (manufacturers of printed
bags and other packaging products made of paper, film and foil).
The segment's principal products are printing plates used by corrugated
packaging manufacturers to print corrugated boxes with graphics that help sell
the packaged product and provide information such as product identification,
logos, bar codes and other packaging detail specified by the manufacturer of
the packaged product. The corrugated packaging manufacturer produces printed
boxes by first combining linerboard with fluted paper to form a corrugated
sheet. Using the Company's products, this sheet is then printed and die cut to
make a finished box. The flexible packaging industry produces printed
packaging from paper, film and foil, such as for food wrappers.
The Company works closely with manufacturers to provide the proper printing
plates and tooling used to print the packaging to the user's specifications.
The segment's printing plate products are made from natural rubber, synthetic
rubber or photopolymer resin. Upon customer request, plates can be pre-mounted
press-ready in a variety of configurations that maximize print quality and
minimize press set-up time.
The segment also provides creative art design services to manufacturers of
corrugated and flexible packaging and end users of such packaging. Other
products and services include pre-press preparation, such as computer-generated
camera-ready art, negatives, films and master patterns; plate mounting
accessories for the corrugated industry; various press aids designed to improve
print quality; rotary and flat cutting dies used to cut out intricately
designed containers and point-of-purchase displays; and film masters used to
print bar codes such as Universal Product Codes (known as "UPCs").
5
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Graphic Systems, continued:
The Graphic Systems segment customer base consists of packaging industry
manufacturers and "national accounts." National accounts are generally large,
well-known consumer goods companies with a national presence that purchase
their printing plates directly. These companies then provide their printing
plates to the packaging industry manufacturer of their choice.
Major raw materials for this segment's products include rubber, photopolymer
resin, film and graphic art supplies. All such materials are presently
available in adequate supply from various industry sources.
Marking Products:
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. Marking
products range from simple handstamps made from special alloy steel to
sophisticated microprocessor-based ink-jet printing systems. The Marking
Products segment employs contact printing, indenting, ink-jet printing and
labeling methods to meet customer needs, sometimes using a combination of these
marking methods.
A significant portion of the revenue of this segment is attributable to the
sale of consumables, software and replacement parts in connection with the
marking hardware sold by the Company. The Company develops inks in harmony
with the marking equipment in which they are used, which is critical to assure
ongoing equipment reliability and mark quality. Most marking equipment
customers also use the Company's ink, solvents and cleaners.
The principal customers for the Company's marking products include food
processors, metal fabricators and manufacturers of textiles, plastic and rubber
products. A large percentage of the segment's sales are outside the United
States and are distributed through Company subsidiaries in Canada, Australia,
Sweden, Germany, Italy and France.
The marking products industry is fragmented, with many companies having limited
product lines which focus on well-defined specialty markets. Other industry
participants, like the Company, have broad product offerings and compete in
various countries. In the United States, the Company has been supplying
marking products for over 140 years.
Major raw materials for this segment's products include printing components,
tool steels, castings, rubber and chemicals, all of which are presently
available in adequate supply from various sources.
6
ITEM 1. BUSINESS, continued.
COMPETITION:
Bronze:
Competition from other bronze memorial manufacturers, which is intense, is on
the basis of product quality, delivery, price and design availability. The
Company also competes with upright granite tombstone and flush granite memorial
providers. The Company and its three major competitors account for a
substantial portion of the bronze memorial market. The Company believes that
its superior quality, broad product lines, product design, delivery capability,
customer responsiveness and experienced personnel are competitive advantages in
its markets. Competitors in the architectural market are numerous and include
companies that manufacture cast and painted signs, plastic materials and other
fabricated products.
Graphic Systems:
Graphic Systems is one of only two manufacturers with a national presence and
competes in a fragmented industry consisting of a few multi-plant regional
printing plate suppliers and a large number of local one-plant companies
located across the United States. Competition is on the basis of price,
timeliness of delivery and product quality. The Company differentiates itself
from the competition by meeting customer demands and by distinguishing itself
as an innovator of new products.
Marking Products:
Competition is intense and based on product performance, service and price.
The Company normally competes with specialty companies in specific marking
applications. The Company believes that, in general, it has the broadest lines
of marking products to address industrial marking application.
PATENTS, TRADEMARKS AND LICENSES:
The Company holds a number of domestic and foreign patents and trademarks.
However, the Company believes the loss of any or a significant number of
patents or trademarks would not have a material impact on operations or
revenues.
BACKLOG:
Because the nature of the Company's business is custom products made to order
with short lead times, backlogs are not generally material in any segment of
the Company's operations except Marking Products. Backlogs in the Marking
Products segment generally vary in the range of four to six weeks of sales.
7
ITEM 1. BUSINESS, continued.
REGULATORY MATTERS:
The Company is subject to various federal, state and local laws and regulations
relating to the protection of the environment. The Company believes that its
current operations are in material compliance with all presently applicable
environmental laws and regulations. The Company's expenditures for
environmental compliance have not had, nor are they presently expected to have,
a material adverse effect on the Company.
The Clean Air Act Amendments of 1990 are not expected to impact two of the
Company's operating segments, Graphic Systems and Marking Products. In the
United States, the Company's Bronze segment operates four nonferrous foundries,
none of which is within the "major point source" industry category as defined
by the Environmental Protection Agency. As such, it is believed that the
Bronze segment operations will be regulated as "area sources" at certain
locations. No material capital expenditures are anticipated within the next
few years as a result of the Clean Air Act Amendments.
Like most nonferrous foundry operations, the Company's plants produce a
significant volume of residual materials as a result of the bronze casting
process. Chief among these is spent foundry sands. Currently, the majority of
these materials, including foundry sands, are regulated as solid waste under
most state and federal laws. Pursuant to the Resource Conservation and
Recovery Act, the Company is regulated as a generator of hazardous waste, and
all plants are registered with the Environmental Protection Agency in
accordance with applicable regulations. The Company has implemented detailed
plans and procedures for waste management at each of its Bronze operating
plants in the United States.
The Company's Bronze facilities, like all U.S. foundries, will be required to
achieve compliance with lower lead exposure limits in foundry ambient air by
July 19, 1996. The Company has incurred expenditures at each of its operating
foundries to install the necessary ventilation control technology to achieve
compliance with the lower lead exposure limit standard. The Company expects to
achieve compliance with the new lead exposure limits by the compliance date.
8
ITEM 2. PROPERTIES.
The principal properties of the Company are as follows (all are owned by the
Company except as noted):
Location Description of Property Square Feet
- -------- ----------------------- -----------
Bronze:
Pittsburgh, PA Manufacturing / Division Offices 94,000
Searcy, AR Manufacturing 84,000
Milton, Ontario, Canada Manufacturing 30,000
Melbourne, Australia Manufacturing 26,000(1)
Sun City, CA Manufacturing 24,000
Seneca Falls, NY Manufacturing 21,000
Sun City, AZ Cemetery 14,000
Graphics Systems:
Pittsburgh, PA Manufacturing / Division Offices 56,000
Atlanta, GA Manufacturing 16,000
Braintree, MA Manufacturing 14,000(1)
Chicago, IL Manufacturing 15,000
Dallas, TX Manufacturing 15,000(1)
LaPalma, CA Manufacturing 22,000
St. Louis, MO Manufacturing 24,000
Marking Products:
Pittsburgh, PA Manufacturing / Division Offices 67,000
Pittsburgh, PA Ink Manufacturing 18,000
Pittsburgh, PA Manufacturing / Division Offices 18,000(3)
Melbourne, Australia Distribution/Offices 13,000
Europe
(various facilities) Manufacturing / Distribution 43,000(1)
Corporate Office:
Pittsburgh, PA General Offices 48,000(2)
(1) These properties are leased by the Company under operating lease
arrangements. Rent expense for these facilities was approximately
$730,000 in fiscal 1995.
(2) The Company uses approximately one-third of this building and leases, or
offers to lease, the remainder to unrelated parties.
(3) Property was sold and operation was consolidated with the segment's
principal Pittsburgh location during fiscal 1995.
All of the owned properties are unencumbered. The Company believes its
facilities are generally well suited for their respective uses and are of
adequate size and design to provide the operating efficiencies necessary for
the Company to be competitive. The Company's facilities provide adequate space
for meeting its near term production requirements and have availability for
additional capacity. The Company intends to continue to expand and modernize
its facilities as necessary to meet the demand for its products.
9
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to various legal proceedings generally incidental to its
business. The eventual outcome of these matters is not predictable and it is
possible that their resolution could be unfavorable to the Company. Although
the ultimate disposition of these proceedings is not presently determinable,
management is of the opinion, based on the facts now known to it, that the
matters should not result in liabilities in an amount which would materially
affect the consolidated financial position or annual results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal year 1995.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information:
On July 20, 1994, the Company and some of its shareholders completed an initial
public offering of 1,380,000 shares of its Class A Common Stock at an offering
price of $14 per share. Prior to the offering, no shares of Class A Common
Stock had been outstanding and there had been no established public trading
market for the Company's common stock.
Immediately prior to the offering, the Articles of Incorporation were amended
and restated to divide the authorized common stock of the Company into two
classes consisting of Class A Common Stock, $1 par value, and Class B Common
Stock, $1 par value. The Company previously had one class of common stock, par
value of $.10 per share.
The Company's Class A Common Stock is traded on the NASDAQ National Market
System. The following table sets forth the high, low and closing prices as
reported by NASDAQ for the periods indicated:
High Low Close
---- --- -----
Fiscal 1995:
Quarter ended: September 30, 1995 20.50 18.25 20.125
June 30, 1995 19.00 15.00 18.75
March 31, 1995 16.25 12.50 15.50
December 31, 1994 15.50 13.75 13.75
Fiscal 1994:
July 20, 1994 to September 30, 1994 $16.50 $14.25 $15.125
Shares of Class A stock have one vote per share and are freely transferable
subject to applicable securities laws. Shares of Class B stock have ten votes
per share and are only transferable by a shareholder to the Company or to an
active employee of the Company. If shareholders wish to otherwise sell Class B
Common Stock, the Company may, at its discretion, purchase such shares at the
fair market value per share of the Company's Class A Common Stock or permit
shareholders to tender such shares to the Company in exchange for an equal
number of shares of Class A Common Stock.
Prior to the offering, sales by the Company of its common stock were made only
to eligible officers and employees and were subject to option agreements of
repurchase. The Company's practice was to repurchase such shares when an
option had arisen; therefore, the stock was not traded in any public trading
market nor outside of the Company.
Prior to the offering, the price for all sales and repurchases of the Company's
common stock was Consolidated Adjusted Book Value per share as of the close of
the fiscal year immediately preceding such sale or event giving rise to a
repurchase option, unless otherwise provided by specific agreement.
Consolidated Adjusted Book Value per share equaled the total shareholders'
equity of the Company adjusted to account for retiree benefits on a cash basis
and to exclude any reduction to shareholders' equity relative to notes
receivable from officers and employees, divided by the number of outstanding
shares of common stock. Such Consolidated Adjusted Book Value was otherwise
determined in accordance with generally accepted accounting principles.
Consolidated Adjusted Book Value per share as of September 30, 1993 was $7.96.
11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS,
continued.
(b) Holders:
The number of registered holders of the Company's common stock at November 30,
1995 was as follows:
Class A Common Stock 440
Class B Common Stock 480
(c) Dividends:
A quarterly dividend of $.07 per share was paid for the fourth quarter of
fiscal 1995 to shareholders of record on September 30, 1995. The Company paid
quarterly dividends of $.06 per share for the first three quarters of fiscal
1995 and the fourth quarter of fiscal 1994. Prior to the offering, the Company
paid quarterly dividends of $.01 per share for the first three quarters of
fiscal 1994.
Cash dividends have been paid on common shares in every year for at least the
past thirty years. It is the present intention of the Company to continue to
pay quarterly cash dividends on its common stock. However, there is no
assurance that dividends will be declared and paid as the declaration and
payment of dividends is at the discretion of the Board of Directors of the
Company and is dependent upon the Company's financial condition, results of
operations, cash requirements, future prospects and other factors deemed
relevant by the Board.
12
ITEM 6. SELECTED FINANCIAL DATA.
Years ended September 30,
-------------------------------------------------------------------
1995 1994 1993(3) 1992 1991
----------- ----------- ----------- ----------- -----------
(Not Covered by Independent Auditor's Report)
Net sales $166,747,781 $158,700,158 $151,094,305 $149,781,172 $136,698,736
Gross profit 74,729,267 71,613,709 64,128,595 65,203,097 57,398,155
Interest expense 104,820 309,939 594,513 710,612 762,807
Income before income taxes and
cumulative effect of changes
in accounting principles 25,079,263 23,705,257 16,574,586 18,017,307 14,976,390
Income taxes 9,628,028 9,677,091 6,618,543 7,316,474 6,129,359
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of changes in accounting
principles 15,451,235 14,028,166 9,956,043 10,700,833 8,847,031
Cumulative effect of changes
in accounting principles (2) - - (10,836,726) - -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 15,451,235 $ 14,028,166 $ (880,683) $ 10,700,833 $ 8,847,031
========== ========== ========== ========== ==========
Per common share (1):
Income before cumulative
effect of changes in
accounting principles $ 1.75 $ 1.56 $ 1.07 $ 1.11 $ .92
Net income (loss) 1.75 1.56 ( .09) 1.11 .92
Cash dividends .25 .10 .03 .03 .03
Weighted average shares
outstanding (excluding
restricted shares)(1) 8,850,350 8,982,353 9,312,105 9,651,285 9,634,245
Total assets (4) $138,206,376 $120,683,005 $110,568,941 $114,336,773 $95,533,504
Long-term debt, noncurrent 270,092 745,616 6,133,340 7,768,962 5,561,932
(1) All periods reflect the 15-for-1 common stock split during fiscal 1994. See Note 6 of the Notes
to Consolidated Financial Statements.
(2) Fiscal year 1993 includes the cumulative effect of changes in accounting for postretirement
benefits and income taxes. See Notes 10 and 11, respectively, of the Notes to Consolidated
Financial Statements.
(3) Fiscal year 1993 includes charges of $1 million relative to inventory write-offs and other
adjustments, $800,000 for a change in the amortization period of goodwill for Matthews Swedot AB
and $500,000 in connection with a public offering which did not occur during fiscal 1993.
See "Management's Discussion and Analysis of Results of Operations and Financial Condition."
(4) Fiscal years 1991 through 1994 have been adjusted to reflect reclassifications to conform to
fiscal 1995 presentation.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and related notes thereto.
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 and the
percentage change in such income statement data from year to year.
Years Ended
September 30, Percentage Change
---------------------- -----------------
1995- 1994-
1995 1994 1993 1994 1993
---- ---- ---- ----- -----
Sales 100.0% 100.0% 100.0% 5.1% 5.0%
Gross profit 44.8 45.1 42.4 4.4 11.7
Operating profit 14.7 15.1 11.6 2.3 36.1
Income before taxes 15.0 14.9 11.0(1) 5.8 43.0
Net income 9.3 8.8 6.6(1) 10.1 40.9
(1) Excludes the cumulative effect of changes in accounting principles for the
adoption of SFAS No. 106 and SFAS No. 109. See "FASB Pronouncements."
Comparison of Fiscal 1995 and Fiscal 1994:
Sales for the year ended September 30, 1995 were $166.7 million, representing
an increase of $8.0 million, or 5.1%, over fiscal 1994 sales of $158.7 million.
The increase from the prior year resulted from higher sales in the Company's
Bronze and Marking Products segments. Bronze segment sales in fiscal 1995
increased $5.0 million, or 6.6%, over fiscal 1994 reflecting increases in
selling price and unit volume. Bronze sales were higher in the United States
and Australia and, in the United States, reflected increases in both memorial
and architectural products. Sales in the Marking Products segment increased
$3.7 million, or 9.2%, over fiscal 1994 resulting principally from an increase
in international sales. The increase in international sales reflected higher
demand for non-contact printing equipment and related consumables, particularly
in Germany and Australia. Sales in the Graphic Systems segment declined
$665,000 (or 1.6%) below fiscal 1994. During fiscal 1995, the Graphic Systems
segment experienced a reduction in demand for printing plates used by the
corrugated packaging industry. This reduction in demand, which resulted from a
shortage of linerboard and higher prices for corrugated shipping containers
purchased by the packaging industry, is expected to be temporary.
Gross profit for the year ended September 30, 1995 was $74.7 million, or 44.8%
of sales, compared to $71.6 million, or 45.1% of sales, for fiscal 1994. The
increase of $3.1 million, or 4.4%, from the prior year related primarily to
higher gross profit levels in the Bronze and Marking Products segments. The
increase in the Bronze segment gross profit reflected benefits of the segment's
sales growth for the year, but was offset partially by higher material costs.
The average cost of bronze ingot, the major raw material used in the production
of the segment's memorial products, increased significantly during fiscal 1995.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 1995 and Fiscal 1994, continued:
The higher gross profit in the Marking Products segment resulted from an
increase in international sales volume, more favorable product mix and
reductions in various overhead costs. Graphic Systems gross profit and gross
profit as a percent of sales declined from fiscal 1994 primarily due to a
reduction in sales for the year. The decline in sales in the Graphic Systems
segment and increased prices for bronze ingot resulted in a slight reduction in
consolidated gross profit as a percent of sales.
Selling and administrative expenses for the year ended September 30, 1995 were
$50.3 million, or 30.1% of sales, compared to $47.7 million, or 30.0% of sales,
in fiscal 1994. Selling expenses increased $1.4 million, or 4.6%, over fiscal
1994, proportionate with the higher sales for the year. Selling expense for
the year principally reflected higher marketing expenses and increased sales
personnel costs in Australia and Europe for Marking Products. Administrative
expense increased $1.2 million, or 6.7%, over the prior year. The increase in
administrative expense primarily reflected normal growth in general and
employee-related costs and an increase in research and development costs,
principally in the Marking Products segment.
Operating profit for the year ended September 30, 1995 was $24.5 million, or
14.7% of sales compared to fiscal 1994 operating profit of $23.9 million, or
15.1% of sales. The operating profit increase of $549,000, or 2.3%, generally
reflected higher sales in the Bronze and Marking Products segments offset by a
decline in demand for printing plates of the Graphic Systems segment and higher
bronze ingot costs.
Other income and deductions (net) for the year ended September 30, 1995
resulted in an increase in income before income taxes of $726,000 compared to
an increase of $106,000 in fiscal 1994. Other income in fiscal 1995 primarily
reflected higher investment income as a result of an increase in the Company's
cash position. Cash and cash equivalents of the Company at September 30, 1995
were $39.2 million compared to $24.3 million at September 30, 1994. See
"Liquidity and Capital Resources" for further discussion of the Company's cash
position.
Interest expense for the year ended September 30, 1995 was $105,000 compared to
$310,000 for fiscal 1994. The decrease in interest expense was principally a
result of the repayment of all amounts outstanding under the Term Loan
Agreement during fiscal 1994.
The Company's effective tax rate for the year ended September 30, 1995 was
38.4%, compared to 40.8% in fiscal 1994. The lower effective tax rate for
fiscal 1995 is primarily the result of a reduction in the effect of foreign
income taxes on the Company's consolidated tax position and favorable prior
year federal income tax adjustments. The difference between the Company's
effective tax rate and the federal statutory rate of 35% is principally the
result of state and foreign income taxes.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 1994 and Fiscal 1993:
Sales for the year ended September 30, 1994 were $158.7 million, representing
an increase of $7.6 million, or 5.0%, over fiscal 1993. The higher sales
reflected increases in the Company's Bronze and Graphic Systems segments.
Bronze segment sales in fiscal 1994 increased $4.5 million, or 6.3%, over
fiscal 1993 resulting from increases in both price and unit volume. The
segment's total unit volume increased, particularly among cremation products.
Sales in the Graphic Systems segment increased $3.7 million, or 9.5%, over
fiscal 1993 resulting from an increase in unit volume, and a combination of
higher prices and a more favorable product mix. The increase in unit volume
reflected higher demand for the segment's principal product lines, particularly
from national account customers. Sales in the Marking Products segment
declined $573,000 (or 1.4%) below fiscal 1993. Fiscal 1994 sales were
adversely affected by reductions in several European currencies against the
U.S. dollar. In addition, the segment's lower sales for the fiscal year also
reflected a slight decline in the sales volume of certain marking products,
particularly in Germany.
Gross profit for the year ended September 30, 1994 was $71.6 million, or 45.1%
of sales, compared to $64.1 million, or 42.4% of sales, for fiscal 1993. The
increase in gross profit and gross profit as a percent of sales primarily
reflected higher margins in the Graphic Systems and Bronze segments. Graphic
Systems gross profit increased as a result of improvements in manufacturing
efficiency, selling price increases and favorable changes in product mix. The
increase in the Bronze segment gross profit is attributed mainly to improved
cost / price relationships and continued benefits from improvements in the
segment's manufacturing efficiency. Marking Products gross profit and gross
profit as a percent of sales also increased over fiscal 1993. The increase in
gross profit from the prior year related primarily to additional charges of
$1.0 million recorded by Marking Products in fiscal 1993 for inventory write-
offs and other adjustments, including a provision for restructuring the
segment's Canadian operations. The segment's gross profit in fiscal 1994 was
adversely affected by increased material costs for the Company's Italian
subsidiary related to inventory and unfavorable exchange adjustments of
$450,000. The Company's consolidated gross profit in fiscal 1994 also
reflected a favorable adjustment in U.S. workers' compensation insurance costs.
Selling and administrative expenses for the year ended September 30, 1994 were
$47.7 million, or 30.0% of sales, compared to $46.6 million, or 30.8% of sales,
in fiscal 1993. Selling expense increased $2.3 million or 8.4%, over fiscal
1993. Selling expense was higher in the Graphic Systems and Bronze segments
reflecting increased salaries and related benefits and commissions commensurate
with the higher sales level of these segments. Administrative expense
decreased $1.2 million, or 6.1%, from the prior year. Fiscal 1993
administrative expense included an additional charge of approximately $800,000
for a change in the amortization period of goodwill relative to Matthews Swedot
AB. Fiscal 1994 selling and administrative expense also reflected reductions in
marketing and research and development costs in Europe, favorable adjustments
in U.S. workers' compensation insurance costs and general cost control efforts.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 1994 and Fiscal 1993, continued:
Operating profit for the year ended September 30, 1994 was $23.9 million, or
15.1% of sales. Fiscal 1993 operating profit was $17.6 million, or 11.6% of
sales. The operating profit increase of $6.3 million, or 36.1%, reflected the
benefits of higher sales and related gross profit in the Bronze and Graphic
Systems segments and the absence of unusual charges recorded by Marking
Products last year for inventory write-offs and other adjustments and a change
in the amortization period of goodwill.
Other income and deductions (net) for the year ended September 30, 1994
resulted in an increase in income before income taxes of $106,000 compared to a
decrease of $396,000 in fiscal 1993. Other deductions in fiscal 1993 included
expenses of $500,000 in connection with a public offering of the Company's
common stock which did not occur during fiscal 1993 and losses on various fixed
asset disposals. In fiscal 1994, other income primarily reflected higher
investment income as a result of an increase in the Company's cash position.
Other deductions in fiscal 1994 reflected additional charges of approximately
$200,000 in connection with meeting certain foreign regulatory requirements.
Interest expense for the year ended September 30, 1994 was $310,000 compared to
$595,000 for fiscal 1993. The decrease in interest expense was principally a
result of the repayment of all amounts outstanding under the Term Loan
Agreement during fiscal 1994.
The Company's effective tax rate for the year ended September 30, 1994 was
40.8%, compared to 39.9% in fiscal 1993. Fiscal 1994 was the first year for
the full impact to the Company of the increased U.S. federal corporate income
tax rate from 34% to 35%. The difference between the Company's effective tax
rate and the federal statutory rate of 35% is principally the result of state
and foreign income taxes.
Comparison of Fiscal 1993 and Fiscal 1992:
Sales for fiscal 1993 were $151.1 million and were $1.3 million, or 0.9%,
higher than sales of $149.8 million for fiscal 1992. The slight growth in
sales reflects increases in the Graphic Systems and Bronze segments, which were
substantially offset by a decline in the Marking Products segment. Sales in
the Graphic Systems segment increased $2.4 million, or 6.4%, over fiscal 1992
principally reflecting an increase in unit volume. Bronze segment sales in
fiscal 1993 remained relatively level with fiscal 1992 sales (an increase of
$139,000, or 0.2%, over fiscal 1992) despite a reduction in unit volume under
the new three-year contract with the U.S. Veteran's Administration and the
absence of granite block sales as a result of the May 1992 disposition of the
segment's quarrying operations. An increase in the unit volume of sales to
other customers and higher overall price levels more than offset these
reductions. Sales in the Marking Products segment declined $1.2 million, or
2.8%, from fiscal 1992. Marking Products fiscal 1993 sales were adversely
affected by significant reductions in several European currencies against the
U.S. dollar and a decline in the demand for certain products as a result of
weaker economic conditions, particularly within the European markets.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 1993 and Fiscal 1992, continued:
Gross profit for fiscal 1993 was $64.1 million, or 42.4% of sales, compared to
$65.2 million, or 43.5% of sales, for fiscal 1992. The reduction in gross
profit and gross profit as a percent of sales primarily reflected the
additional costs in fiscal 1993 associated with the adoption of SFAS No. 106.
The reduction from fiscal 1992 also reflected lower margins in the Marking
Products segment resulting from charges of approximately $1.0 million in
connection with inventory write-offs and other adjustments, including a
provision for restructuring the segment's Canadian operations.
Selling and administrative expenses for fiscal 1993 were $46.6 million, or
30.8% of sales, compared to $47.3 million, or 31.5% of sales, in fiscal 1992.
Selling expense decreased slightly, $300,000 or 0.9%, from fiscal 1992
reflecting the comparable sales level with fiscal 1992 and a reduction in
currency exchange rates. A reduction in administrative expense of $400,000, or
2.2%, from fiscal 1992 resulted from the termination of the Restricted Stock
Plan (see "Liquidity and Capital Resources"). Expenses related to the
appreciation of restricted stock, the majority of which were classified as
administrative expense, were discontinued as of October 1, 1992. Increases in
other administrative costs and the impact of a change in the amortization
period of goodwill relative to Matthews Swedot AB of $800,000 partially offset
the elimination of restricted stock expense. Selling and administrative
expenses for fiscal 1993 also reflected additional costs relative to the
adoption of SFAS No. 106.
Operating profit for fiscal 1993 was $17.6 million, or 11.6% of sales, compared
to $17.9 million, or 12.0%, in fiscal 1992. Despite the beneficial effect of
the termination of the Restricted Stock Plan, operating profit was negatively
affected by additional costs of $800,000 in connection with the adoption of
SFAS No. 106, the change in the amortization period of goodwill relative to
Matthews Swedot AB and inventory write-offs in the Marking Products segment.
Other income and deductions (net) for fiscal 1993 resulted in a reduction in
income before income taxes of $396,000 compared to an increase of $784,000 in
fiscal 1992. Other deductions in fiscal 1993 included expenses of $500,000 in
connection with a public offering of the Company's Common Stock which did not
occur during fiscal 1993. In addition, fiscal 1993 reflected a decline in
interest income due to a lower average cash balance and losses on various fixed
asset disposals. In fiscal 1992, other income primarily included interest
income and a gain of approximately $1.0 million on the sale of the Company's
granite quarrying business and substantially all related properties in North
Carolina and South Carolina. This gain was partially offset by a loss of
approximately $300,000 on the sale of the Company's former corporate office
building.
Fiscal 1993 interest expense was $595,000 compared to $711,000 in fiscal 1992.
The decline from fiscal 1992 reflected lower rates and principal balances.
The Company's effective tax rate for fiscal 1993 was 39.9%, compared to 40.6%
in fiscal 1992. The Company's consolidated effective rate decreased from
fiscal 1992 due mainly to a change in enacted tax rates which resulted in an
increase in the Company's net deferred tax asset position. The difference
between the effective rate for fiscal 1993 and the federal statutory rate of
35% is principally the result of state and foreign income taxes.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LIQUIDITY AND CAPITAL RESOURCES:
Consolidated working capital of the Company increased to $56.3 million at
September 30, 1995, representing an increase of $15.3 million over working
capital of $41.0 million at September 30, 1994. Consolidated working capital
was $36.9 million at September 30, 1993. Cash and cash equivalents were
$39.2 million at September 30, 1995 compared to $24.3 million at September 30,
1994 and $19.2 million at September 30, 1993. The Company's current ratio at
September 30, 1995 was 3.5, compared to 2.9 and 3.0 at September 30, 1994 and
1993, respectively.
Cash flow from operations was $20.2 million for fiscal 1995, compared to $20.4
million for fiscal 1994 and $7.6 million for fiscal 1993. Operating cash flow
for both fiscal 1995 and 1994 reflected the Company's strong earnings for the
periods of $15.5 million and $14.0 million, respectively. The decline in
operating cash flow for fiscal 1993 resulted principally from a cash
distribution in connection with the termination of the Company's Restricted
Stock Plan. On December 4, 1992, the Board of Directors terminated the plan
and authorized the liquidation of all participants' appreciated value
thereunder. Liquidation of all participants' appreciated value required a cash
distribution of $13.8 million, which resulted in a current income tax benefit
of approximately $5.3 million. The distribution was made on December 10, 1992.
The redemption of restricted shares reduced total shares outstanding by
2,888,250 shares.
Cash used in investing activities was $2.7 million for fiscal 1995, compared to
$3.2 million for fiscal 1994 and $7.4 million in fiscal 1993. Capital
expenditures were $6.0 million, $3.9 million and $4.9 million in fiscal 1995,
1994 and 1993, respectively. The increase in capital expenditures in fiscal
1995 relates principally to the timing of anticipated capital spending
projects. The capital budget for fiscal 1995 was $12.0 million compared to the
1994 capital budget of $7.2 million. Capital expenditures in the last three
fiscal years reflected reinvestment in each of the Company's industry segments
and were made primarily for the purchase of new manufacturing machinery,
equipment and facilities designed to improve product quality, increase
manufacturing efficiency and lower production costs. Capital expenditures for
all three years were primarily financed through operating cash and the related
assets are unencumbered. Capital spending for property, plant and equipment
has averaged $4.9 million for the last three years. The capital budget for
fiscal 1996 is $12.7 million. The Company expects to generate sufficient cash
from operations to fund all anticipated capital spending projects.
Investing activities in fiscal 1995 reflected the sale of two of the Company's
facilities. Two facilities of the Marking Products segment (one of the
Company's Pittsburgh facilities and Canada) were sold during the year and the
related operations were consolidated into other facilities of the Company.
These sales did not have a material impact on the Company's results of
operations for fiscal 1995. Investing activities also included notes
receivable from designated officers and employees for the purchase of the
Company's common stock under the Employees' Stock Purchase Plan. Loans made by
the Company to officers and employees under this program amounted to $3.4
million in fiscal 1993. No loans were made in fiscal 1995 and 1994.
Collections on loans to officers and employees were $1,520,000, $668,000 and
$544,000 in fiscal 1995, 1994 and 1993, respectively.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LIQUIDITY AND CAPITAL RESOURCES, continued:
Cash used in financing activities for fiscal 1995 was $2.7 million and
represented repayments of $466,000 under capital lease obligations and cash
dividends on common stock of $2.2 million. For the quarter ended September 30,
1995, the Company increased its quarterly cash dividend from $.06 per share to
$.07 per share. Cash used in financing activities for fiscal 1994 was $12.3
million, primarily reflecting long-term debt repayments of $6.6 million and
treasury stock redemptions under the Company's Employees' Stock Purchase Plan
of $7.5 million. These amounts were partially offset by net proceeds of $2.0
million from an initial public offering of the Company's common stock (see
"Initial Public Offering"). In addition, the Company increased its quarterly
cash dividend from $.01 per share to $.06 per share effective with the quarter
ended September 30, 1994. Cash used in financing activities in fiscal 1993
amounted to $1.3 million and primarily reflected net reductions in long-term
debt and treasury stock activity. Financing activities in fiscal 1993 also
reflected borrowings of $4.0 million under the Company's Revolving Credit and
Term Loan Agreement, which were repaid prior to September 30, 1993. No amounts
were outstanding under the Term Loan Agreement at September 30, 1995 and 1994.
Under the terms of the Revolving Credit and Term Loan Agreement, the Company
may borrow principal amounts up to $6.0 million in the aggregate at various
interest rate options approximating current market rates. The agreement
requires the Company to maintain minimum levels of consolidated working capital
and tangible net worth. There were no outstanding borrowings under this
agreement at September 30, 1995, 1994 or 1993.
The Company has additional lines of credit for $3.0 million in U.S. dollars and
$500,000 in Canadian dollars. These lines of credit provide for borrowings at
the banks' prime interest rates. The Company has a foreign exchange line of
credit of $200,000 for standby letters of credit to support performance
guarantees, which bears interest at the bank's current market rates. The
Company also maintains a multi-currency line of credit with a bank for
6 million French francs. The multi-currency line of credit bears interest at
various rates based on market as determined by the bank. At September 30,
1995, approximately $45,000 of compensating balances were maintained in
connection with the various lines of credit. There were no outstanding
borrowings on the various lines of credit at September 30, 1995, 1994 and 1993.
INITIAL PUBLIC OFFERING:
On July 20, 1994, the Company and some of its shareholders completed an initial
public offering of 1,380,000 shares of its Class A Common Stock at an offering
price of $14 per share. Of the 1,380,000 shares, the Company sold 200,000
shares and the remaining 1,180,000 shares were sold by certain shareholders.
The proceeds to the Company, after deducting commissions and estimated offering
expenses, were $2.0 million. The Company applied its portion of the net
proceeds to the repayment of outstanding indebtedness under the Term Loan
Agreement. The Company did not receive any of the proceeds from the sale of
1,180,000 shares by the shareholders.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
INITIAL PUBLIC OFFERING, continued:
Immediately prior to the offering, the Articles of Incorporation were amended
and restated to change the authorized common stock of the Company to
100 million shares, divided into two classes consisting of 70 million shares of
Class A Common Stock, $1 par value, and 30 million shares of Class B Common
Stock, $1 par value. The Company previously had one class of common stock, par
value of $.10 per share, with 4,000,000 authorized shares. In connection with
such amendment, each share of the Company's common stock outstanding
immediately prior to the filing of the restated Articles of Incorporation with
the Pennsylvania Secretary of State became fifteen shares of Class B Common
Stock. All treasury stock was retired.
Under the Employees' Stock Purchase Plan, all outstanding shares of the
Company's common stock prior to the offering were subject to option agreements
of repurchase. Although the Company was not required to purchase any
shareholders' stock, its consistent practice was to redeem all shares with
respect to which an option of repurchase had arisen or which were voluntarily
tendered. Subsequent to the offering, the Company will no longer continue its
consistent practice of redeeming such shares.
Shares of Class A stock have one vote per share and are freely transferable
subject to applicable securities laws. Shares of Class B stock have ten votes
per share and are only transferable by a shareholder to the Company or to an
active employee of the Company. If shareholders wish to otherwise sell Class B
Common Stock, the Company may, at its discretion, purchase such shares at the
fair market value per share of the Company's Class A Common Stock or permit
shareholders to tender such shares to the Company in exchange for an equal
number of shares of Class A Common Stock. The retirement, death or employment
termination of a holder of Class B shares causes (except in limited
circumstances) an automatic conversion of such stock to Class A shares.
FASB PRONOUNCEMENTS:
Effective October 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Under SFAS No. 106, the Company
is required to accrue the estimated cost of retiree benefits, other than
pensions, ratably from the date of hire until the employee is eligible to
receive the benefits. The cost of these benefits, which are principally health
care and life insurance, were previously expensed by the Company when claims
were paid. The Company elected to immediately recognize the cumulative effect
of this change in accounting as a one-time charge to fiscal 1993 earnings of
$17.8 million ($11.1 million net of income tax benefit), which represented the
accumulated postretirement benefit obligation at October 1, 1992. In addition,
this change resulted in an increase in fiscal 1993 operating expense of
$835,000 ($518,000 net of income tax benefit).
The Company also adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes," effective October 1, 1992. SFAS No. 109 requires the use of the
liability method of accounting for deferred income taxes. The cumulative
effect of adopting SFAS No. 109 as of October 1, 1992 was a $221,000 increase
in fiscal 1993 net income.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
FASB PRONOUNCEMENTS, continued:
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The pronouncement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. SFAS No. 121, when adopted, is not expected to have a material impact on
the Company's financial position or results of operations. The pronouncement
must be adopted by the Company by fiscal 1997.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Description Pages
- ----------- -----
Independent Auditor's Report 23
Consolidated Balance Sheet 24-25
Consolidated Statement of Income 26
Consolidated Statement of Shareholders' Equity 27
Consolidated Statement of Cash Flows 28
Notes to Consolidated Financial Statements 29-42
Supplementary Financial Information 43
23
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors of
Matthews International Corporation:
We have audited the accompanying consolidated balance sheet of Matthews
International Corporation and subsidiaries as of September 30, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Matthews
International Corporation and subsidiaries as of September 30, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1995 in conformity with
generally accepted accounting principles.
As discussed in Notes 10 and 11 to the consolidated financial statements,
Matthews International Corporation changed its methods of accounting for
postretirement benefits other than pensions and accounting for income taxes in
1993.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
November 16, 1995
24
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1995 and 1994
----------
ASSETS 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 39,204,010 $ 24,264,967
Accounts and notes receivable:
Trade 28,145,651 26,733,873
Officers and employees 268,136 309,665
Other 101,823 79,081
Inventories (Note 2) 10,341,823 9,760,364
Deferred income taxes 718,531 699,596
Other current assets 456,265 769,444
---------- ----------
Total current assets 79,236,239 62,616,990
Accounts receivable, noncurrent 1,401,056 1,402,129
Cemetery inventory, at average cost 1,193,652 799,484
Property, plant and equipment, net (Note 3) 38,021,777 38,249,276
Deferred income taxes (Note 11) 6,602,396 5,308,051
Deferred expenses 868,856 1,005,359
Other assets 5,522,261 5,521,689
Goodwill, net of accumulated amortization of
$3,632,585 and $2,789,495, respectively (Note 1) 5,360,139 5,780,027
----------- -----------
$138,206,376 $120,683,005
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
25
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
September 30, 1995 and 1994
----------
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
---- ----
Current liabilities:
Long-term debt, current maturities $ 433,465 $ 423,263
Trade accounts payable 5,181,954 4,699,634
Accrued compensation 1,811,438 1,823,747
Accrued vacation pay 2,542,442 2,563,636
Profit distribution to employees 3,590,944 3,924,351
Accrued income taxes 1,165,805 1,248,377
Customer prepayments 2,413,415 2,391,431
Postretirement benefits, current portion 1,329,237 1,098,948
Other current liabilities 4,441,320 3,432,768
---------- ----------
Total current liabilities 22,910,020 21,606,155
Long-term debt (Note 4) 270,092 745,616
Estimated cemetery costs (Note 5) 2,143,085 1,941,210
Estimated finishing costs (Note 5) 2,848,391 2,819,903
Postretirement benefits other than pensions (Note 10) 19,727,632 18,584,826
Deferred revenue and other liabilities 3,508,752 3,622,027
Commitments and contingent liabilities (Note 12)
Shareholders' equity (Notes 6, 7 and 8):
Common Stock:
Class A, $1.00 par value, authorized 70,000,000
shares, 4,009,753 and 1,380,000 shares issued
at September 30, 1995 and 1994, respectively 4,009,753 1,380,000
Class B, $1.00 par value, authorized 30,000,000
shares, 4,840,597 and 7,470,350 shares issued
at September 30, 1995 and 1994, respectively 4,840,597 7,470,350
Preferred stock, $100 par value, authorized 10,000
shares, none issued - -
Additional paid-in capital 1,844,092 1,844,092
Retained earnings 80,690,206 67,451,034
Notes receivable from officers and employees (2,765,452) (4,285,463)
Cumulative translation adjustment (1,820,792) (2,496,745)
----------- -----------
Total shareholders' equity 86,798,404 71,363,268
----------- -----------
$138,206,376 $120,683,005
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
26
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the years ended September 30, 1995, 1994 and 1993
----------
1995 1994 1993
---- ---- ----
Sales $166,747,781 $158,700,158 $151,094,305
Cost of goods sold 92,018,514 87,086,449 86,965,710
----------- ----------- -----------
Gross profit 74,729,267 71,613,709 64,128,595
Selling expense 31,146,043 29,788,416 27,485,392
Administrative expense 19,125,520 17,916,353 19,077,321
----------- ----------- -----------
Operating profit 24,457,704 23,908,940 17,565,882
Other income 1,725,318 843,844 609,804
----------- ----------- -----------
26,183,022 24,752,784 18,175,686
Other deductions:
Interest expense 104,820 309,939 594,513
Other deductions from income 998,939 737,588 1,006,587
----------- ----------- -----------
1,103,759 1,047,527 1,601,100
----------- ----------- -----------
Income before income taxes and cumulative
effect of changes in accounting principles 25,079,263 23,705,257 16,574,586
Income taxes (Note 11) 9,628,028 9,677,091 6,618,543
----------- ----------- -----------
Income before cumulative effect of
changes in accounting principles 15,451,235 14,028,166 9,956,043
Cumulative effect of changes in
accounting principles for:
Postretirement benefits, net of income
tax benefit of $6,777,248 (Note 10) - - (11,057,615)
Income taxes (Note 11) - - 220,889
----------- ----------- -----------
Net income (loss) $ 15,451,235 $ 14,028,166 $ (880,683)
=========== =========== ===========
Earnings (loss) per share (Note 1):
Before cumulative effect of changes
in accounting principles $ 1.75 $ 1.56 $ 1.07
Changes in accounting principles for:
Postretirement benefits - - (1.18)
Income taxes - - .02
------ ------ ------
Earnings (loss) per share $ 1.75 $ 1.56 $ (.09)
====== ====== ======
Weighted average number of common
shares outstanding (Note 1) 8,850,350 8,982,353 9,312,105
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
27
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended September 30, 1995, 1994 and 1993
----------
Common Additional Cumulative
Stock Paid-in Retained Notes Translation Treasury
(Note 6) Capital Earnings Receivable Adjustment Stock Total
--------- ---------- ----------- ---------- ----------- ----------- ----------
Balance, September 30, 1992 $ 400,000 $30,152,035 $101,944,973 $(2,079,466) $ (88,178) $(48,542,503) $81,786,861
Net loss (880,683) (880,683)
Treasury stock transactions:
Purchase of 46,651 shares (5,213,628) (5,213,628)
Sale of 54,127 shares 5,239,430 810,345 6,049,775
Redemption of 192,550 shares of
restricted stock (11,690,594) (2,157,320) (13,847,914)
Net increase in notes receivable (2,873,686) (2,873,686)
Dividends, $.03 per share (269,081) (269,081)
Net translation adjustment (3,762,796) (3,762,796)
--------- ---------- ----------- --------- --------- ---------- ----------
Balance, September 30, 1993 400,000 23,700,871 100,795,209 (4,953,152) (3,850,974) (55,103,106) 60,988,848
Net income 14,028,166 14,028,166
Treasury stock transactions:
Purchase of 62,858 shares (7,468,038) (7,468,038)
Sale of 5,651 shares 548,568 92,507 641,075
Net decrease in notes receivable 667,689 667,689
Dividends, $.10 per share (892,793) (892,793)
Recapitalization:
Retirement of treasury shares (342,331) (24,249,439) (37,886,867) 62,478,637 -
Stock split and par value change 8,592,681 (8,592,681) -
Initial public offering (Note 6):
Issuance of 200,000 shares 200,000 2,600,000 2,800,000
Offering expenses (755,908) (755,908)
Net translation adjustment 1,354,229 1,354,229
--------- ---------- ----------- --------- --------- ---------- ----------
Balance, September 30, 1994 8,850,350 1,844,092 67,451,034 (4,285,463) (2,496,745) - 71,363,268
Net income 15,451,235 15,451,235
Net decrease in notes receivable 1,520,011 1,520,011
Dividends, $.25 per share (2,212,063) (2,212,063)
Net translation adjustment 675,953 675,953
--------- ---------- ----------- --------- --------- ---------- ----------
Balance, September 30, 1995 $8,850,350 $ 1,844,092 $ 80,690,206 $(2,765,452) $(1,820,792) $ - $86,798,404
========= ========== =========== ========= ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
28
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended September 30, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $15,451,235 $14,028,166 $ (880,683)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,887,122 4,259,313 3,941,897
Deferred taxes (1,313,280) (1,115,750) 4,748,629
Changes in accounting principles - - 10,836,726
Net change in certain working capital items (Note 13) (597,897) 2,220,580 1,538,235
(Increase) decrease in accounts receivable, noncurrent 1,073 (177,602) (144,021)
(Increase) decrease in cemetery inventory (394,168) 70,715 135,057
Increase in other assets (572) (1,116,275) (46,761)
Increase in estimated finishing and cemetery costs 230,363 293,452 582,628
Increase (decrease) in deferred revenue and
expenses and other liabilities 23,228 419,774 (3,468)
Increase in postretirement benefits 1,373,095 1,014,089 834,822
Redemption and cancellation of restricted stock - - (13,847,914)
Loss on sale of property, plant and equipment 43,170 81,787 368,421
Effect of exchange rate changes on operations 486,135 397,287 (510,869)
---------- ---------- ----------
Net cash provided by operating activities 20,189,504 20,375,536 7,552,699
---------- ---------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (5,976,264) (3,929,271) (4,921,475)
Proceeds from property, plant and equipment disposals 1,736,869 34,517 348,856
Loans made to officers and employees - - (3,417,927)
Collections on loans to officers and employees 1,520,011 667,689 544,241
---------- ---------- ----------
Net cash used in investing activities (2,719,384) (3,227,065) (7,446,305)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt - - 4,000,000
Payments on long-term debt (465,322) (6,600,083) (5,888,821)
Proceeds from initial public offering, net - 2,044,092 -
Proceeds from the sale of treasury stock - 641,075 6 049,775
Purchase of treasury stock - (7,468,038) (5,213,628)
Dividends (2,212,063) (892,793) (269,081)
---------- ---------- ----------
Net cash used in financing activities (2,677,385) (12,275,747) (1,321,755)
---------- ---------- ----------
Effect of exchange rate changes on cash 146,308 152,522 (396,665)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 14,939,043 5,025,246 (1,612,026)
Cash and cash equivalents at beginning of year 24,264,967 19,239,721 20,851,747
---------- ---------- ----------
Cash and cash equivalents at end of year $39,204,010 $24,264,967 $19,239,721
========== ========== ==========
Cash paid during the year for:
Interest $ 104,820 $ 309,939 $ 594,513
Income taxes 11,023,880 10,073,283 2,977,144
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
29
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include all foreign and domestic
subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents:
For purposes of the consolidated statement of cash flows, the Company considers
all investments purchased with a maturity of three months or less to be cash
equivalents. The carrying amount of cash and cash equivalents approximates
fair value due to the short-term maturities of these instruments. At
September 30, 1995, approximately $35,000,000 of the Company's cash and cash
equivalents were invested with two financial institutions.
Foreign Currency:
Balance sheet accounts for foreign subsidiaries are translated into U.S.
dollars at current exchange rates in effect at the balance sheet date. The
gains or losses that result from this process are shown in the cumulative
translation adjustment account in the shareholders' equity section of the
balance sheet. The revenue and expense accounts of foreign subsidiaries are
translated into U.S. dollars at the average exchange rates that prevailed
during the period.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis for Bronze and Graphic Systems inventories,
the first-in, first-out basis for Matthews Swedot AB inventories and the
average cost method for all other inventories.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation of machinery
and equipment is computed primarily on the straight-line method. Depreciation
of buildings is computed using both straight-line and declining balance
methods. Gains or losses from the disposition of assets are included in other
income or other deductions from income. The cost of maintenance and repairs is
charged against income as incurred. Renewals and betterments of a nature
considered to extend the useful lives of the assets are capitalized.
Other Assets:
Other assets principally include prepaid pension assets (see Note 9) and the
cash surrender value of life insurance, net of policy loans. No policy loans
were outstanding at September 30, 1995 and 1994.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Goodwill:
Goodwill, which represents the excess of cost over the estimated fair value of
net assets of acquired businesses, is amortized using the straight-line method
over periods of 10 and 20 years.
Income Taxes:
Deferred tax liabilities and assets are provided for the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to
reverse. Deferred income taxes for U.S. tax purposes have not been provided on
the undistributed earnings of foreign subsidiaries, as such earnings are
considered to be reinvested indefinitely. At September 30, 1995, undistributed
earnings for which deferred U.S. income taxes have not been provided
approximated $4,571,000. Determination of the amount of unrecognized U.S.
deferred tax liability on these unremitted earnings is not practical as any
taxes paid upon distribution to the Company would be offset, at least in part,
by foreign tax credits under U.S. tax regulations.
Research and Development Expenses:
Research and development costs are expensed as incurred and approximated
$2,138,000, $1,720,000 and $2,148,000 for the years ended September 30, 1995,
1994 and 1993, respectively.
Treasury Stock:
Treasury stock was carried at cost. The cost of treasury shares sold was
determined on the average cost of shares held at the beginning of each fiscal
year. During fiscal 1994, all treasury stock was retired (see Note 6).
Earnings Per Share:
Earnings per share is computed based on the weighted average number of shares
of common stock outstanding during the year.
Revenue Recognition:
Pre-need sales of cemetery lots, mausoleum spaces and cemetery products (e.g.,
memorials and vaults) and services are primarily made through installment
contracts with terms generally not exceeding 60 months. Revenues and costs are
recognized on the installment basis over the contract period. The costs to
provide cemetery products sold but uncompleted are reflected as estimated
cemetery costs. All other revenues of the Company are recognized at the time
of product shipment.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Reclassifications:
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the current year presentation.
2. INVENTORIES:
Inventories at September 30 consisted of the following:
1995 1994
---- ----
Materials and finished goods $ 9,209,411 $ 8,697,118
Labor and overhead in process 812,178 764,219
Supplies 618,907 540,557
Less LIFO reserve (298,673) (241,530)
---------- ----------
$10,341,823 $ 9,760,364
========== ==========
The LIFO method of determining cost was used to value approximately 34% and 36%
of inventories, before deducting LIFO reserves, at September 30, 1995 and 1994,
respectively.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related accumulated depreciation at
September 30 were as follows:
1995 1994
---- ----
Buildings $21,273,617 $22,537,078
Machinery and equipment 35,850,622 33,483,893
---------- ----------
57,124,239 56,020,971
Less accumulated depreciation 24,407,809 21,821,201
---------- ----------
32,716,430 34,199,770
Land 3,281,726 3,551,734
Construction in progress 2,023,621 497,772
---------- ----------
$38,021,777 $38,249,276
========== ==========
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
4. LONG-TERM DEBT:
The Company has a Revolving Credit and Term Loan Agreement. Under terms of the
agreement, the Company may borrow principal amounts up to $6,000,000 in the
aggregate at various interest rate options approximating current market rates.
The Revolving Credit and Term Loan Agreement requires the Company to maintain
minimum levels of consolidated working capital and tangible net worth. On
December 10, 1992, the Company borrowed $4,000,000 under this agreement which
was repaid during fiscal 1993. At September 30, 1995 and 1994, no amounts were
outstanding under this agreement.
During fiscal 1991, the Company converted all outstanding borrowings under the
Revolving Credit and Term Loan Agreement into a separate seven-year term loan.
All outstanding borrowings under the term loan were repaid in fiscal 1994.
Long-term debt at September 30, 1995 and 1994 of $703,557 and $1,168,879,
respectively, (which included $433,465 and $423,263, respectively, classified
as long-term debt, current maturities) consisted of obligations under capital
lease agreements. The Company maintains certain manufacturing and computer
equipment under capital lease agreements which expire in fiscal 1997 and
provide for renewal or purchase options. Future minimum lease payments under
these leases are $448,985 and $299,084 in fiscal 1996 and 1997, respectively,
which include an amount representing interest of $44,512.
Assets under capital leases are depreciated by the straight-line method over
the estimated useful lives of the assets. Cost and accumulated amortization of
assets under capital leases were $2,073,290 and $1,249,082, respectively, at
September 30, 1995 and $2,073,290 and $888,250, respectively, at September 30,
1994.
At September 30, 1995 and 1994, the Company had additional lines of credit of
$3,000,000 in U.S. dollars and $500,000 in Canadian dollars. These lines of
credit provide for borrowings at the banks' prime interest rates. The Company
has a foreign exchange line of credit of $200,000 for standby letters of credit
to support performance guarantees. The Company also maintains a multi-currency
line of credit with a bank for 6,000,000 French francs. The multi-currency
line of credit bears interest at various rates based on market as determined by
the bank. Compensating balances of approximately $45,000 and $270,000 were
maintained by the Company at September 30, 1995 and 1994, respectively, in
connection with the various lines of credit. There were no borrowings
outstanding on the various lines of credit at September 30, 1995 and 1994.
5. ESTIMATED CEMETERY COSTS AND ESTIMATED FINISHING COSTS:
Estimated cemetery costs represent current costs of providing various cemetery-
related products and services sold to customers on a pre-need basis. Estimated
costs for finishing have been provided for bronze memorials, vases and granite
bases which have been manufactured, sold to customers and placed in storage for
future delivery.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
6. SHAREHOLDERS' EQUITY:
On July 20, 1994, the Company and some of its shareholders completed an initial
public offering of 1,380,000 shares of its Class A Common Stock at an offering
price of $14 per share. Of the 1,380,000 shares, the Company sold 200,000
shares and the remaining 1,180,000 shares were sold by certain shareholders.
The proceeds to the Company, after deducting commissions and offering expenses,
were $2,044,092. The Company did not receive any of the proceeds from the sale
of 1,180,000 shares by the shareholders. Prior to the offering, no shares of
Class A Common Stock had been outstanding and there had been no established
public trading market for the Company's common stock.
Immediately prior to the offering, the Articles of Incorporation were amended
and restated to change the authorized common stock of the Company to
100,000,000 shares, divided into two classes consisting of 70,000,000 shares of
Class A Common Stock, $1 par value, and 30,000,000 shares of Class B Common
Stock, $1 par value. The Company previously had one class of common stock, par
value of $.10 per share, with 4,000,000 authorized shares. In connection with
such amendment, each share of the Company's common stock outstanding
immediately prior to the filing of the restated Articles of Incorporation
became, effective upon the filing of the restated Articles of Incorporation
with the Pennsylvania Secretary of State, fifteen shares of Class B Common
Stock. All treasury stock was retired. The consolidated financial statements
reflect the effects of this 15-for-1 common stock split for all periods
presented.
Shares of Class A Common Stock have one vote per share and are freely
transferable subject to applicable securities laws. Shares of Class B Common
Stock have ten votes per share and are only transferable by a shareholder to
the Company or to an active employee of the Company. The Company may, at its
discretion, purchase such shares at the fair market value per share of the
Company's Class A Common Stock or permit shareholders to tender such shares to
the Company in exchange for an equal number of shares of Class A Common Stock.
During fiscal 1995, 2,629,753 shares of Class B Common Stock were exchanged for
an equal number of shares of Class A Common Stock.
7. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES:
Notes receivable from officers and employees arise from purchases of common
stock by designated officers and employees under the Employees' Stock Purchase
Plan and, as of September 30, 1995 and 1994, included $1,575,269 and
$2,550,316, respectively, due from officers. Each note bears interest ranging
from 6.35% to 9% per annum (depending on the date of inception or renewal) and
is due five years from the date of its execution, which period may be, and in
some instances has been, extended by the Executive Committee. There are
516,450 shares of the Company's common stock owned by borrowers pledged as
collateral on the notes as of September 30, 1995.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
8. RESTRICTED STOCK PLAN:
Under the terms of the Company's Restricted Stock Plan, certain eligible,
specified managerial employees were granted restricted shares of the Company's
common stock from time to time in consideration of, and as an incentive to,
service and continued service by such employees. Increases in the value of
restricted shares were charged to operating expense as compensation and were
credited to restricted stock which, for financial statement presentation, was
included with additional paid-in capital. Effective October 1, 1992, the Board
of Directors of the Company terminated the plan and authorized the liquidation
of all participants' appreciated value thereunder. Liquidation of all
participants' appreciated value required a cash distribution of $13,847,914,
which resulted in an income tax benefit of approximately $5,300,000. The
distribution was made on December 10, 1992. The redemption of restricted
shares reduced total shares outstanding by 2,888,250 shares.
9. PENSION PLANS:
The Company maintains noncontributory, defined benefit pension plans covering
substantially all U.S. and Canadian employees. The plans provide benefits
based on years of service and average monthly earnings for the highest five
consecutive years during the ten years immediately preceding termination of
employment. The Company's funding policy for the plans is to contribute
annually the amount recommended by its consulting actuaries, subject to
statutory provisions. The Company has reached the full-funding limitation and,
accordingly, is not permitted to make deductible contributions for tax purposes
to its pension plans during periods of such excess funding. Consequently, no
contributions were made to the plans for the plan years ended July 31, 1995,
1994 and 1993.
In addition, the Company has a Supplemental Retirement Plan which provides for
supplemental pension benefits to certain executive officers of the Company.
Upon normal retirement under this plan, such individuals who meet stipulated
age and service requirements are entitled to receive monthly supplemental
retirement payments, in addition to their pension under the Company's
retirement plan, based on final average monthly earnings. Benefits under this
plan do not vest until age 55; the Supplemental Retirement Plan is unfunded.
Pension expense (income) included the following components:
1995 1994 1993
---- ---- ----
Service cost - benefits
earned during the year $ 1,675,738 $ 1,749,941 $ 1,573,741
Interest cost on projected
benefit obligation 3,007,169 2,854,976 2,767,771
Actual return on plan assets (6,701,003) (487,554) (3,905,865)
Net amortization and deferral 2,210,749 (4,035,874) (710,776)
--------- --------- ---------
Net pension expense (income) $ 192,653 $ 81,489 $ (275,129)
========= ========= =========
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
9. PENSION PLANS, continued:
The following table sets forth the funded status of the regular U.S. plan and
the Supplemental Retirement Plan and the amounts recognized in the Company's
consolidated financial statements at September 30, 1995 and 1994, which were
determined as of August 1, 1995 and 1994, respectively:
1995 1994
------------------------- -------------------------
Regular Supplemental Regular Supplemental
----------- ------------ ----------- ------------
Actuarial value of benefit obligation:
Vested benefit obligation $32,118,747 $ 1,425,529 $29,625,074 $ 1,274,971
========== ========= ========== =========
Accumulated benefit obligation $32,804,232 $ 1,504,739 $30,312,122 $ 1,376,709
========== ========= ========== =========
Plan assets at fair value, primarily
equity and fixed income securities $47,592,791 - $42,962,409 -
Projected benefit obligation for
participants' service rendered to date (39,555,653) (1,827,879) (36,949,388) (1,701,238)
---------- --------- ---------- ---------
Plan assets in excess of (less than)
projected benefit obligation 8,037,138 (1,827,879) 6,013,021 (1,701,238)
Unrecognized transition asset
being recognized over 15 years (2,018,976) - (2,422,770) -
Unrecognized prior service cost 984,418 373,697 1,082,820 423,981
Unrecognized net (gain) loss (3,254,116) 157,496 (959,879) 208,496
Adjustment to recognize minimum liability - (208,053) - (307,948)
---------- --------- ---------- ---------
Prepaid (accrued) pension $ 3,748,464 $(1,504,739) $ 3,713,192 $(1,376,709)
========== ========= ========== =========
Prepaid and accrued pension costs are included in other assets and deferred
revenue and other liabilities, respectively.
Actuarial assumptions are evaluated and revised as necessary as of August 1
each year. The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was 8.0% at
August 1, 1995 and 1994 and 7.5% at August 1, 1993. The rate of increase in
future compensation levels was 4.5% at August 1, 1995, 1994 and 1993. The
expected long-term rate of return on assets was 9.0% at August 1, 1995 and 1994
and 9.5% at August 1, 1993.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and life insurance benefits for
substantially all retired employees. These health and life insurance benefits
are unfunded and are provided through an insurance company. Employees are
assumed to be eligible for these retiree benefits generally after attaining age
55 where age plus years of service equal at least 75.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, continued:
Effective October 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Under SFAS No. 106, the Company
is required to accrue the estimated cost of retiree benefits, other than
pensions, ratably from the date of hire until the employee is eligible to
receive the benefits. The cost of these benefits were previously expensed by
the Company when claims were paid. The Company elected to immediately
recognize the cumulative effect of this change in accounting as a one-time
charge to earnings of $17,834,863 ($11,057,615 net of income tax benefit),
which represented the accumulated postretirement benefit obligation at
October 1, 1992.
Net periodic postretirement benefit cost included the following components:
1995 1994 1993
---- ---- ----
Service cost - benefits attributed to
employee service during the year $ 472,206 $ 477,630 $ 404,934
Interest cost on accumulated
postretirement benefit obligation 1,632,554 1,541,621 1,554,998
--------- --------- ---------
Net periodic postretirement benefit cost $2,104,760 $2,019,251 $1,959,932
========= ========= =========
The following table sets forth the plan's funded status reconciled with the
amount shown in the Company's balance sheet at September 30:
1995 1994
---- ----
Accumulated postretirement benefit obligation:
Retirees $12,035,710 $10,251,717
Fully eligible active plan participants 1,039,817 874,944
Other active plan participants 8,761,497 9,257,146
---------- ----------
21,837,024 20,383,807
Unrecognized prior service cost 504,562 -
Unrecognized net loss (1,284,717) (700,033)
---------- ----------
Accumulated postretirement benefit obligation $21,056,869 $19,683,774
Current portion 1,329,237 1,098,948
---------- ----------
$19,727,632 $18,584,826
========== ==========
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, continued:
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at September 30, 1995 and 1994 was 8.25%. The
rate for compensation increases at September 30, 1995 and 1994 was 4.5%.
For measurement purposes, a 7.6% annual rate of increase in the per capita cost
of health care benefits was assumed for 1996; the rate was assumed to decrease
gradually to 5.0% for 2003 and remain at that level thereafter. The health
care cost trend rate has a significant effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point in
each year would have increased the accumulated postretirement benefit
obligation as of September 30, 1995 by 10.4% and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the year then ended by 12.1%.
11. INCOME TAXES:
Effective October 1, 1992, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the use of the liability
method of accounting for deferred income taxes. Under this method, deferred
tax liabilities and assets are provided for the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates. The cumulative effect of adopting SFAS No. 109 as of October 1, 1992
was a $220,889 decrease in fiscal 1993 net loss.
The provision for income taxes consisted of the following:
1995 1994 1993
---- ---- ----
Current:
Federal $ 8,430,866 $ 8,325,741 $ 1,140,519
State 1,886,148 1,961,429 246,450
Foreign 624,294 505,671 482,945
---------- ---------- ---------
10,941,308 10,792,841 1,869,914
Deferred (1,313,280) (1,115,750) 4,748,629
---------- --------- ---------
Total $ 9,628,028 $ 9,677,091 $ 6,618,543
========== ========= =========
The Company's foreign subsidiaries had income (losses) before income taxes for
the years ended September 30, 1995, 1994 and 1993 of approximately $462,000,
$(788,000) and $9,000, respectively.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. INCOME TAXES, continued:
The components of the net deferred tax asset at September 30 were as follows:
1995 1994
---- ----
Deferred tax assets:
Accrued vacation pay $ 620,626 $ 622,769
Estimated finishing costs 714,999 638,119
Postretirement benefits other than pensions 8,212,179 7,676,671
Installment sales 1,092,937 1,017,177
Foreign subsidiary losses 1,186,821 691,275
Other 300,148 302,812
---------- ----------
12,127,710 10,948,823
---------- ----------
Deferred tax liabilities:
Pension costs (955,165) (1,030,299)
Depreciation (3,074,966) (3,090,627)
Deferred gain on sale of facilities (646,326) (668,512)
Deferred commissions (130,326) (151,738)
---------- ----------
(4,806,783) (4,941,176)
---------- ----------
Net deferred tax asset 7,320,927 6,007,647
Less current portion 718,531 699,596
---------- ----------
$ 6,602,396 $ 5,308,051
========== ==========
The components of the provision for deferred income taxes were as follows:
1995 1994 1993
---- ---- ----
Accrued vacation pay $ 2,143 $ (27,724) $ (22,729)
Estimated finishing costs (76,880) (67,559) (158,825)
Postretirement benefits other
than pensions (535,508) (395,494) (503,929)
Restricted stock plan - - 5,328,971
Installment sales (75,760) (135,972) (139,153)
Foreign subsidiary losses (495,546) (691,275) -
Pension costs (75,134) (31,905) 131,785
Depreciation (15,661) 256,366 130,521
Deferred gain on sale of facilities (22,186) (44,696) (68,036)
Other (18,748) 22,509 50,024
---------- ---------- ----------
$(1,313,280) $(1,115,750) $ 4,748,629
========== ========== ==========
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. INCOME TAXES, continued:
At September 30, 1995, the Company had foreign net operating loss carryforwards
of approximately $5,600,000, principally related to its European subsidiaries.
Approximately $700,000 of these carryforwards expire between 2000 and 2002,
while the remainder have an indefinite carryforward period. The Company has
recorded a valuation allowance of approximately $1,200,000 and $1,000,000,
respectively, at September 30, 1995 and 1994 related to the carryforwards.
The reconciliation of the federal statutory tax rate to the consolidated
effective tax rate is as follows:
1995 1994 1993
---- ---- ----
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Effect of state income taxes,
net of federal deduction 4.5 5.1 4.1
Foreign taxes in excess of
federal statutory rates ( .9) .4 2.7
Impact of tax rate changes - - ( .9)
Other ( .2) .3 (1.0)
---- ---- ----
Effective tax rate 38.4 % 40.8 % 39.9 %
==== ==== ====
During 1993, the maximum federal statutory tax rate increased to 35% for U.S.
Corporations with taxable income in excess of $10 million. This change in
enacted tax rates resulted in an increase in net deferred tax assets and a
reduction in fiscal 1993 income tax expense of $147,162.
12. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates various production and office facilities and equipment
under operating lease agreements expiring at various dates through 1997.
Annual rentals under these and other operating leases were $2,089,000,
$2,131,000 and $2,465,000 in 1995, 1994 and 1993, respectively. Minimum rental
commitments for future years are not material.
The Company is party to various legal proceedings generally incidental to its
business. The eventual outcome of these matters is not predictable, and it is
possible that their resolution could be unfavorable to the Company. Although
the ultimate disposition of these proceedings is not presently determinable,
management is of the opinion, based on the facts now known to it, that they
should not result in liabilities in an amount which would materially affect the
consolidated financial position or annual results of operations of the Company.
The Company was contingently liable as guarantor of employees' bank borrowings
for approximately $478,000 at September 30, 1994. Subsequent to the public
offering, the program ended in fiscal 1995 and the Company was no longer a
guarantor of any employees' bank borrowings at September 30, 1995.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in working capital items (excluding cash and cash equivalents, deferred
income taxes, long-term debt, current maturities and postretirement benefits,
current portion) consisted of the following:
1995 1994 1993
---- ---- ----
Current assets:
Accounts and notes receivable $ 1,392,991 $ 2,917,664 $ (196,402)
Inventories 581,459 (964,612) (1,402,750)
Other current assets (313,179) 250,391 (303,711)
--------- --------- ---------
1,661,271 2,203,443 (1,902,863)
--------- --------- ---------
Current liabilities:
Trade accounts payable 482,320 458,589 (775,431)
Accrued compensation (12,309) (46,463) 116,385
Accrued vacation pay (21,194) 245,241 226,162
Profit distribution to employees (333,407) 857,151 343,455
Accrued income taxes (82,572) 719,558 (1,041,087)
Customer prepayments 21,984 803,758 300,139
Other current liabilities 1,008,552 1,386,189 465,749
--------- --------- ---------
1,063,374 4,424,023 (364,628)
--------- --------- ---------
Net increase (decrease) $ 597,897 $(2,220,580) $(1,538,235)
========= ========= =========
14. STOCK OPTION PLAN:
The Company has a stock incentive plan which provides for the grant of
incentive stock options, nonstatutory stock options and restricted share
awards. The aggregate number of shares of the Company's common stock which may
be issued upon exercise of the stock options and pursuant to the restricted
share awards under the stock incentive plan is 600,000 shares. The option
price for each stock option which may be granted under the plan may not be less
than fair market value of the Company's common stock on the date of grant.
During fiscal 1995, by action of the Compensation Committee of the Company's
Board of Directors, certain officers and other management personnel were
granted nonstatutory stock options to purchase a combined total of 477,500
shares of the Company's Class A Common Stock. On December 9, 1994, options to
purchase 377,500 shares were granted at an exercise price of $14.25 per share.
Of these grants, options to purchase 58,000 shares had been cancelled by
September 30, 1995. On May 19, 1995, options to purchase 100,000 shares were
granted at an exercise price of $16.375 per share. The outstanding options are
exercisable in various share amounts based on the attainment of certain market
value levels of Class A Common Stock, but, in the absence of such events, are
exercisable in full for a one-week period beginning five years from the date of
grant. The options are not exercisable within six months from the date of
grant and expire on the earlier of ten years from the date of grant, upon
employment termination, or within specified time limits following voluntary
employment termination (with consent of the Company), retirement or death.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
15. SEGMENT INFORMATION:
Sales and operating profit of the Company's business segments were as follows:
Graphic Marking
Systems Products Bronze Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
Sales to unaffi-
liated customers:
1995 $42,360,000 $44,356,157 $80,031,624 - $166,747,781
1994 43,024,980 40,610,034 75,065,144 - 158,700,158
1993 39,309,853 41,183,302 70,601,150 - 151,094,305
Intersegment sales:
1995 33,610 211,040 18,975 $ (263,625) -
1994 37,289 179,940 22,954 (240,183) -
1993 55,996 173,857 321,623 (551,476) -
Operating profit:
1995 4,253,769 2,032,915 18,171,020 - 24,457,704
1994 5,083,101 1,318,281 17,507,558 - 23,908,940
1993 2,774,653 (473,101) 15,264,330 - 17,565,882
Information related to assets identifiable to segments is:
Graphic Marking
Systems Products Bronze Other Consolidated
---------- ---------- ---------- ---------- ------------
Identifiable assets:
1995 $19,545,364 $23,787,942 $36,096,768 $58,776,302 $138,206,376
1994 19,003,458 24,893,567 33,602,927 43,183,053 120,683,005
1993 18,769,096 24,752,763 31,170,858 35,876,224 110,568,941
Depreciation expense:
1995 1,049,438 999,435 1,590,125 572,218 4,211,216
1994 877,452 878,146 1,349,866 533,731 3,639,195
1993 743,855 821,118 1,232,275 502,515 3,299,763
Capital expenditures:
1995 1,868,994 931,116 2,909,655 266,499 5,976,264
1994 880,069 854,989 1,991,690 202,523 3,929,271
1993 1,216,323 744,107 1,913,629 1,047,416 4,921,475
Fiscal 1994 operating profit for the Marking Products segment reflected
unfavorable charges of approximately $450,000 representing inventory, currency
exchange and other adjustments of its Italian operation. Fiscal 1993 operating
profit for the Marking Products segment was unfavorably affected by charges of
approximately $1,800,000 in connection with inventory write-offs and other
adjustments, a provision for restructuring the segment's Canadian operations
and the impact of a change in the amortization period of goodwill for Matthews
Swedot AB.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
15. SEGMENT INFORMATION, continued:
Intersegment sales are accounted for at negotiated prices. Operating profit is
total revenue less operating expenses.
Identifiable assets include those assets which are used in the Company's
operations in each segment. Corporate headquarters' assets are included in
Other and principally consist of cash and cash equivalents and the
headquarters' administration building.
Information about the Company's operations in different geographic areas is as
follows:
United
States Canada Australia Europe Eliminations Consolidated
----------- --------- --------- ---------- ------------ ------------
Sales to unaffi-
liated customers:
1995 $135,078,165 $8,044,331 $9,710,776 $13,914,509 - $166,747,781
1994 133,037,135 7,637,341 8,324,132 9,701,550 - 158,700,158
1993 125,945,611 7,752,795 7,517,017 9,878,882 - 151,094,305
Transfers between
geographic areas:
1995 7,581,885 260,007 - 2,280,101 $(10,121,993) -
1994 6,540,921 304,046 - 1,869,722 (8,714,689) -
1993 5,681,394 341,482 - 2,050,784 (8,073,660) -
Operating profit:
1995 23,505,940 (228,905) 1,491,977 (311,308) - 24,457,704
1994 24,250,415 (155,309) 1,492,069 (1,678,235) - 23,908,940
1993 17,594,263 (267,198) 1,338,729 (1,099,912) - 17,565,882
Identifiable
assets:
1995 130,465,301 5,261,030 8,558,234 14,362,677 (20,440,866) 138,206,376
1994 115,426,107 5,266,413 7,943,970 12,780,753 (20,734,238) 120,683,005
1993 106,704,160 5,661,038 6,456,320 10,722,790 (18,975,367) 110,568,941
43
SUPPLEMENTARY FINANCIAL INFORMATION
Selected Quarterly Financial Data (Unaudited):
The following table sets forth certain items included in the Company's
unaudited consolidated financial statements for each quarter of fiscal 1995 and
fiscal 1994.
Quarter Ended
----------------------------------------------------- Year Ended
December 31 March 31 June 30 September 30 September 30
----------- ----------- ----------- ------------ ------------
FISCAL YEAR 1995:
Sales $40,085,805 $42,085,583 $42,729,909 $41,846,484 $166,747,781
Gross profit 18,363,567 18,905,291 19,141,451 18,318,958 74,729,267
Operating profit 6,363,694 6,349,380 6,357,717 5,386,913 24,457,704
Net income 3,909,665 4,080,628 4,142,376 3,318,566 15,451,235
Earnings per share .44 .46 .47 .38 1.75
FISCAL YEAR 1994:
Sales $37,981,327 $39,734,580 $40,644,593 $40,339,658 $158,700,158
Gross profit 17,078,248 17,696,966 18,122,874 18,715,621 71,613,709
Operating profit 6,199,958 6,285,722 5,939,981 5,483,279 23,908,940
Net income 3,616,840 3,716,148 3,390,631 3,304,547 14,028,166
Earnings per share .38 .42 .39 .37 1.56
/TABLE
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in accountants or disagreements on accounting or
financial disclosure between the Company and Coopers & Lybrand L.L.P.,
Certified Public Accountants, for the fiscal years ended September 30, 1995,
1994 and 1993.
45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information as of November 30, 1995 is furnished with respect to
each director and executive officer:
Name Age Positions with Registrant
- ---- --- -------------------------
William M. Hauber 66 Chairman of the Board
David M. Kelly 53 President and Chief Executive
Officer
Geoffrey D. Barefoot 48 President, Graphic Systems
Division and Director
Edward J. Boyle 49 Controller
William A. Coates 66 Director
David J. DeCarlo 50 President, Bronze Division
and Director
Richard C. Johnson 49 Vice President, Corporate
Development and Human Resources
Thomas N. Kennedy 60 Senior Vice President, Chief
Financial Officer and
Treasurer and Director
George C. Oehmler 69 Director
John P. O'Leary, Jr. 48 Director
James L. Parker 57 Senior Vice President, General
Counsel and Secretary and Director
William J. Stallkamp 56 Director
William M. Hauber, a Director of the Company since 1973, was elected Chairman
of the Board in December 1987, was President and Chief Executive Officer from
1981 through 1992 and had been Chief Executive Officer from January 1993 until
his retirement as an officer of the Company on October 1, 1995. Mr. Hauber is
expected to continue as a director of the Company.
David M. Kelly was appointed President and Chief Operating Officer of the
Company in April 1995 and President and Chief Executive Officer effective
October 1, 1995. He was appointed as a Director of the Company in May 1995.
Prior to joining the Company, he worked for Carrier Corporation as Senior Vice
President from 1993 to 1995; Vice President, Strategic Planning and Global
Purchasing from 1992 to 1993; President, North American Operations from 1990 to
1992; and Vice President, Manufacturing - North American Operations prior
thereto.
46
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, continued.
Geoffrey D. Barefoot, a Director of the Company since 1990, was elected
President, Graphic Systems Division in November 1993. Prior thereto, he was
Vice President and Division Manager, Graphic Systems beginning in March 1988.
Edward J. Boyle was elected Controller in January 1991 and was Manager,
Accounting and Taxes of the Company prior thereto. Effective December 1, 1995,
Mr. Boyle has been appointed to the position of Vice President, Accounting &
Finance.
William A. Coates, a Director of the Company since 1992, retired in 1989 as
Executive Vice President, Technology, Quality and Operations Services,
Westinghouse Electric Corporation.
David J. DeCarlo, a Director of the Company since 1987, was elected President,
Bronze Division in November 1993. Prior thereto, he was Senior Vice President
and Division Manager of Bronze beginning in January 1991 and Vice President and
Division Manager of Bronze beginning in March 1986.
Richard C. Johnson was elected Vice President, Corporate Development and Human
Resources in December 1991. He was Manager of Corporate Development and Human
Resources beginning in May 1991 and Manager of Corporate Development prior
thereto.
Thomas N. Kennedy, a Director of the Company since 1987, was elected Senior
Vice President, Chief Financial Officer and Treasurer in January 1991. Prior
thereto, he was Vice President - Treasurer beginning in March 1986.
Mr. Kennedy retired as an officer of the Company effective December 1, 1995,
but is expected to continue as a Director.
George C. Oehmler, a Director of the Company since 1982, is President, Director
and member of the Executive Committee of the World Affairs Council of
Pittsburgh. He retired in 1986 as Corporate Vice President of Allegheny
International, Inc. Mr. Oehmler passed away December 10, 1995.
John P. O'Leary, Jr., a Director of the Company since 1992, has been President
and Chief Executive Officer of Tuscarora, Incorporated, a plastics
manufacturer, since 1990. Prior thereto, he was President - Western Region of
such company. Mr. O'Leary is also a director of First Western Bancorp, Inc.
James L. Parker, a Director of the Company since 1981, was elected Senior Vice
President, General Counsel and Secretary in January 1991. Prior thereto, he was
Vice President, General Counsel and Secretary beginning in 1976.
William J. Stallkamp, a Director of the Company since 1981, is an Executive
Vice President of Mellon Bank, N.A. See "Certain Relationships and Related
Transactions."
47
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, continued.
Board Committees:
The Executive Committee is appointed by the Board of Directors to have and
exercise during the periods between Board meetings all of the powers of the
Board of Directors, except that the Executive Committee may not elect
directors, change the membership of or fill vacancies in the Executive
Committee, change the By-Laws of the Company or exercise any authority
specifically reserved by the Board. The membership of the Executive Committee
since October 1, 1994 consisted of the following:
October 1, 1994 to October 1, 1995 Messrs. Hauber, Parker and Kennedy
October 1, 1995 to December 1, 1995 Messrs. Kelly, Parker, Kennedy,
DeCarlo and Barefoot
December 1, 1995 to the date of Messrs. Kelly, Parker, DeCarlo and
this report Barefoot
The principal function of the Audit Committee, the members of which are Messrs.
Stallkamp (Chairman), Oehmler and O'Leary, is to endeavor to assure the
integrity and adequacy of financial statements issued by the Company. It is
intended that the Audit Committee will review internal auditing systems and
procedures as well as the activities of the public accounting firm performing
the external audit.
The principal function of the Compensation Committee, the members of which are
Messrs. Coates (Chairman), Oehmler and Stallkamp, and, beginning October 1,
1995, Mr. Hauber, is to review periodically the suitability of the remuneration
arrangements (including benefits) for the principal officers of the Company and
to administer the Company's 1992 Stock Incentive Plan.
Compliance with Section 16(a) of the Securities Exchange Act:
On June 2, 1995, David M. Kelly filed an amended Form 3 with the Securities and
Exchange Commission, reporting ownership of the Company's stock as of his
employment commencement date, April 3, 1995. Former officer and director,
R.T. Busteed also did not file with the Company a Form 5 with respect to his
stock options. Apart from such matters, the Company is aware of no delinquent
filings of Securities and Exchange Commission Forms 3, 4 or 5 during the period
September 30, 1994 through November 30, 1995 by any holder of the registrant's
equity securities.
48
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the individual compensation information for the
fiscal years ended September 30, 1995, 1994 and 1993 for the Company's Chief
Executive Officer and the four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
----------------- -----------------------
Awards Payouts
------ ------- All
Securities Other
Name of Individual Underlying LTIP Compen-
and Principal Position Year Salary Bonus Options Payouts sation
- ---------------------- ---- ------- ------- ---------- --------- -------
(1) (2) (Shares) (3) (4)
William M. Hauber (5) 1995 $305,070 $276,700 None None $546,285
Chairman of the Board and 1994 290,256 275,085 None None 474,639
Chief Executive Officer 1993 286,500 165,278 None $3,333,480 329,956
David M. Kelly (6) 1995 $125,004 $ 94,233 100,000 None None
Director, President and
Chief Operating Officer
David J. DeCarlo 1995 177,636 162,132 43,000 None 3,851
Director and President, 1994 169,224 161,168 None None 3,408
Bronze Division 1993 162,756 130,961 None 1,219,870 3,158
James L. Parker 1995 143,580 111,633 33,000 None 424,311
Director, Senior Vice 1994 139,296 121,430 None None 375,478
President, General 1993 137,694 80,593 None 2,369,351 260,496
Counsel and Secretary
Thomas N. Kennedy (7) 1995 136,884 97,304 33,000 None 106,991
Director, Senior Vice 1994 128,892 102,178 None None 93,952
President, Chief Financial 1993 127,413 72,175 None 1,664,545 65,462
Officer and Treasurer
(1) Includes salaries. Also includes directors' fees for fiscal year 1993.
(2) Includes management incentive plan and supplemental management incentive payments and,
for Mr. Kelly, an amount equal to his life insurance premium cost. At his request, the
Company does not provide life insurance for Mr. Kelly, but in lieu thereof pays to him
annually the amount which the Company would have paid in premiums to provide coverage,
considering his position and age. Such amonuts are not included in calculating other
Company benefits for Mr. Kelly. The amount paid to Mr. Kelly in lieu of life insurance
for 1995 was $4,100. The Company has adopted a management incentive plan for officers
and key management personnel. Participants in such plan are not eligible for the
Company's profit distribution plan. The incentive plan is based on attainment of
established personal goals and on divisional and Company performance for the fiscal
year. In addition, payments include a supplement in amounts which are sufficient to
pay annual interest expense on the outstanding notes of management under the Company's
Designated Employee Stock Purchase Plan and to pay medical costs which are not otherwise
covered by a Company plan. As of the date of the Company's Initial Public Offering
(July 20, 1994), no further notes have been issued under the Designated Employee Stock
Purchase Plan.
49
ITEM 11. EXECUTIVE COMPENSATION, continued.
(3) Represents distribution of all appreciation accumulated under the Company's Restricted
Stock Plan during the six-year period that the Plan was in effect. On December 4, 1992,
the Board of Directors of the Company terminated the Restricted Stock Plan, which had
been in effect since 1986, and all risks of forfeiture thereunder and authorized the
liquidation of all participants' accrued value under the Plan. As provided by the
Restricted Stock Plan, restricted share value was limited to the difference between
book value at September 30, 1992 of $7.45 per share and base price per share. The
distribution was made on December 10, 1992 and did not impact fiscal 1993 earnings
because the appreciation had been accrued in the previous six years. Redemption of
restricted shares reduced total outstanding shares of the Company's common stock by
2,888,250 shares. If the Restricted Stock Plan had not been terminated, the fiscal
1993 pre-tax earnings of the Company would have been approximately $1.5 million lower
and its Consolidated Adjusted Book Value would have decreased concurrently.
(4) Includes stock appreciation right benefits, educational assistance for dependent
children and premiums for term life insurance. Messrs. Hauber, Parker and Kennedy
previously have exchanged a portion of their respective common stock shareholdings
for an equivalent number of stock appreciation rights, pursuant to which the Company
credits and pays annually an amount equal to the participation value of all units so
acquired. Participation value of each unit is the amount of earnings per share of
common stock adjusted to account for retiree benefits on a cash basis, calculated on
the basis of the weighted average number of unrestricted shares outstanding during the
fiscal year. Stock appreciation right benefits expire upon retirement or death. Each
officer of the Company is provided term life insurance coverage in an amount
approximately equivalent to three times his respective salary. Amounts reported in
this column for the named officers in fiscal 1995, 1994 and 1993 include the following
respective life insurance benefit costs: Mr. Hauber, $17,193, $5,932 and $5,408;
Mr. DeCarlo, $1,851, $2,408 and $2,158; Mr. Parker, $3,135, $2,371 and $2,144; and
Mr. Kennedy, $3,491, $2,264 and $1,974. Educational assistance for dependent children
is provided to any officer or employee of the Company whose child meets the scholastic
eligibility criteria and is attending an eligible college or university. Mr. DeCarlo
received educational assistance benefits of $2,000 in fiscal 1995 and $1,000 in fiscal
1994 and 1993. See also note (2).
(5) Mr. Hauber retired as Chief Executive Officer effective October 1, 1995, but is expected to
continue as a director.
(6) Mr. Kelly joined the Company on April 3, 1995 and was elected Chief Executive Officer
effective October 1, 1995. Mr. Kelly has an employment arrangement with the Company which
provides that, in the event of his discharge without cause prior to April 3, 1998, he will
receive additional compensation of double his annual base salary rate as of the discharge
date. Such arrangement further provides for the life insurance payments described in
note (2) above and the waiver of minimum service for vesting purposes described below under
"Retirement Plan."
(7) Mr. Kennedy retired as an officer December 1, 1995, but is expected to continue as a
director.
The Summary Compensation Table does not include expenses to the Company of
incidental benefits of a limited nature to executive officers including use of
Company vehicles, club memberships, dues, or tax planning services. The
Company believes such incidental benefits are in the conduct of the Company's
business, but, to the extent such benefits and use would be considered personal
benefits, the value thereof is not reasonably ascertainable and does not
exceed, with respect to any individual named in the compensation table, the
lesser of $50,000 or 10% of the annual compensation reported in such table.
50
ITEM 11. EXECUTIVE COMPENSATION, continued.
Option / SAR Grants in Last Fiscal Year
Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------- ----------------------
Percent
of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year per Share Date 5% 10%
- -------------- ---------- ---------- --------- ---------- -------- --------
W.M. Hauber None -- -- -- -- --
D.M. Kelly 100,000 20.9% $16.375 5/19/05 $1,029,800 $2,609,800
D.J. DeCarlo 43,000 9.0% $14.25 12/9/04 385,366 $976,573
J.L. Parker 33,000 6.9% $14.25 12/9/04 295,746 749,463
T.N. Kennedy (2) 33,000 6.9% $14.25 12/9/04 197,164 499,642
(1) All options were granted at market value as of the date of grant. Options are exercisable
in various share amounts based on the attainment of certain market value levels of Class A
Common Stock, but, in the absence of such events, are exercisable in full for a one-week
period beginning five years from the date of grant. The options are not exercisable within
six months from the date of grant and expire on the earlier of ten years from the date of
grant, upon employment termination, or within specified time limits following voluntary
employment termination (with consent of the Company), retirement or death.
(2) In accordance with plan provisions, options for 11,000 shares were cancelled effective with
Mr. Kennedy's retirement on December 1, 1995.
Retirement Plan:
The Company's domestic retirement plan is noncontributory and provides benefits
based upon length of service and final average earnings. Generally, employees
age 21 with one year of continuous service are eligible to participate in the
retirement plan. The benefit formula is 3/4 of 1% of the first $550 of final
average monthly earnings plus 1-1/4% of the excess times years of credited
service (maximum 35). The plan is an insured, defined benefit plan and covered
compensation is limited generally to base salary or wages. Benefits are not
subject to any deduction or offset for Social Security.
51
ITEM 11. EXECUTIVE COMPENSATION, continued.
In addition to benefits provided by the Company's retirement plan, the Company
has a Supplemental Retirement Plan, which provides for supplemental pension
benefits to executive officers of the Company designated by the Board of
Directors, including those named in the Summary Compensation Table. Upon
normal retirement under this plan, such individuals who meet stipulated age and
service requirements are entitled to receive monthly supplemental retirement
payments which, when added to their pension under the Company's retirement plan
and their maximum anticipated Social Security primary insurance amount, equal,
in total, 1.85% of final average monthly earnings (including incentive
compensation) times the individual's years of continuous service (subject to a
maximum of 35 years). Upon early retirement under this plan, reduced benefits
will be provided, depending upon age and years of service. Benefits under this
plan do not vest until age 55 and the attainment of 15 years of continuous
service. However, in order to recruit Mr. Kelly, the Company waived such
minimum service requirement with respect to Mr. Kelly. No benefits will be
payable under such supplemental plan following the voluntary employment
termination or death of any such individual. The Supplemental Retirement Plan
is unfunded; however, a provision has been made on the Company's books for the
actuarially computed obligation.
The following table shows the total estimated annual retirement benefits
payable at normal retirement under the above plans for the individuals named in
the Summary Compensation Table at the specified executive remuneration and
years of continuous service:
Years of Continuous Service
Covered ----------------------------------------------------
Remuneration 15 20 25 30 35
- ------------------ -------- -------- -------- -------- --------
$125,000 $ 34,688 $ 46,250 $ 57,813 $ 69,375 $ 80,938
150,000 41,625 55,500 69,375 83,250 97,125
175,000 48,563 64,750 80,938 97,125 113,313
200,000 55,500 74,000 92,500 111,000 129,500
225,000 62,438 83,250 104,063 124,875 145,688
250,000 69,375 92,500 115,625 138,750 161,875
300,000 83,250 111,000 138,750 166,500 194,250
400,000 111,000 148,000 185,000 222,000 259,000
450,000 124,875 166,500 208,125 249,750 291,375
500,000 138,750 185,000 231,250 277,500 323,750
The table shows benefits at the normal retirement age of 65, before applicable
reductions for social security benefits. The Employee Retirement Income
Security Act of 1974 places limitations, which may vary from time to time, on
pensions which may be paid under federal income tax qualified plans, and some
of the amounts shown on the foregoing table may exceed the applicable
limitation. Such limitations are not currently applicable to the Company's
supplemental retirement plan.
Estimated years of continuous service for each of the individuals named in the
Summary Compensation Table, as of October 1, 1995 and rounded to the next
higher year, are: Mr. Hauber, 35 years; Mr. Kelly, 1 year; Mr. DeCarlo,
11 years; Mr. Parker, 29 years; and Mr. Kennedy, 24 years.
52
ITEM 11. EXECUTIVE COMPENSATION, continued.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
The Company's Compensation Committee consists entirely of directors who are not
officers of or employed by the Company, namely Messrs. Coates, Oehmler and
Stallkamp, and, beginning October 1, 1995, Mr. Hauber. Until such date, Mr.
Hauber was an officer of the Company. See "Certain Relationships and Related
Transactions."
COMPENSATION OF DIRECTORS:
A fee plan for directors of the Company was approved by the shareholders at the
annual meeting held February 17, 1995. Pursuant to such plan, directors who
are not also officers of the Company receive 800 shares of the Company's Class
A Common Stock as an annual retainer fee. Each director may elect to be paid
these shares on a current basis or have such shares credited to a deferred
stock account as phantom stock. In addition, each such director is paid $800
for every meeting of the Board of Directors attended and (other than a
Chairman) $500 for every committee meeting attended. The Chairman of a
committee of the Board of Directors is paid $700 for every committee meeting
attended. No other remuneration is otherwise paid by the Company to any
director for services as a director.
Prior to fiscal year 1995, directors who were not also officers of the Company
were paid directors' fees of $12,000 per year. Members of the Audit and
Compensation Committees who were not also officers of the Company received $100
for each meeting of such committee held in conjunction with a meeting of the
Board of Directors and $250 for each meeting of such committee held otherwise.
No other remuneration was otherwise paid by the Company to any director for
services as a director. Prior to and during fiscal year 1993, directors who
were also officers of the Company were paid directors' fees of $5,250 per year.
For fiscal 1994 and thereafter, such directors are no longer paid directors'
fees.
53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a)(b) Security Ownership of Certain Beneficial Owners and Management
The Company's Articles of Incorporation divide its voting stock into three
classes: Preferred Stock and Class A and Class B Common Stock. At the present
time, none of the Preferred Stock is issued or outstanding. The following
information is furnished with respect to persons who the Company believes,
based on its records, beneficially own more than five percent of the
outstanding shares of Class A and Class B Common Stock of the Company, and with
respect to directors and officers. Those individuals with more than five
percent of such shares could be deemed to be "control persons" of the Company.
This information is as of November 30, 1995.
Number of Number of
Class A Shares Class B Shares
Name of Beneficially Percent Beneficially Percent
Beneficial Owner (1) Owned (2) of Class Owned (2) of Class
- ---------------- -------------- -------- -------------- --------
Directors and Officers:
- ----------------------
W.M. Hauber (3) 473,675 9.5% None -
D.M. Kelly 17,000 0.3 23,000 0.6%
G.D. Barefoot None - 104,500 2.7
W.A. Coates 11,700 0.2 None -
D.J. DeCarlo None - 194,995 5.0
T.N. Kennedy (3) 145,490 2.9 None -
G.C. Oehmler 500 * None -
J.P. O'Leary, Jr. 5,000 0.1 None -
J.L. Parker (3) 45,000 0.9 672,760 17.3
W.J. Stallkamp 2,000 * None -
All directors and
officers as a group 704,865 14.9 1,129,505 29.0
Other:
- -----
W. Witte None - 267,840 6.9
* Less than 0.1%
(1) The mailing address of each beneficial owner is the same as that of the
Registrant.
(2) The nature of the beneficial ownership for all shares is sole voting and
investment power, except those of Mr. Oehmler, whose shares were owned
jointly with his spouse, and as to which voting and investment power were
shared. Mr. Oehmler passed away on December 10, 1995.
(3) On November 22, 1995, a Registration Statement on Form S-3 was filed with
the Securities and Exchange Commission on behalf of Messrs. Hauber,
Kennedy and Parker for the sale of 800,000 shares of Class A Common Stock.
Of the 800,000 shares, 600,000 shares are being offered by Mr. Parker,
100,000 shares are being offered by Mr. Hauber and 100,000 shares are
being offered by Mr. Kennedy. As of December 15, 1995, the sale of such
shares had not occurred.
54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
continued.
(c) Changes in Control:
The Company knows of no arrangement which may, at a subsequent date, result in
a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Securities and Exchange Commission requires disclosure of certain business
transactions or relationships between the Company, or its subsidiaries, and
other organizations with which any of the Company's directors are affiliated as
an owner, partner, director, officer or employee. Briefly, disclosure is
required where such a business transaction or relationship meets the standards
of significance established by the Securities and Exchange Commission with
respect to the types and amounts of business transacted. The Company is aware
of no transaction requiring disclosure pursuant to this item during the past
fiscal year except as stated herein. Mellon Bank, N.A., of which Mr. Stallkamp
is an officer, is the Company's principal bank. During the past year, the
Company engaged in banking transactions with such bank, and it is anticipated
that the Company may make secured or unsecured loans and engage in other
banking transactions with Mellon Bank, N.A. in the future.
The Company has a Revolving Credit and Term Loan agreement with Mellon Bank,
N.A. Under terms of the agreement, the Company may borrow principal amounts up
to $6 million at various interest rate options approximating current market
rates. The Revolving Credit and Term Loan agreement requires the Company to
maintain minimum levels of consolidated working capital and tangible net worth.
This agreement will expire March 31, 1996 unless extended by the parties. At
November 30, 1995, no amounts were outstanding under this agreement.
The Company also had a seven-year Term Loan Agreement with Mellon Bank, N.A.
During fiscal 1994, the outstanding balance under the Term Loan Agreement was
repaid. See Note 4 of the Notes to Consolidated Financial Statements.
The following officers and directors were indebted to the Company on notes
carrying annual interest rates of not less than 6.5% or more than 8% (depending
on the date of inception or renewal) which were issued under the Company's
Designated Employee Stock Purchase Plan, as referred to in Note 7 of the Notes
to Consolidated Financial Statements:
Highest Amount
Outstanding During Amount
the Year Ended Outstanding at
September 30, 1995 November 30, 1995
------------------ -----------------
Geoffrey D. Barefoot $ 254,536 $ 188,351
Edward J. Boyle 149,338 108,085
David J. DeCarlo 676,887 530,182
Richard C. Johnson 181,446 131,861
Thomas N. Kennedy 309,845 None
James L. Parker 575,280 287,684
The Company has annually made supplemental management incentive payments to
officers and other employees indebted on such notes in amounts equal to the
interest paid by such persons on their respective notes. Since the date of the
Company's Initial Public Offering (July 20, 1994), no further notes have been
issued under the Designated Employee Stock Purchase Plan.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following items are included in Part II, Item 8:
Pages
-----
Independent Auditor's Report 23
Consolidated Balance Sheet 24-25
Consolidated Statement of Income 26
Consolidated Statement of Shareholders' Equity 27
Consolidated Statement of Cash Flows 28
Notes to Consolidated Financial Statements 29-42
Supplementary Financial Information 43
2. Financial Statement Schedules:
Financial statement schedules have been omitted for the reason that the
information is not required or is otherwise given in the consolidated financial
statements and notes thereto.
3. Exhibits Filed:
The index to exhibits is on pages 58-60.
(b) Reports on Form 8-K:
None
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on December 14, 1995.
MATTHEWS INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
By David M. Kelly
----------------------------------
David M. Kelly, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 14, 1995:
Signature Title
--------- -----
David M. Kelly President and Chief Executive Officer
- ---------------------------------- and Director (Principal Executive
David M. Kelly Officer)
Edward J. Boyle Vice President, Accounting and Finance
- ---------------------------------- (Principal Accounting Officer)
Edward J. Boyle
William M. Hauber Chairman of the Board
- ----------------------------------
William M. Hauber
Geoffrey D. Barefoot Director
- ----------------------------------
Geoffrey D. Barefoot
William A. Coates Director
- ----------------------------------
William A. Coates
57
David J. DeCarlo Director
- ----------------------------------
David J. DeCarlo
Thomas N. Kennedy Director
- ----------------------------------
Thomas N. Kennedy
Director
- ----------------------------------
John P. O'Leary, Jr.
James L. Parker Director
- ----------------------------------
James L. Parker
William J. Stallkamp Director
- ----------------------------------
William J. Stallkamp
58
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS
INDEX
----------
The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated by reference. Exhibits marked with an "a"
represent a management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------
3.1 Restated Articles of Incorporation * Exhibit Number 3.1 to Form
10-K for the year ended
September 30, 1994
3.2 By-laws * Exhibit Number 3.2 to Form
10-K for the year ended
September 30, 1994
4.1 a Form of Employee Stock Purchase Exhibit Number 4.1 to Form
Agreement Entered into by 10-K for the year ended
Designated Key Employees * September 30, 1983
4.2 a Form of Employee Stock Purchase Exhibit Number 4.2 to Form
Agreement Entered into by 10-K for the year ended
Designated Key Employees September 30, 1993
(effective October 1, 1993) *
4.3 a Representative Form of Option Exhibit Number 10.2 to Form
Agreement of Repurchase * S-2 Registration Statement
(No. 33-79538) filed on
June 1, 1994
4.4 a Form of Revised Option Agreement Exhibit Number 4.2 to Form
of Repurchase * 10-K for the year ended
September 30, 1983
4.5 a Form of Revised Option Agreement Exhibit Number 4.5 to Form
of Repurchase (effective 10-K for the year ended
October 1, 1993) * September 30, 1993
4.6 a Employees' Stock Purchase Plan * Exhibit Number 4.6 to Form
10-K for the year ended
September 30, 1993
4.7 a Restricted Stock Plan * Exhibit Number 4.5 to Form
10-K for the year ended
September 30, 1987
4.8 a Form of Option Agreement of Exhibit Number 4.6 to Form
Repurchase - Restricted Stock Plan * 10-K for the year ended
September 30, 1987
59
INDEX, Continued
----------
Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------
4.9 Form of Share Certificate for Exhibit Number 4.9 to Form
Class A Common Stock * 10-K for the year ended
September 30, 1994
4.10 Form of Share Certificate for Exhibit Number 4.10 to Form
Class B Common Stock * 10-K for the year ended
September 30, 1994
10.1 a Supplemental Retirement Agreement Exhibit Number 10.1 to Form
between the Registrant and Thomas F. 10-K for the year ended
Purner, Jr., dated July 6, 1983 * September 30, 1983
10.2 a Form of Stock Appreciation Right Exhibit Number 10.2 to Form
Agreement * 10-K for the year ended
September 30, 1983
10.3 a Form of Agreement which amends the Exhibit Number 19.1 to Form
Option Agreement of Repurchase with 10-Q for the quarter ended
Respect to Major Shareholders * March 31, 1988
10.4 Revolving Credit and Term Loan Exhibit Number 10.7 to Form
Agreement * 10-K for the year ended
September 30, 1986
10.5 a Supplemental Retirement Plan * Exhibit Number 10.8 to Form
10-K for the year ended
September 30, 1988
10.6 Term Loan Agreement and Promissory Exhibit Number 10.9 to Form
Note * 10-K for the year ended
September 30, 1991
10.7 a Form of Termination Agreement - Exhibit Number 10.8 to Form
Restricted Stock Plan * 10-K for the year ended
September 30, 1992
10.8 a Written Description of Matthews Exhibit Number 10.9 to Form
International Corporation Management 10-K for the year ended
Incentive Compensation Plan * September 30, 1992
10.9 a 1992 Stock Incentive Plan * Exhibit Number 10.9 to Form
S-2 Registration Statement
(No. 33-79538) filed on
June 1, 1994
10.10a Form of Stock Option Agreement * Exhibit Number 10.1 to Form
10-Q for the quarter ended
December 31, 1994
60
INDEX, Continued
----------
Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------
10.11a 1994 Director Fee Plan * Exhibit Number 10.1 to Form
10-Q for the quarter ended
March 31, 1995
10.12a 1994 Employee Stock Purchase Plan * Exhibit Number 10.2 to Form
10-Q for the quarter ended
March 31, 1995
11 Computation of Earnings Per Share Filed Herewith
21 Subsidiaries of the Registrant Filed Herewith
23 Consent of Independent Public Filed Herewith
Accountants
99 Annual Report on Form 11-K:
Employee Stock Purchase Plan Filed Herewith
Copies of any Exhibits will be furnished to shareholders upon written request.
Requests should be directed to Mr. James L. Parker, Senior Vice President,
General Counsel and Secretary of the Registrant.