UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 20192020
or   
☐☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____

Commission File No. 0-09115

MATTHEWS INTERNATIONAL CORPORATIONCORPORATION
(Exact name of registrant as specified in its charter)

Pennsylvania25-0644320
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
Two Northshore Center,PennsylvaniaPittsburgh,PA15212‑585125-0644320
(AddressState or other jurisdiction of principal executive offices)
incorporation or organization)		(Zip Code)
(412)442-8200
(Registrant's telephone number, including area code)
I.R.S. Employer
Identification No.)

NOT APPLICABLETwo Northshore Center, Pittsburgh, PA 15212-5851
(Address of principal executive offices) (Zip Code)

(412) 442-8200
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, $1.00 par valueMATWNasdaq Global Select Market

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 ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ý
Accelerated filer☐
Non-accelerated filer ☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes ☐ No ý

As of June 30, 2019,2020, shares of common stock outstanding were: Class A Common Stock 31,488,45931,264,907 shares.



PART I ‑ FINANCIAL INFORMATION
Item 1.   Financial Statements
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)
 June 30, 2020September 30, 2019
ASSETS    
Current assets:    
Cash and cash equivalents $42,904   $35,302  
Accounts receivable, net 271,238   318,756  
Inventories, net 182,351   180,274  
Other current assets 73,175   49,384  
Total current assets 569,668   583,716  
Investments 62,068   85,501  
Property, plant and equipment, net 239,070   237,442  
Deferred income taxes 4,756   5,032  
Other assets 105,793   31,455  
Goodwill 756,056   846,807  
Other intangible assets, net 347,205   400,650  
Total assets $2,084,616   $2,190,603  
LIABILITIES    
Current liabilities:    
Long-term debt, current maturities $23,114   $42,503  
Trade accounts payable 75,654   74,558  
Accrued compensation 43,300   42,545  
Accrued income taxes 3,044   5,997  
Other current liabilities 159,920   114,276  
Total current liabilities 305,032   279,879  
Long-term debt 837,770   898,194  
Accrued pension 139,046   133,762  
Postretirement benefits 19,880   19,963  
Deferred income taxes 92,707   102,482  
Other liabilities 88,439   37,087  
Total liabilities 1,482,874   1,471,367  
SHAREHOLDERS' EQUITY    
Shareholders' equity-Matthews:    
Common stock$36,334   $36,334   
Additional paid-in capital145,814   137,774   
Retained earnings858,220   972,594   
Accumulated other comprehensive loss(235,691)  (228,361)  
Treasury stock, at cost(203,570)  (200,235)  
Total shareholders' equity-Matthews 601,107   718,106  
Noncontrolling interests 635   1,130  
Total shareholders' equity 601,742   719,236  
Total liabilities and shareholders' equity $2,084,616   $2,190,603  
 June 30, 2019 September 30, 2018
ASSETS       
Current assets:       
Cash and cash equivalents  $33,603
   $41,572
Accounts receivable, net  318,717
   331,463
Inventories, net  188,658
   180,451
Other current assets  73,467
   61,592
        
Total current assets  614,445
   615,078
        
Investments  88,887
   45,430
Property, plant and equipment, net 
 247,169
  
 252,775
Deferred income taxes 
 2,680
  
 1,837
Other assets 
 36,210
  
 49,820
Goodwill 
 935,107
  
 948,894
Other intangible assets, net 
 420,795
  
 443,910
        
Total assets 
 $2,345,293
  
 $2,357,744
        
LIABILITIES 
  
  
  
Current liabilities: 
  
  
  
Long-term debt, current maturities 
 $58,080
  
 $31,260
Trade accounts payable 
 68,318
  
 70,044
Accrued compensation 
 41,415
  
 51,490
Accrued income taxes 
 12,102
  
 11,413
Other current liabilities 
 134,132
  
 122,195
        
Total current liabilities 
 314,047
  
 286,402
        
Long-term debt 
 921,520
  
 929,342
Accrued pension 
 86,024
  
 82,035
Postretirement benefits 
 17,457
  
 17,753
Deferred income taxes 
 115,593
  
 121,519
Other liabilities 
 42,227
  
 51,979
Total liabilities 
 1,496,868
  
 1,489,030
        
SHAREHOLDERS' EQUITY 
  
  
  
Shareholders' equity-Matthews: 
  
  
  
Common stock$36,334
  
 $36,334
  
Additional paid-in capital136,211
  
 129,252
  
Retained earnings1,050,091
  
 1,040,378
  
Accumulated other comprehensive loss(179,874)  
 (164,298)  
Treasury stock, at cost(195,920)  
 (173,315)  
Total shareholders' equity-Matthews 
 846,842
  
 868,351
Noncontrolling interests 
 1,583
  
 363
Total shareholders' equity 
 848,425
  
 868,714
        
Total liabilities and shareholders' equity 
 $2,345,293
  
 $2,357,744

The accompanying notes are an integral part of these consolidated financial statements.

2


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)

Three Months Ended
June 30,		Nine Months Ended
June 30,
 2020201920202019
Sales$359,422  $379,294  $1,099,166  $1,144,871  
Cost of sales(238,469) (242,116) (737,722) (745,001) 
Gross profit120,953  137,178  361,444  399,870  
Selling expense(28,508) (32,857) (93,953) (102,238) 
Administrative expense(69,374) (65,087) (208,238) (200,346) 
Intangible amortization(17,825) (9,543) (53,639) (27,165) 
Goodwill write-down—  —  (90,408) —  
Operating profit (loss)5,246  29,691  (84,794) 70,121  
Investment income1,252  655  1,443  1,394  
Interest expense(8,082) (10,508) (26,935) (31,068) 
Other deductions, net(2,776) (1,425) (7,438) (3,416) 
(Loss) income before income taxes(4,360) 18,413  (117,724) 37,031  
Income tax benefit (provision)6,209  (3,989) 22,672  (4,429) 
Net income (loss)1,849  14,424  (95,052) 32,602  
Net losses attributable to noncontrolling interests420  205  491  541  
Net income (loss) attributable to Matthews shareholders$2,269  $14,629  $(94,561) $33,143  
Earnings (loss) per share attributable to Matthews shareholders:
Basic$0.07  $0.47  $(3.04) $1.05  
Diluted$0.07  $0.46  $(3.04) $1.05  
 Three Months Ended
June 30,		 Nine Months Ended
June 30,
 2019 2018 2019 2018
        
Sales$379,294
 $411,621
 $1,144,871
 $1,195,136
Cost of sales(242,116) (259,006) (745,001) (760,428)
        
Gross profit137,178
 152,615
 399,870
 434,708
        
Selling expense(32,857) (36,000) (102,238) (110,108)
Administrative expense(65,087) (68,961) (200,346) (211,451)
Intangible amortization(9,543) (8,334) (27,165) (23,264)
        
Operating profit29,691
 39,320
 70,121
 89,885
        
Investment income655
 538
 1,394
 931
Interest expense(10,508) (9,719) (31,068) (26,782)
Other income (deductions), net(1,425) (1,482) (3,416) (5,162)
        
Income before income taxes18,413
 28,657
 37,031
 58,872
        
Income tax (provision) benefit(3,989) (4,312) (4,429) 18,703
        
Net income14,424
 24,345
 32,602
 77,575
        
Net loss attributable to noncontrolling interests205
 69
 541
 201
        
Net income attributable to Matthews shareholders$14,629
 $24,414
 $33,143
 $77,776
        
Earnings per share attributable to Matthews shareholders:
Basic$0.47
 $0.77
 $1.05
 $2.45
        
Diluted$0.46
 $0.77
 $1.05
 $2.44

The accompanying notes are an integral part of these consolidated financial statements.

3


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollar amounts in thousands)

 Three Months Ended June 30,
 MatthewsNoncontrolling InterestTotal
 202020192020201920202019
Net income (loss):$2,269  $14,629  $(420) $(205) $1,849  $14,424  
Other comprehensive income (loss) ("OCI"), net of tax:      
Foreign currency translation adjustment11,240  2,639  —  (5) 11,240  2,634  
Pension plans and other postretirement benefits1,743  705  —  —  1,743  705  
Unrecognized loss on derivatives:      
Net change from periodic revaluation(509) (2,372) —  —  (509) (2,372) 
Net amount reclassified to earnings330  (660) —  —  330  (660) 
Net change in unrecognized loss on derivatives(179) (3,032) —  —  (179) (3,032) 
OCI, net of tax12,804  312  —  (5) 12,804  307  
Comprehensive income (loss)$15,073  $14,941  $(420) $(210) $14,653  $14,731  
            
 Three Months Ended June 30,
 Matthews Noncontrolling Interest Total
 2019 2018 2019 2018 2019 2018
            
Net income (loss):$14,629
 $24,414
 $(205) $(69) $14,424
 $24,345
Other comprehensive income (loss) ("OCI"), net of tax: 
  
  
  
  
  
Foreign currency translation adjustment2,639
 (38,669) (5) (23) 2,634
 (38,692)
Pension plans and other postretirement benefits705
 1,256
 —
 —
 705
 1,256
Unrecognized (loss) gain on derivatives: 
  
  
  
  
  
Net change from periodic revaluation(2,372) 393
 —
 —
 (2,372) 393
Net amount reclassified to earnings(660) (399) —
 —
 (660) (399)
Net change in unrecognized loss on derivatives(3,032) (6) —
 —
 (3,032) (6)
OCI, net of tax312
 (37,419) (5) (23) 307
 (37,442)
Comprehensive income (loss)$14,941
 $(13,005) $(210) $(92) $14,731
 $(13,097)


 Nine Months Ended June 30,
 MatthewsNoncontrolling InterestTotal
 202020192020201920202019
Net (loss) income:$(94,561) $33,143  $(491) $(541) $(95,052) $32,602  
OCI, net of tax:      
Foreign currency translation adjustment(8,297) (9,791) (4) 1  (8,301) (9,790) 
Pension plans and other postretirement benefits5,297  2,168  —  —  5,297  2,168  
Unrecognized loss on derivatives:      
Net change from periodic revaluation(4,248) (6,074) —  —  (4,248) (6,074) 
Net amount reclassified to earnings(82) (1,879) —  —  (82) (1,879) 
Net change in unrecognized loss on derivatives(4,330) (7,953) —  —  (4,330) (7,953) 
OCI, net of tax(7,330) (15,576) (4) 1  (7,334) (15,575) 
Comprehensive (loss) income$(101,891) $17,567  $(495) $(540) $(102,386) $17,027  
 Nine Months Ended June 30,
 Matthews Noncontrolling Interest Total
 2019 2018 2019 2018 2019 2018
            
Net income (loss):$33,143
 $77,776
 $(541) $(201) $32,602
 $77,575
OCI, net of tax: 
  
  
  
  
  
Foreign currency translation adjustment(9,791) (19,658) 1
 80
 (9,790) (19,578)
Pension plans and other postretirement benefits2,168
 3,296
 —
 —
 2,168
 3,296
Unrecognized (loss) gain on derivatives: 
  
  
  
  
  
Net change from periodic revaluation(6,074) 5,286
 —
 —
 (6,074) 5,286
Net amount reclassified to earnings(1,879) (570) —
 —
 (1,879) (570)
Net change in unrecognized (loss) gain on derivatives(7,953) 4,716
 —
 —
 (7,953) 4,716
OCI, net of tax(15,576) (11,646) 1
 80
 (15,575) (11,566)
Comprehensive (loss) income$17,567
 $66,130
 $(540) $(121) $17,027
 $66,009

The accompanying notes are an integral part of these consolidated financial statements.

4


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data) (Unaudited)

 Shareholders' Equity
Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Treasury
Stock		Non-
controlling
Interests		Total
Balance,
September 30, 2019		$36,334  $137,774  $972,594  $(228,361) $(200,235) $1,130  $719,236  
Net (loss) income—  —  (10,466) —  —  160  (10,306) 
Minimum pension liability—  —  —  1,727  —  —  1,727  
Translation adjustment—  —  —  11,111  —  (5) 11,106  
Fair value of derivatives—  —  —  291  —  —  291  
Total comprehensive income      2,818  
Stock-based compensation—  2,031  —  —  —  —  2,031  
Purchase of 52,104 shares of treasury stock—  —  —  —  (1,845) —  (1,845) 
Issuance of 11,225 shares of treasury stock—  (450) —  —  450  —  —  
Cancellations of 17,509 shares of treasury stock—  1,171  —  —  (1,171) —  —  
Dividends, $0.21 per share—  —  (6,535) —  —  —  (6,535) 
Balance,
December 31, 2019		$36,334  $140,526  $955,593  $(215,232) $(202,801) $1,285  $715,705  
Net loss—  —  (86,364) —  —  (231) (86,595) 
Minimum pension liability—  —  —  1,827  —  —  1,827  
Translation adjustment—  —  —  (30,648) —  1  (30,647) 
Fair value of derivatives—  —  —  (4,442) —  —  (4,442) 
Total comprehensive loss      (119,857) 
Stock-based compensation—  2,508  —  —  —  —  2,508  
Purchase of 20,750 shares of treasury stock—  —  —  —  (506) —  (506) 
Dividends, $0.21 per share—  —  (6,648) —  —  —  (6,648) 
Balance,
March 31, 2020		$36,334  $143,034  $862,581  $(248,495) $(203,307) $1,055  $591,202  
Net income (loss)—  —  2,269  —  —  (420) 1,849  
Minimum pension liability—  —  —  1,743  —  —  1,743  
Translation adjustment—  —  —  11,240  —  —  11,240  
Fair value of derivatives—  —  —  (179) —  —  (179) 
Total comprehensive income      14,653  
Stock-based compensation—  2,539  —  —  —  —  2,539  
Purchase of 722 shares of treasury stock—  —  —  —  (22) —  (22) 
Issuance of 900 shares of treasury stock—  (36) —  —  36  —  —  
Cancellations of 4,616 shares of treasury stock—  277  —  —  (277) —  —  
Dividends, $0.21 per share—  —  (6,630) —  —  —  (6,630) 
Balance,
June 30, 2020		$36,334  $145,814  $858,220  $(235,691) $(203,570) $635  $601,742  
 Shareholders' Equity
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Non-
controlling
Interests
 Total
Balance,
September 30, 2018		$36,334
 $129,252
 $1,040,378
 $(164,298) $(173,315) $363
 $868,714
Net income (loss)—
 —
 3,097
 —
 —
 (113) 2,984
Minimum pension liability—
 —
 —
 729
 —
 —
 729
Translation adjustment—
 —
 —
 (12,564) —
 (13) (12,577)
Fair value of derivatives—
 —
 —
 (2,901) —
 —
 (2,901)
Total comprehensive loss 
  
  
  
  
  
 (11,765)
Stock-based compensation—
 3,647
 —
 —
 —
 —
 3,647
Purchase of 186,417 shares of treasury stock—
 —
 —
 —
 (7,751) —
 (7,751)
Issuance of 2,822 shares of treasury stock—
 (115) —
 —
 115
 —
 —
Cancellations of 19,433 shares of treasury stock—
 891
 —
 —
 (891) —
 —
Dividends, $0.20 per share—
 —
 (6,414) —
 —
 —
 (6,414)
Acquisition—
 —
 —
 —
 —
 1,760
 1,760
Cumulative tax adjustment for intra-entity transfers—
 —
 (4,176) —
 —
 —
 (4,176)
Balance,
December 31, 2018		$36,334
 $133,675
 $1,032,885
 $(179,034) $(181,842) $1,997
 $844,015
Net income (loss)—
 —
 15,417
 —
 —
 (223) 15,194
Minimum pension liability—
 —
 —
 734
 —
 —
 734
Translation adjustment—
 —
 —
 134
 —
 19
 153
Fair value of derivatives—
 —
 —
 (2,020) —
 —
 (2,020)
Total comprehensive income 
  
  
  
  
  
 14,061
Stock-based compensation—
 1,366
 —
 —
 —
 —
 1,366
Purchase of 143,092 shares of treasury stock—
 —
 —
 —
 (5,535) —
 (5,535)
Cancellations of 41 shares of treasury stock—
 14
 —
 —
 (14) —
 —
Dividends, $0.20 per share—
 —
 (6,446) —
 —
 —
 (6,446)
Balance,
March 31, 2019		$36,334
 $135,055
 $1,041,856
 $(180,186) $(187,391) $1,793
 $847,461
Net income (loss)—
 —
 14,629
 —
 —
 (205) 14,424
Minimum pension liability—
 —
 —
 705
 —
 —
 705
Translation adjustment—
 —
 —
 2,639
 —
 (5) 2,634
Fair value of derivatives—
 —
 —
 (3,032) —
 —
 (3,032)
Total comprehensive income 
  
  
  
  
  
 14,731
Stock-based compensation—
 1,156
 —
 —
 —
 —
 1,156
Purchase of 240,155 shares of treasury stock—
 —
 —
 —
 (8,529) —
 (8,529)
Dividends, $0.20 per share—
 —
 (6,394) —
 —
 —
 (6,394)
Balance,
June 30, 2019		$36,334
 $136,211
 $1,050,091
 $(179,874) $(195,920) $1,583
 $848,425

The accompanying notes are an integral part of these consolidated financial statements.
 Shareholders' Equity
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Non-
controlling
Interests
 Total
Balance,
September 30, 2017		$36,334
 $123,432
 $948,830
 $(154,115) $(164,774) $552
 $790,259
Net income (loss)—
 —
 35,180
 —
 —
 (22) 35,158
Minimum pension liability—
 —
 —
 1,018
 —
 —
 1,018
Translation adjustment—
 —
 —
 7,598
 —
 13
 7,611
Fair value of derivatives—
 —
 —
 1,595
 —
 —
 1,595
Total comprehensive income 
  
  
  
  
  
 45,382
Stock-based compensation—
 5,474
 —
 —
 —
 —
 5,474
Purchase of 75,765 shares of treasury stock—
 —
 —
 —
 (4,415) —
 (4,415)
Issuance of 223,971 shares of treasury stock—
 (8,922) —
 —
 8,922
 —
 —
Cancellations of 5,214 shares of treasury stock—
 310
 —
 —
 (310) —
 —
Dividends, $0.19 per share—
 —
 (6,071) —
 —
 —
 (6,071)
Balance,
December 31, 2017		$36,334
 $120,294
 $977,939
 $(143,904) $(160,577) $543
 $830,629
Net income (loss)—
 —
 18,182
 —
 —
 (110) 18,072
Minimum pension liability—
 —
 —
 1,022
 —
 —
 1,022
Translation adjustment—
 —
 —
 11,413
 —
 90
 11,503
Fair value of derivatives—
 —
 —
 3,127
 —
 —
 3,127
Total comprehensive income 
  
  
  
  
  
 33,724
Stock-based compensation—
 2,658
 —
 —
 —
 —
 2,658
Purchase of 260,621 shares of treasury stock—
 —
 —
 —
 (13,890) —
 (13,890)
Issuance of 102,856 shares of treasury stock—
 883
 —
 —
 4,117
 —
 5,000
Dividends, $0.19 per share—
 —
 (6,039) —
 —
 —
 (6,039)
Balance,
March 31, 2018		$36,334
 $123,835
 $990,082
 $(128,342) $(170,350) $523
 $852,082
Net income (loss)—
 —
 24,414
 —
 —
 (69) 24,345
Minimum pension liability—
 —
 —
 1,256
 —
 —
 1,256
Translation adjustment—
 —
 —
 (38,669) —
 (23) (38,692)
Fair value of derivatives—
 —
 —
 (6) —
 —
 (6)
Total comprehensive loss

 

 

 

 

 

 (13,097)
Stock-based compensation—
 2,399
 —
 —
 —
 —
 2,399
Purchase of 35,734 shares of treasury stock—
 —
 —
 —
 (1,786) —
 (1,786)
Cancellations of 650 shares of treasury stock—
 39
 —
 —
 (39) —
 —
Dividends, $0.19 per share—
 —
 (6,418) —
 —
 —
 (6,418)
Reclassification of accumulated other comprehensive (loss) income ('AOCI') tax effect—
 —
 8,814
 (8,814) —
 —
 —
Balance,
June 30, 2018		$36,334
 $126,273
 $1,016,892
 $(174,575) $(172,175) $431
 $833,180


 Shareholders' Equity
Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Treasury
Stock		Non-
controlling
Interests		Total
Balance,
September 30, 2018		$36,334  $129,252  $1,040,378  $(164,298) $(173,315) $363  $868,714  
Net income (loss)—  —  3,097  —  —  (113) 2,984  
Minimum pension liability—  —  —  729  —  —  729  
Translation adjustment—  —  —  (12,564) —  (13) (12,577) 
Fair value of derivatives—  —  —  (2,901) —  —  (2,901) 
Total comprehensive loss      (11,765) 
Stock-based compensation—  3,647  —  —  —  —  3,647  
Purchase of 186,417 shares of treasury stock—  —  —  —  (7,751) —  (7,751) 
Issuance of 2,822 shares of treasury stock—  (115) —  —  115  —  —  
Cancellations of 19,433 shares of treasury stock—  891  —  —  (891) —  —  
Dividends, $0.20 per share—  —  (6,414) —  —  —  (6,414) 
Acquisition—  —  —  —  —  1,760  1,760  
Cumulative tax adjustment for intra-entity transfers—  —  (4,176) —  —  —  (4,176) 
Balance,
December 31, 2018		$36,334  $133,675  $1,032,885  $(179,034) $(181,842) $1,997  $844,015  
Net income (loss)—  —  15,417  —  —  (223) 15,194  
Minimum pension liability—  —  —  734  —  —  734  
Translation adjustment—  —  —  134  —  19  153  
Fair value of derivatives—  —  —  (2,020) —  —  (2,020) 
Total comprehensive income      14,061  
Stock-based compensation—  1,366  —  —  —  —  1,366  
Purchase of 143,092 shares of treasury stock—  —  —  —  (5,535) —  (5,535) 
Cancellations of 41 shares of treasury stock—  14  —  —  (14) —  —  
Dividends, $0.20 per share—  —  (6,446) —  —  —  (6,446) 
Balance,
March 31, 2019		$36,334  $135,055  $1,041,856  $(180,186) $(187,391) $1,793  $847,461  
Net income (loss)—  —  14,629  —  —  (205) 14,424  
Minimum pension liability—  —  —  705  —  —  705  
Translation adjustment—  —  —  2,639  —  (5) 2,634  
Fair value of derivatives—  —  —  (3,032) —  —  (3,032) 
Total comprehensive income      14,731  
Stock-based compensation—  1,156  —  —  —  —  1,156  
Purchase of 240,155 shares of treasury stock—  —  —  —  (8,529) —  (8,529) 
Dividends, $0.20 per share—  —  (6,394) —  —  —  (6,394) 
Balance,
June 30, 2019		$36,334  $136,211  $1,050,091  $(179,874) $(195,920) $1,583  $848,425  

The accompanying notes are an integral part of these consolidated financial statements.

5


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)

Nine Months Ended
June 30,
 20202019
Cash flows from operating activities:  
Net (loss) income$(95,052) $32,602  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:  
Depreciation and amortization88,418  60,759  
Stock-based compensation expense7,078  6,169  
Deferred tax benefit(11,986) (4,031) 
Gain on sale of assets, net(229) (210) 
(Gain) loss on sale of ownership interests in a subsidiary(11,208) 4,465  
Unrealized gain on investments in mutual funds
(1,161) (406) 
Loss from equity-method investments3,542  1,086  
Goodwill write-down90,408  —  
Changes in working capital items41,726  (14,543) 
Decrease (increase) in other assets5,076  (379) 
Increase in other liabilities2,960  3,042  
Other operating activities, net4,036  860  
Net cash provided by operating activities123,608  89,414  
Cash flows from investing activities:  
Capital expenditures(25,486) (31,963) 
Acquisitions, net of cash acquired—  (11,525) 
Proceeds from sale of assets398  1,508  
Proceeds from sale of ownership interests in a subsidiary42,210  8,254  
Investments and advances(9,723) (33,073) 
Net cash provided by (used in) investing activities7,399  (66,799) 
Cash flows from financing activities:  
Proceeds from long-term debt971,399  424,842  
Payments on long-term debt(1,063,459) (408,447) 
Purchases of treasury stock(2,372) (21,815) 
Dividends(19,813) (19,254) 
Acquisition holdback and contingent consideration payments(4,689) (3,350) 
Other financing activities(4,156) (2,139) 
Net cash used in financing activities(123,090) (30,163) 
Effect of exchange rate changes on cash(315) (421) 
Net change in cash and cash equivalents7,602  (7,969) 
Cash and cash equivalents at beginning of year35,302  41,572  
Cash and cash equivalents at end of period$42,904  $33,603  
 Nine Months Ended
June 30,
 2019 2018
Cash flows from operating activities:   
Net income$32,602
 $77,575
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and amortization60,759
 57,052
Stock-based compensation expense6,169
 10,531
Deferred tax benefit(4,031) (43,272)
Gain on sale of assets(210) (925)
Loss on divestiture4,465
 —
Unrealized loss (gain) on investments680
 (771)
Changes in working capital items(14,543) (5,897)
Increase in other assets(379) (11,932)
Increase in other liabilities3,042
 8,932
Other operating activities, net860
 (8,487)
    
Net cash provided by operating activities89,414
 82,806
    
Cash flows from investing activities: 
  
Capital expenditures(31,963) (32,150)
Acquisitions, net of cash acquired(11,525) (119,953)
Proceeds from sale of assets1,508
 3,358
Proceeds from divestiture8,254
 —
Purchases of investments(33,073) (11,871)
    
Net cash used in investing activities(66,799) (160,616)
    
Cash flows from financing activities: 
  
Proceeds from long-term debt424,842
 681,297
Payments on long-term debt(408,447) (566,891)
Purchases of treasury stock(21,815) (20,091)
Dividends(19,254) (18,528)
Acquisition holdback and contingent consideration payments(3,350) —
Other financing activities(2,139) —
    
Net cash (used in) provided by financing activities(30,163) 75,787
    
Effect of exchange rate changes on cash(421) (1,777)
    
Net change in cash and cash equivalents$(7,969) $(3,800)
    
Non-cash investing and financing activities:   
Acquisition of long-term asset under financing arrangement$—
 $14,544

The accompanying notes are an integral part of these consolidated financial statements.

6


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 20192020
(Dollar amounts in thousands, except per share data)



Note 1.   Nature of Operations

Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of brand solutions, memorialization products and industrial technologies. Brand solutions consistconsists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial technologies include marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
The Company has facilities in North America, Europe, Asia, Australia, and Central and South America.


Note 2.   Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information for commercial and industrial companies and the instructions to Form 10‑Q10-Q and Rule 10‑0110-01 of Regulation S‑X.S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine months ended June 30, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019.2020. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10‑K10-K for the year ended September 30, 2018.2019.  The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.  Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications are not material to the prior year presentation.

New Accounting Pronouncements:

Issued

In August 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  This ASU is effective for the Company beginning in interim periods starting in fiscal year 2021. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date. Subsequently, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842), that provide certain amendments to the new guidance. These ASUs are effective for the Company beginning in interim periods starting in fiscal year 2021. The adoption of these ASUs are not expected to have a material impact on the Company's consolidated financial statements.

7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 2. Basis of Presentation (continued)

Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 and also simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted this ASU in the quarter ended March 31, 2020. The adoption of this ASU had no significant impact on the Company's consolidated financial statements, but modifies the methodology to assess certain tax principles in Topic 740 prospectively.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits.  This ASU is effective for the Company beginning in interim periods starting in fiscal year 2020. The adoption of this ASU is not expected to have a materialin the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements.





7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 2. Basis of Presentation (continued)

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), which provides new guidance intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This ASU is effective for the Company beginning in fiscal year 2020. The adoption of this ASU is not expected to have a materialin the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities. This ASU requires lessees to recognize assets and liabilities that arise from financing and operating leases on the Consolidated Balance Sheet. Subsequently, the FASB issued several ASUs that address implementation issues and correct or improve certain aspects of the new lease guidance, including ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Leases (Topic 842): Targeted Improvements, ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842): Codification Improvements. These ASUs do not change the core principles in the lease guidance outlined above. ASU No. 2018-11 provides an additional transition method to adopt ASU No. 2016-02. Under the new transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.The Company has elected to use thisadopted the standard using the transition method at the adoption dateas of October 1, 2019. ASU No. 2016-02 and the related ASUs referenced above are effective forUnder this approach, the Company beginning in interim periods starting in fiscal year 2020. The Company is inrecognized and recorded right-of-use ("ROU") assets and related lease liabilities on the processConsolidated Balance Sheet of assessing the impact these ASUs will have on its consolidated financial statements.

Adopted

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), which provides new guidance intended to clarify and reduce complexities in applying stock compensation guidance to a change to the terms or conditions of share-based payment awards. The adoption of this ASU in the first quarter ended December 31, 2018 hadapproximately $80 million with no impact on the Company's consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which provides new guidance intended to improve the disclosure requirements relatedretained earnings. Reporting periods prior to the service cost component of net benefit cost. ASU 2017-07 requires a company to present the service cost components of net periodic benefit cost in the same income statement line as other employee compensation costs, with the remaining components of net periodic benefit cost presented separately from the service cost components and outside of any subtotal of operating income, if one is presented. The Company adopted this standard on October 1, 2018 applying2019 continue to be presented in accordance with previous lease accounting guidance under GAAP. As part of the presentation requirements retrospectively. For the three months ended June 30, 2018,adoption, the Company reclassified net benefit costselected the package of $714, $226 and $485, from cost of sales, selling expense and administrative expense, respectively,practical expedients permitted under the transition guidance which includes the ability to other income (deductions), net. For the nine months ended June 30, 2018, the Company reclassified net benefit costs of $2,142, $678 and $1,455 from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides new guidance intended to make the definition of a business more operable and allow for more consistency in application.  The adoption of this ASU in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted ASU 2016-16 on October 1, 2018 using the modified retrospective method which resulted in a decrease to retained earnings and other assets of $4,176.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which provides new guidance intended to clarify the presentation of certain cash flow items including debt prepayments, debt extinguishment costs, contingent considerations payments, and insurance proceeds, among other things. The adoption of this ASU in the first quarter ended December 31, 2018 did not have a material impact on the Company's consolidated financial statements.


8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 2. Basis of Presentation (continued)

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance intended to improve the recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), that provides guidance related to implementation issues and corrects or improves certain aspects of the financial instruments guidance. The adoption of these ASUs in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The FASB issued ASU 2015-14 in August 2015 which resulted in a deferral of the original effective date of ASU 2014-09. During 2016 and 2017, the FASB issued six ASUs that address implementation issues and correct or improve certain aspects of the new revenue recognition guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) and ASU 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). These ASUs do not change the core principles in the revenue recognition guidance outlined above. The Company adopted the provisions of these ASUs in the first fiscal quarter of 2019, using the modified retrospective method. The adoption of these ASUs did not impact the Company's consolidated financial statements and therefore, there was no cumulative effect adjustment recognized to retained earnings on October 1, 2018.carry forward historical lease classification. Refer to Note 3, “Revenue Recognition,8, “Leases,” for a further discussion.


Note 3.   Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various delivery terms applicable to the Company’s sales. For substantially all transactions, control passes in accordance with agreed upon delivery terms, including in certain circumstances, customer acceptance. This approach is consistent with the Company’s historical revenue recognition methodology. In limited instances revenue is recognized over time as critical milestones are met and as services are provided. Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the stand alone selling price, estimates of rebates and other sales or contract renewal incentives, and cash discounts and sales returns ("Variable Consideration"). Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied.

The Company delivers a variety of products and services through its business segments. The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, engineered products, and imaging services for consumer goods and retail customers, merchandising display systems, and marketing and design services primarily to the consumer goods and retail industries. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries.  The Industrial Technologies segment delivers marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products for the warehousing and industrial industries. Each product or service delivered to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. Certain revenue related to mausoleum construction and significant engineering projects, including cremation and incineration projects, and marking and industrial automation projects, are recognized over time using the input method measuring progress toward completion of such projects. Amounts recognized using the over time method were less than 5% of the Company's consolidated revenue for the three and nine months ended June 30, 2019 and 2018. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates.


9
8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 3.   Revenue Recognition (continued)

The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the three and nine months ended June 30, 20192020 and 20182019 were as follows:
 SGK Brand SolutionsMemorializationIndustrial TechnologiesConsolidated
Three Months Ended
June 30,		Three Months Ended
June 30,		Three Months Ended
June 30,		Three Months Ended
June 30,
20202019202020192020201920202019
North America$81,852  $77,223  $151,160  $146,131  $25,038  $31,589  $258,050  $254,943  
Central and South America1,571  1,619  —  —  —  —  1,571  1,619  
Europe68,702  89,254  9,163  9,847  5,647  7,076  83,512  106,177  
Australia2,865  2,912  1,795  2,239  —  —  4,660  5,151  
Asia10,790  10,922  —  —  839  482  11,629  11,404  
Total Sales$165,780  $181,930  $162,118  $158,217  $31,524  $39,147  $359,422  $379,294  
  SGK Brand Solutions Memorialization Industrial Technologies Consolidated
  Three Months Ended
June 30,		 Three Months Ended
June 30,		 Three Months Ended
June 30,		 Three Months Ended
June 30,
  20192018 20192018 20192018 20192018
North America $77,223
$87,665
 $146,131
$150,418
 $31,589
$38,071
 $254,943
$276,154
Central and South America 1,619
1,734
 —
—
 —
—
 1,619
1,734
Europe 89,254
98,313
 9,847
9,065
 7,076
7,175
 106,177
114,553
Australia 2,912
3,457
 2,239
2,496
 —
—
 5,151
5,953
Asia 10,922
11,807
 —
—
 482
1,420
 11,404
13,227
Total Sales $181,930
$202,976
 $158,217
$161,979
 $39,147
$46,666
 $379,294
$411,621


 SGK Brand SolutionsMemorializationIndustrial TechnologiesConsolidated
Nine Months Ended June 30,Nine Months Ended June 30,Nine Months Ended June 30,Nine Months Ended June 30,
20202019202020192020201920202019
North America$233,530  $235,975  $447,458  $440,865  $85,717  $90,291  $766,705  $767,131  
Central and South America4,767  4,316  —  —  —  —  4,767  4,316  
Europe234,130  275,842  24,629  26,611  20,026  20,448  278,785  322,901  
Australia8,804  8,772  6,255  6,803  —  —  15,059  15,575  
Asia32,284  32,976  —  —  1,566  1,972  33,850  34,948  
Total Sales$513,515  $557,881  $478,342  $474,279  $107,309  $112,711  $1,099,166  $1,144,871  
  SGK Brand Solutions Memorialization Industrial Technologies Consolidated
  Nine Months Ended June 30, Nine Months Ended June 30, Nine Months Ended June 30, Nine Months Ended June 30,
  20192018 20192018 20192018 20192018
North America $235,975
$264,227
 $440,865
$439,679
 $90,291
$91,539
 $767,131
$795,445
Central and South America 4,316
4,870
 —
—
 —
—
 4,316
4,870
Europe 275,842
288,886
 26,611
28,079
 20,448
22,537
 322,901
339,502
Australia 8,772
9,467
 6,803
7,799
 —
—
 15,575
17,266
Asia 32,976
34,344
 —
—
 1,972
3,709
 34,948
38,053
Total Sales $557,881
$601,794
 $474,279
$475,557
 $112,711
$117,785
 $1,144,871
$1,195,136



Note 4.   Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below:

Level 1:   Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either   directly or indirectly.
Level 3:   Unobservable inputs for the asset or liability.

9

10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 4.   Fair Value Measurements (continued)

The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows:
 June 30, 2020September 30, 2019
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:        
Derivatives (1)
$—  $1,244  $—  $1,244  $—  $845  $—  $845  
Equity and fixed income mutual funds—  24,119  —  24,119  —  22,986  —  22,986  
Life insurance policies—  4,100  —  4,100  —  4,030  —  4,030  
Total assets at fair value$—  $29,463  $—  $29,463  $—  $27,861  $—  $27,861  
Liabilities:        
Derivatives (1)
$—  $7,513  $—  $7,513  $—  $1,379  $—  $1,379  
Total liabilities at fair value$—  $7,513  $—  $7,513  $—  $1,379  $—  $1,379  
(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
 June 30, 2019 September 30, 2018
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets:               
Derivatives (1)
$—
 $1,458
 $—
 $1,458
 $—
 $11,309
 $—
 $11,309
Equity and fixed income mutual funds—
 22,984
 —
 22,984
 —
 22,758
 —
 22,758
Life insurance policies—
 4,236
 —
 4,236
 —
 5,894
 —
 5,894
Total assets at fair value$—
 $28,678
 $—
 $28,678
 $—
 $39,961
 $—
 $39,961
                
Liabilities: 
  
  
  
  
  
  
  
Derivatives (1)
$—
 $683
 $—
 $683
 $—
 $—
 $—
 $—
Total liabilities at fair value$—
 $683
 $—
 $683
 $—
 $—
 $—
 $—
(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.



Note 5.   Inventories

Inventories consisted of the following:
 June 30, 2020September 30, 2019
Raw materials$38,076  $35,616  
Work in process83,552  76,297  
Finished goods60,723  68,361  
 $182,351  $180,274  
 June 30, 2019 September 30, 2018
    
Raw materials$37,373
 $34,880
Work in process76,351
 67,827
Finished goods74,934
 77,744
 $188,658
 $180,451



Note 6.  Investments

Non-current investments consisted of the following:
 June 30, 2020September 30, 2019
Equity and fixed income mutual funds$24,119  $22,986  
Life insurance policies4,100  4,030  
Equity-method investments386  39,761  
Other investments33,463  18,724  
 $62,068  $85,501  

During the first six months of fiscal 2020, the Company made $9,482 of additional investments in a non-consolidated subsidiary that was being accounted for as an equity-method investment. During the third quarter of fiscal 2020, the Company sold its ownership interest in this subsidiary for $42,210 of cash and $15,000 of senior preferred shares. The senior preferred shares earn a yield based on an escalating rate ranging from 6% to 14% and are expected to be redeemed before the end of calendar year 2022. In connection with this sale transaction, the Company recognized a pre-tax gain of $11,208 which has been recorded as a component of administrative expenses. The senior preferred shares are included within other investments in the table above along with ownership interests in various entities of less than 20%, which are recorded under the cost-method of accounting.
10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 7.   Debt

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement includes a $900,000$750,000 senior secured revolving credit facility, which matures in March 2025, and a $250,000$35,000 senior secured amortizing term loan.loan, which matures in July 2021. A portion of the revolving credit facility (not to exceed $150,000)$350,000) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal payments of 5.0% of the outstanding principal in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments.  Pursuant to the terms of the domestic credit facility agreement, principal payments may be made on the term loan prior to the scheduled due dates. The balance of the revolving credit facility and the term loan are due on theits maturity date of April 26, 2021.date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.50% at June 30, 2019)2020) based on the Company's secured leverage ratio.  The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.25%0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs of approximately $2,000 in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at June 30, 20192020 and September 30, 20182019 were $360,058$275,000 and $319,500,$325,638, respectively. During the third quarter of fiscal 2019, the Company borrowed €125.0 million on the revolving credit facility. Proceeds from the Euro denominated borrowing were used to make a principal payment of $140,000 on the outstanding balance of the term loan. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2020 and September 30, 2019 were €125.0 million ($142,194). There were no Euro denominated borrowings on the revolving credit facility at September 30, 2018.140,371) and €125.0 million ($136,470), respectively. Outstanding borrowings on the term loan at June 30, 20192020 and September 30, 20182019 were $53,456$28,563 and $212,086,$53,497, respectively. The weighted-average interest rate


11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 6.   Debt (continued)

on the outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at June 30, 20192020 and June 30, 20182019 was 2.75%2.44% and 2.82%2.75%, respectively.

The Company has $300,000 of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $2,879 and $3,284 at June 30, 2020 and September 30, 2019, respectively.

The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutionsinstitutions. The Securitization Facility, which matures onhad a maturity date of April 11, 2020, and the Company intendswas amended in March 2020 to extend this facility.the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%.The Company is required to pay an annual commitment fee ranging from0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at June 30, 20192020 and September 30, 20182019 were $98,850$85,270 and $102,250,$93,950, respectively. At June 30, 20192020 and 2018,2019, the interest rate on borrowings under this facility was 3.15%0.91% and 2.84%3.15%, respectively.

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
June 30, 2020September 30, 2019
Pay fixed swaps - notional amount$343,750  $293,750  
Net unrealized loss
$(6,269) $(534) 
Weighted-average maturity period (years)2.61.9
Weighted-average received rate0.16 %2.02 %
Weighted-average pay rate1.33 %1.41 %
  June 30, 2019 September 30, 2018
Pay fixed swaps - notional amount $300,000
 $343,750
Net unrealized gain 
 $775
 $11,309
Weighted-average maturity period (years) 2.2
 2.7
Weighted-average received rate 2.40% 2.26%
Weighted-average pay rate 1.40% 1.37%

11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 7.   Debt (continued)

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring.  Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized gain,loss, net of unrealized losses,gains, of$775 $6,269 ($5854,733 after tax) at June 30, 20192020 and an unrealized gainloss, net of $11,309unrealized gains, of $534 ($8,538403 after tax) at September 30, 2018. The net unrealized gain2019, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").  Assuming market rates remain constant with the rates at June 30, 2019,2020, a gainloss (net of tax) of approximately $4522,234 included in AOCI is expected to be recognized in earnings over the next twelve months.















12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 6.   Debt (continued)

At June 30, 20192020 and September 30, 2018,2019, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:
Derivatives June 30, 2019 September 30, 2018
Current assets:    
Other current assets $821
 $3,867
Long-term assets:  
  
Other assets 637
 7,442
Current liabilities:  
  
Other current liabilities (222) —
Long-term liabilities:  
  
Other liabilities (461) —
Total derivatives $775
 $11,309

DerivativesJune 30, 2020September 30, 2019
Current assets:  
Other current assets$249  $548  
Long-term assets:  
Other assets995  297  
Current liabilities:  
Other current liabilities(3,207) (484) 
Long-term liabilities:  
Other liabilities(4,306) (895) 
Total derivatives$(6,269) $(534) 

The (losses) gains gains recognized on derivatives were as follows:
Derivatives in Cash Flow Hedging RelationshipsLocation of (Loss) Gain Recognized in Income on DerivativeAmount of (Loss) Gain Recognized in Income on DerivativesAmount of Gain Recognized in Income on Derivatives
   Three Months Ended
June 30,		Nine Months Ended
June 30,
  2020201920202019
Interest rate swapsInterest expense$(438) $874  $108  $2,489  
 Derivatives in Cash Flow Hedging Relationships Location of Gain Recognized in Income on Derivative Amount of Gain Recognized in Income on Derivatives Amount of Gain Recognized in Income on Derivatives
 
 
      Three Months Ended
June 30,		 Nine Months Ended
June 30,
     2019 2018 2019 2018
 Interest rate swaps Interest expense $874
 $490
 $2,489
 $755


The Company recognized the following(losses) gains in AOCI:
Derivatives in Cash Flow Hedging RelationshipsAmount of Loss
Recognized in AOCI on Derivatives		Location of Gain Reclassified From AOCI into Income (Effective Portion*)
Amount of Gain
Reclassified from
AOCI into Income
(Effective Portion*)
 June 30, 2020June 30, 2019 June 30, 2020June 30, 2019
Interest rate swaps$(4,248) $(6,074) Interest expense$82  $1,879  
*There is no ineffective portion or amount excluded from effectiveness testing.
Derivatives in Cash Flow Hedging Relationships 
Amount of (Loss) Gain
Recognized in AOCI on Derivatives
 Location of Gain Reclassified From AOCI into Income (Effective Portion*) 
Amount of Gain
Reclassified from
AOCI into Income
(Effective Portion*)
  June 30, 2019 June 30, 2018   June 30, 2019 June 30, 2018
Interest rate swaps $(6,074) $5,286
 Interest expense $1,879
 $570
*There is no ineffective portion or amount excluded from effectiveness testing.


The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €35.0 million ($39,814)39,304).  The credit facility matures in December 20192020 andthe Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €4.3€12.1 million ($4,899)13,617) and €2.8€12.8 million ($3,211)14,024) at June 30, 20192020 and September 30, 2018,2019, respectively. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 20192020 and 20182019 was 1.25% and 1.75%, respectively.

The Company’s German subsidiary, Matthews Europe GmbH & Co. KG, has €15.0 million ($17,063) of senior unsecured notes with European banks.  The notes are guaranteed by Matthews and mature in November 2019.  A portion of the notes (€5.0 million) have a fixed interest rate of 1.40%, and the remainder bear interest at Euro LIBOR plus 1.40%.  The weighted-average interest rate on the notes at June 30, 2019 and 2018 was 1.40%.

Other debt totaled $2,917 and $5,399 at June 30, 2019 and September 30, 2018, respectively. The weighted-average interest rate on these outstanding borrowings was5.81% and 3.08% at June 30, 2019 and 2018, respectively.

12
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $1,002 (net of income taxes of $325), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for the three and nine months ended June 30, 2019. The Company did not have any net investment hedges in the prior year.


13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 6.7.   Debt (continued)

The Company’s German subsidiary, Matthews Europe GmbH, had €15.0 million ($16,376 at September 30, 2019) of senior unsecured notes with European banks.  The notes matured in November 2019 at which point they were paid.  The weighted-average interest rate on the notes at June 30, 2019 was 1.40%.

Finance lease liabilities included as a component of debt totaled $10,235 and $3,631 at June 30, 2020 and September 30, 2019, respectively. See Note 8, "Leases" for further discussion on the Company's lease obligations. Other debt totaled $10,707 and $395 at June 30, 2020 and September 30, 2019 respectively. The weighted-average interest rate on other debt was 2.14% and 5.81% at June 30, 2020 and June 30, 2019, respectively.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currencylossesof $374 (net of income taxes of $121) and $3,320 (net of income taxes of $1,077), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30, 2020 and September 30, 2019, respectively.

In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($10,88710,566 at June 30, 2019)2020) with respect to a performance guarantee on an environmental solutionsincineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.KU.K. Court ruled completely in favor of Matthews following a trial on the merits. However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia. The Company is currently pursuingcontinues to pursue a trial on the merits in Saudi Arabia whichArabia; however, given the recent coronavirus disease 2019 ("COVID-19") pandemic, the trial is schedulednow not likely to conclude inuntil calendar year 2019. It is necessary to obtain an equivalent favorable ruling in2021. As the courts of Saudi Arabia to effectively enforce judgmentCompany has successfully completed the project and commence collection efforts. Thesubsequently operated the equipment, the Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the U.K. Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations.   The Company’s level of success in recovering funds from the customer will depend upon a number ofseveral factors including a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of cooperation fromsupport of the Saudi Arabian government to enforce a potential judgment against the creditor. Thecustomer.

During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company has determined that resolutionwill not be able to support the operation of this matter may take anthe incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered collectively with the extended perioddelay in the trial date and other collectability risks, the Company established a reserve for the full value of time and therefore has classified the funded letter of credit as of June 30, 2020. The funded letter of credit was previously classified within other assets on the Consolidated Balance SheetsSheet as of June 30, 2019 and September 30, 2018.2019. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

As of June 30, 2019 and2020, the market value of the Company's 2025 Senior Notes was approximately 10% less than the carrying value. The fair value of the Company's remaining long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheets. As of September 30, 2018,2019, the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of June 30, 2019.2020.


Note 7.8.   Leases

The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment. At contract inception, a lease exists if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset. If a contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use asset. As a majority of the Company’s leases do not provide an implicit interest rate within the
13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8.   Leases (continued)

lease, an incremental borrowing rate is used to determine the ROU asset and lease liability which is based on information available at the commencement date. Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain an option will be exercised. Renewal options are most prevalent in the Company’s real estate leases. In general, the Company has not included renewal options for leases in the ROU asset and lease liability because the likelihood of renewal was not determined to be reasonably certain. In addition, leases may include variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense.

There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. Leases not meeting the finance lease criteria are classified as operating leases. Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. ROU assets for operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance Sheet. For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the Consolidated Balance Sheet. Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP.

The following table presents the balance sheet and lease classification for the Company's lease portfolio:
Balance Sheet ClassificationLease ClassificationJune 30, 2020
Non-current assets:
Property, plant and equipment, netFinance$8,338 
Other assetsOperating73,650 
Total lease assets$81,988 
Current liabilities:
Long-term debt, current maturitiesFinance$3,414 
Other current liabilitiesOperating23,591 
Non-current liabilities:
Long-term debtFinance6,821 
Other liabilitiesOperating51,039 
Total lease liabilities$84,865 

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity.

The following table presents the components of lease cost:
Three months ended June 30, 2020Nine months ended June 30, 2020
Finance lease cost:
Amortization of ROU assets$895  $1,246  
Interest on lease liabilities72  149  
Operating lease cost5,430  18,527  
Variable lease cost1,225  4,106  
Sublease income(250) (649) 
Total lease cost$7,372  $23,379  

14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8.   Leases (continued)

Supplemental information regarding the Company's leases follows:
Nine months ended June 30, 2020
Cash paid for finance and operating lease liabilities:
Operating cash flows from finance leases$149 
Operating cash flows from operating leases$22,519 
Financing cash flows from finance leases$1,196 
ROU assets obtained in exchange for new finance lease liabilities$2,165 
ROU assets obtained in exchange for new operating lease liabilities$11,297 
June 30, 2020
Weighted-average remaining lease term - finance leases (years)4.68
Weighted-average remaining lease term - operating leases (years)4.33
Weighted-discount rate - finance leases2.81 %
Weighted-discount rate - operating leases2.82 %

The Company elected the practical expedient to not separate lease components from non-lease components for all asset classes. In addition, the Company elected the practical expedient to utilize a portfolio approach for certain equipment asset classes, primarily information technology, as the application of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases within the portfolio.

Maturities of lease obligations by fiscal year were as follows as of June 30, 2020:
Operating LeasesFinance Leases
2020 (remainder)$6,738  $957  
202124,211  3,721  
202217,818  2,808  
202311,952  1,119  
20248,113  408  
Thereafter10,148  2,100  
Total future minimum lease payments78,980  11,113  
Less: Interest4,350  878  
Present value of lease liabilities:$74,630  $10,235  


Note 9.   Share-Based Payments

The Company maintains an equity incentive plan (the "2017 Equity Incentive Plan") that provides for grants of stock options, restricted shares, restricted share units, stock-based performance units and certain other types of stock-based awards. Under the 2017 Equity Incentive Plan, which has a ten-yearten-year term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000. At June 30, 2019,2020, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan, including 262,200Plan. 558,200 restricted share units that werehave been granted duringunder the first quarter2017 Equity Incentive Plan and are outstanding as of fiscal 2019.June 30, 2020.  The 2017 Equity Incentive plan is administered by the Compensation Committee of the Board of Directors.

With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.  Additionally, restricted shares cannot vest until the first anniversary of the grant date.  Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company issues restricted shares from treasury shares.
15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 9.   Share-Based Payments (continued)

With respect to the restricted share unit grants, units generally vest on the third anniversary of the grant date. The number of units that vest depend on certain time and performance thresholds. Approximately forty percent38% of the shares vest based on time, while the remaining vest based on pre-defined performance thresholds. The Company issues common stock from treasury shares once vested.

For the three-month periods ended June 30, 20192020 and 2018,2019, stock-based compensation cost totaled $1,156$2,539 and $2,399,$1,156, respectively. For the nine-month periods ended June 30, 20192020 and 2018,2019, stock-based compensation cost totaled $7,078 and $6,169, and $10,531, respectively. The stock-based compensation cost that was recognized for retirement-eligible employees was $625 for the three-month period ended June 30, 2020, and $1,564 and $1,849 for the nine-month periods ended June 30, 2020 and 2019, and 2018 included $1,849 and $2,850 of stock-based compensation cost, respectively, that was recognized at the time of grant for retirement-eligible employees.respectively. The associated future income tax benefit recognized for stock-based compensation was$283 $622 and $588$283 for the three-month periods ended June 30, 20192020 and 2018,2019, respectively, and $1,153$1,415 and $2,108$1,153 for the nine-month periods ended June 30, 2020 and 2019, and 2018, respectively.

14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 7.   Share-Based Payments (continued)

The transactions for restricted shares and restricted share units for the nine months ended June 30, 20192020 were as follows:
Shares /UnitsWeighted-
average
Grant-date
Fair Value
Non-vested at September 30, 2019615,635  $49.61  
Granted296,000  35.29  
Vested(128,795) 64.08  
Expired or forfeited(36,492) 56.55  
Non-vested at June 30, 2020746,348  $41.09  
 Shares /Units 
Weighted-
average
Grant-date
Fair Value
Non-vested at September 30, 2018554,233
 $55.71
Granted262,200
 42.21
Vested(180,256) 57.94
Expired or forfeited(19,601) 45.97
Non-vested at June 30, 2019616,576
 $49.63


As of June 30, 2019,2020, the total unrecognized compensation cost related to unvested restricted stock was $8,854$10,801 and is expected to be recognized over a weighted average period of 2.11.9 years.

The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans").  The 2019 Director Fee Plan was approved by the Company’s shareholders at the 2019 Annual Meeting of Shareholders on February 21, 2019.  There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan.  Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2019,2020, either cash or shares of the Company's Class A Common Stock with a value equal to $85.  The annual retainer fee for fiscal 20192020 paid to the non-employee Chairman of the Board is $185.  Where the annual retainer fee is provided in shares, 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, with such shares to be paid to the director subsequent to leaving the Board.  The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits).  The value of deferred shares is recorded in other liabilities.  A total of 25,58330,574 shares and share units had been deferred under the Director Fee Plans as of June 30, 2019.2020.  Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $125 for fiscal 2019.  196,2662020.  241,378 restricted shares and restricted share units have been granted under the Director Fee Plans, 23,03768,149 of which were issued under the 2019 Director Fee Plan.  34,54268,149 restricted shares and restricted share units are unvested at June 30, 2019. 2020. 


16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8.10.   Earnings Per Share Attributable to Matthews' Shareholders

The information used to compute earnings (loss) per share attributable to Matthews' common shareholders was as follows:

 Three Months Ended
June 30,		 Nine Months Ended
June 30,
 2019 2018 2019 2018
Net income attributable to Matthews shareholders$14,629
 $24,414
 $33,143
 $77,776
        
Weighted-average shares outstanding (in thousands): 
  
  
  
Basic shares31,347
 31,631
 31,487
 31,693
Effect of dilutive securities147
 150
 138
 132
Diluted shares31,494
 31,781
 31,625
 31,825


Three Months Ended
June 30,		Nine Months Ended
June 30,
 2020201920202019
Net income (loss) attributable to Matthews shareholders$2,269  $14,629  $(94,561) $33,143  
Weighted-average shares outstanding (in thousands):    
Basic shares31,145  31,347  31,143  31,487  
Effect of dilutive securities87  147  —  138  
Diluted shares31,232  31,494  31,143  31,625  
Anti-dilutive securities excluded from the dilution calculation were insignificant for the three and nine months ended June 30, 20192020 and 2018.2019.


15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 9.11.   Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:
 Three months ended June 30,
 PensionOther Postretirement
 2020201920202019
Service cost$2,170  $2,000  $64  $61  
Interest cost *1,933  2,301  140  180  
Expected return on plan assets *(2,232) (2,596) —  —  
Amortization:    
Prior service cost(47) (46) (23) (49) 
Net actuarial loss (gain) *2,386  1,081  —  (15) 
Net benefit cost$4,210  $2,740  $181  $177  
 Three months ended June 30,
 Pension Other Postretirement
 2019 2018 2019 2018
        
Service cost$2,000
 $2,039
 $61
 $84
Interest cost *2,301
 2,049
 180
 158
Expected return on plan assets *(2,596) (2,534) —
 —
Amortization: 
  
  
  
Prior service cost(46) (35) (49) (49)
Net actuarial loss (gain) *1,081
 1,753
 (15) —
Net benefit cost$2,740
 $3,272
 $177
 $193
 Nine months ended June 30,
 Pension Other Postretirement
 2019 2018 2019 2018
        
Service cost$6,000
 $6,117
 $183
 $252
Interest cost *6,903
 6,147
 540
 474
Expected return on plan assets *(7,788) (7,602) —
 —
Amortization: 
  
  
  
Prior service cost(138) (105) (147) (147)
Net actuarial loss (gain) *3,242
 5,257
 (45) —
Net benefit cost$8,219
 $9,814
 $531
 $579

 Nine months ended June 30,
 PensionOther Postretirement
 2020201920202019
Service cost$6,510  $6,000  $192  $183  
Interest cost *5,799  6,903  420  540  
Expected return on plan assets *(6,696) (7,788) —  —  
Amortization:    
Prior service cost(141) (138) (69) (147) 
Net actuarial loss (gain) *7,159  3,242  —  (45) 
Net benefit cost$12,631  $8,219  $543  $531  
* Non-service components of pension and postretirement expense are included in other income (deductions), net.
Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company's operating funds. UnderIn response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations,regulations. In accordance with this bill, the Company is notno longer required to make any significantcontributions for fiscal 2020 to its principal retirement plan. The Company currently expects to make a contribution of approximately $15,000 to its principal retirement plan during the fourth quarter of fiscal 2020, which may consist of cash and/or shares of Matthews Class A Common Stock. The Company is also currently evaluating potential additional cash and/or stock contributions to its principal retirement plan induring fiscal year 2019.2020.

Contributions made and anticipated for fiscal year 2019 are as follows:
Contributions Pension Other Postretirement
Contributions during the nine months ended June 30, 2019:    
Supplemental retirement plan $587
 $—
Other postretirement plan —
 914
     
Additional contributions expected in fiscal 2019:  
  
Supplemental retirement plan $270
 $—
Other postretirement plan —
 161



16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 10.   Accumulated Other Comprehensive Income

The changes in AOCI by component, net of tax, for the three-month periods ended June 30, 2019 and 2018 were as follows:
   Post-retirement benefit plans Currency translation adjustment Derivatives Total
Attributable to Matthews:        
Balance, March 31, 2019 $(36,413) $(147,390) $3,617
 $(180,186)
OCI before reclassification —
 2,639
 (2,372) 267
Amounts reclassified from AOCI 705
(a) 
—
 (660)
(b) 
45
Net current-period OCI 705
  
2,639
  
(3,032) 312
Balance, June 30, 2019 $(35,708) $(144,751) $585
 $(179,874)
Attributable to noncontrolling interest:  
  
  
  
Balance, March 31, 2019 —
 $473
 —
 $473
OCI before reclassification —
 (5) —
 (5)
Net current-period OCI —
 (5) —
 (5)
Balance, June 30, 2019 —
 468
 —
 468

   Post-retirement benefit plans Currency translation adjustment Derivatives Total
Attributable to Matthews:        
Balance, March 31, 2018 $(41,583) $(93,896) $7,137
 $(128,342)
OCI before reclassification —
 (38,669) 393
 (38,276)
Amounts reclassified from AOCI 1,256
(a) 
—
 (399)
(b) 
857
Net current-period OCI 1,256
 (38,669) (6) (37,419)
Reclassification of AOCI tax effects (9,884)
(c) 
—
 1,070
(c) 
(8,814)
Balance, June 30, 2018 $(50,211) $(132,565) $8,201
 $(174,575)
Attributable to noncontrolling interest:  
  
  
  
Balance, March 31, 2018 —
 $499
 —
 $499
OCI before reclassification —
 (23)
  
—
 (23)
Net current-period OCI —
 (23) —
 (23)
Balance, June 30, 2018 —
 476
  
—
 476

(a)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 9).
(b)
Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 6).
(c)
Amounts were reclassified from AOCI to retained earnings through adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220).













17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 11.   Pension and Other Postretirement Benefit Plans (continued)

Contributions made and anticipated for fiscal year 2020 are as follows:
ContributionsPensionOther Postretirement
Contributions during the nine months ended June 30, 2020:
Supplemental retirement plan$589 $— 
Other postretirement plan— 726 
Additional contributions expected in fiscal 2020:
Principal retirement plan *$15,000 $— 
Supplemental retirement plan293 — 
Other postretirement plan— 263 
* Amount represents expected contribution of cash and/or stock (see above).


Note 10.12.   Accumulated Other Comprehensive Income (continued)

The changes in AOCI by component, net of tax, for the nine-monththree-month periods ended June 30, 20192020 and 20182019 were as follows:
        
  Post-retirement benefit plans Currency translation adjustment Derivatives Total   Post-retirement benefit plansCurrency translation adjustment DerivativesTotal
Attributable to Matthews:        Attributable to Matthews:      
Balance, September 30, 2018 $(37,876) $(134,960) $8,538
 $(164,298)
Balance, March 31, 2020Balance, March 31, 2020 $(68,189) $(175,751)  $(4,555) $(248,495) 
OCI before reclassification —
 (9,791) (6,074) (15,865)OCI before reclassification —  11,240   (509) 10,731  
Amounts reclassified from AOCI 2,168
(a) 
—
 (1,879)
(b) 
289
Amounts reclassified from AOCI1,743  
(a)
—  330  
(b)
2,073  
Net current-period OCI 2,168
  
(9,791) (7,953) (15,576)Net current-period OCI1,743  
 
11,240  
 
(179)  12,804  
Balance, June 30, 2019 $(35,708) $(144,751) $585
 $(179,874)
Balance, June 30, 2020Balance, June 30, 2020$(66,446) $(164,511)  $(4,734)  $(235,691) 
Attributable to noncontrolling interest:  
  
  
  
Attributable to noncontrolling interest:       
Balance, September 30, 2018 —
 $467
 —
 $467
Balance, March 31, 2020Balance, March 31, 2020 $—  $371   $—   $371  
OCI before reclassification —
 1
 —
 1
OCI before reclassification —  —   —   —  
Net current-period OCI —
 1
 —
 1
Net current-period OCI —  —   —  —  
Balance, June 30, 2019 —
 468
 —
 468
Balance, June 30, 2020Balance, June 30, 2020 $—  $371   $—  $371  
         
   Post-retirement benefit plans Currency translation adjustment Derivatives Total
Attributable to Matthews:        
Balance, September 30, 2017 $(43,623) $(112,907) $2,415
 $(154,115)
OCI before reclassification —
 (19,658) 5,286
 (14,372)
Amounts reclassified from AOCI 3,296
(a) 
—
 (570)
(b) 
2,726
Net current-period OCI 3,296
 (19,658) 4,716
 (11,646)
Reclassification of AOCI tax effects (9,884)
(c) 
—
 1,070
(c) 
(8,814)
Balance, June 30, 2018 $(50,211) $(132,565) $8,201
 $(174,575)
Attributable to noncontrolling interest:  
  
  
  
Balance, September 30, 2017 —
 $396
 —
 $396
OCI before reclassification —
 80
  
—
 80
Net current-period OCI —
 80
 —
 80
Balance, June 30, 2018 —
 476
  
—
 476


(a)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 9).
(b)
Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 6).
(c)
Amounts were reclassified from AOCI to retained earnings through adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220).

   Post-retirement benefit plansCurrency translation adjustment DerivativesTotal
Attributable to Matthews:      
Balance, March 31, 2019 $(36,413) $(147,390)  $3,617  $(180,186) 
OCI before reclassification —  2,639   (2,372) 267  
Amounts reclassified from AOCI705  
(a)
—  (660) 
(b)
45  
Net current-period OCI 705  2,639   (3,032) 312  
Balance, June 30, 2019 $(35,708) $(144,751)  $585  $(179,874) 
Attributable to noncontrolling interest:      
Balance, March 31, 2019 $—  $473   $—  $473  
OCI before reclassification —  (5) 
 
—  (5) 
Net current-period OCI —  (5)  —  (5) 
Balance, June 30, 2019 $—  $468  
 
$—  $468  
(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7).


18


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 10.12.   Accumulated Other Comprehensive Income (continued)

The changes in AOCI by component, net of tax, for the nine-month periods ended June 30, 2020 and 2019 were as follows:
   Post-retirement benefit plansCurrency translation adjustment DerivativesTotal
Attributable to Matthews:      
Balance, September 30, 2019 $(71,743) $(156,214)  $(404) $(228,361) 
OCI before reclassification —  (8,297)  (4,248) (12,545) 
Amounts reclassified from AOCI5,297  
(a)
—  (82) 
(b)
5,215  
Net current-period OCI5,297  
 
(8,297)  (4,330) (7,330) 
Balance, June 30, 2020 $(66,446) $(164,511)  $(4,734) $(235,691) 
Attributable to noncontrolling interest:      
Balance, September 30, 2019 $—  $375   $—  $375  
OCI before reclassification —  (4)  —  (4) 
Net current-period OCI —  (4)  —  (4) 
Balance, June 30, 2020 $—  $371   $—  $371  

   Post-retirement benefit plansCurrency translation adjustment DerivativesTotal
Attributable to Matthews:      
Balance, September 30, 2018 $(37,876) $(134,960)  $8,538  $(164,298) 
OCI before reclassification —  (9,791)  (6,074) (15,865) 
Amounts reclassified from AOCI2,168  
(a)
—  (1,879) 
(b)
289  
Net current-period OCI 2,168  (9,791)  (7,953) (15,576) 
Balance, June 30, 2019 $(35,708) $(144,751)  $585  $(179,874) 
Attributable to noncontrolling interest:      
Balance, September 30, 2018 $—  $467   $—  $467  
OCI before reclassification —  1  
 
—  1  
Net current-period OCI —  1   —  1  
Balance, June 30, 2019 $—  $468  
 
$—  $468  
(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7).


19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 12.   Accumulated Other Comprehensive Income (continued)

Reclassifications out of AOCI for the three and nine-month periods ended June 30, 2020 were as follows:

 Amount reclassified from AOCI
 
Details about AOCI Components		Three Months Ended June 30, 2020 Nine Months Ended June 30, 2020Affected line item in the Statement of income
Postretirement benefit plans       
Prior service (cost) credit$70  
(a)
$210   
Actuarial losses(2,386) 
(a)
(7,159)  
 (2,316) 
(b)
(6,949) Income before income tax
 573  
 
1,652  Income taxes
 $(1,743) 
 
$(5,297) Net income
Derivatives 
 
     
Interest rate swap contracts$(438) 
 
$108  Interest expense
 (438) 
(b)
108  Income before income tax
 108   (26) Income taxes
 $(330)  $82  Net income


Reclassifications out of AOCI for the three and nine-month periods ended June 30, 2019 were as follows:
 Amount reclassified from AOCI
 
Details about AOCI Components		Three Months Ended June 30, 2019 Nine Months Ended
June 30, 2019		Affected line item in the Statement of income
Postretirement benefit plans       
Prior service credit$95  
(a)
$285   
Actuarial losses(1,066) 
(a)
(3,197)  
 (971) 
(b)
(2,912) Income before income tax
 266  
 
744  Income taxes
 $(705) 
 
$(2,168) Net income
Derivatives 
 
     
Interest rate swap contracts$874  
 
$2,489  Interest expense
 874  
(b)
2,489  Income before income tax
 (214) 
 
(610) Income taxes
 $660   $1,879  Net income

(a)Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses.  Actuarial losses are reported in other income (deductions), net. For additional information, see Note 11.
(b)For pre-tax items, positive amounts represent income and negative amounts represent expense.

       
  Amount reclassified from AOCI
 
Details about AOCI Components
 Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019 Affected line item in the Statement of income
       
Postretirement benefit plans         
Prior service (cost) credit $95
(a) 
$285
  
Actuarial losses (1,066)
(a) 
(3,197)  
  (971)
(b) 
(2,912) Income before income tax
  266
  
744
 Income taxes
  $(705)
  
$(2,168) Net income
Derivatives  
  
 
     
Interest rate swap contracts $874
  
$2,489
 Interest expense
  874
(b) 
2,489
 Income before income tax
  (214) (610) Income taxes
  $660
 $1,879
 Net income

Reclassifications out of AOCI for the three and nine-month periods ended June 30, 2018 were as follows:
  Amount reclassified from AOCI
 
Details about AOCI Components
 Three Months Ended June 30, 2018 Nine Months Ended
June 30, 2018		 Affected line item in the Statement of income
       
Postretirement benefit plans         
Prior service (cost) credit $84
(a) 
$252
  
Actuarial losses (1,753)
(a) 
(5,257)  
  (1,669)
(b) 
(5,005) Income before income tax
  413
  
1,709
 Income taxes
  $(1,256)
  
$(3,296) Net income
Derivatives  
  
 
     
Interest rate swap contracts $490
  
$755
 Interest expense
  490
(b) 
755
 Income before income tax
  (91)
  
(185) Income taxes
  $399
 $570
 Net income

(a)
Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses.  Actuarial losses are reported in other income (deductions), net. For additional information, see Note 9.
(b)
For pre-tax items, positive amounts represent income and negative amounts represent expense.


19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 11.13.   Income Taxes

Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the nine months ended June 30, 20192020 were a benefit of $22,672, compared to an expense of $4,429 compared to an income tax benefit of $18,703 for the first nine months of fiscal 2018.2019. The differences between the Company’s consolidated income taxes for the first nine months of fiscal 2020 versus the same period for fiscal 2019 nine monthprimarily resulted from
20


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 13.   Income Taxes (continued)

the fiscal 2020 consolidated loss before income taxes, which reflected the goodwill write-down recorded during the second quarter of fiscal 2020, which was partially non-deductible, as well as a benefit for an expected net operating loss (“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory rate of 35.0%. The Company’s fiscal 2020 nine-month effective tax rate andvaried from the fiscal 2018 nine month effectiveU.S. statutory tax rate of 21.0% primarily resulted fromdue to state taxes, foreign statutory rate differentials, tax credits, the implementation ofgoodwill write-down, the U.S. Tax Cutsexpected NOL carryback, and Jobs Act (the "Tax Act”)discrete tax benefits recognized during fiscal 2018.the current year. The Company’s fiscal 2019 nine monthnine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to tax planning completed during the second quarter of fiscal 2019 that resulted in a discrete tax benefit. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 and the amounts are no longer considered provisional.

Foreign tax effects: The Company completed the estimate for its one-time transition tax for all of its foreign subsidiaries, resulting in a decrease in income tax expense of $300 for the three months ended December 31, 2018. The one-time transition tax was calculated using an estimate of the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. No additional income taxes have been provided for any remaining undistributed foreign earnings or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

Global intangible low taxed income ("GILTI"): The Tax Act created a new requirement that certain income earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has made the election to treat taxes due on future inclusions related to GILTI as current period expense. The Company was able to make reasonable estimates to calculate a provision that is included in the current period expense. The Company will continue to evaluate and update this provision and the application of ASC 740 - Income Taxes.

The Company had unrecognized tax benefits (excluding penalties and interest) of $14,531$11,834 and $14,827$15,526 on June 30, 20192020 and September 30, 2018,2019, respectively, of which $10,423$8,620 and $10,718$11,417 would impact the annual effective rate.rate at June 30, 2020 and September 30, 2019, respectively. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $2,438$9,034 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitations.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $2,767$2,424 and $2,229$2,880 at June 30, 20192020 and September 30, 2018,2019, respectively.  These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions.  As of June 30, 2019,2020, the tax years that remain subject to examination by major jurisdiction generally are:

United States – Federal20152017 and forward
United States – State2014 and forward
Canada2015 and forward
GermanyCanada2016 and forward
Germany2015 and forward
United Kingdom20172018 and forward
Australia2015 and forward
Singapore20142016 and forward



20


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 12.14.   Segment Information

The Company manages its businesses under three3 segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.  The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries.  The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

Beginning in fiscal 2019, the Company changed itsThe Company's primary measure of segment profitability from operating profit tois adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss.


21


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 14.   Segment Information (continued)

In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company has discontinued allocatingdoes not allocate corporate costs to its reportable segments beginning in fiscal 2019.segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments.
 
The following table sets forth information about the Company's segments, including a reconciliation of adjusted EBITDA to net income.
Three Months Ended
June 30,		Nine Months Ended
June 30,
 2020201920202019
Sales: 
SGK Brand Solutions$165,780  $181,930  $513,515  $557,881  
Memorialization162,118  158,217  478,342  474,279  
Industrial Technologies31,524  39,147  107,309  112,711  
Consolidated Sales$359,422  $379,294  $1,099,166  $1,144,871  

Adjusted EBITDA:    
SGK Brand Solutions$20,846  $29,891  $61,808  $86,612  
Memorialization37,734  36,075  103,020  101,361  
Industrial Technologies4,679  7,278  15,205  15,665  
Corporate and Non-Operating(13,862) (14,290) (41,009) (42,015) 
Total Adjusted EBITDA$49,397  $58,954  $139,024  $161,623  
Acquisition costs (1)**
(304) (2,980) (2,912) (8,386) 
ERP integration costs (2)**
(745) (2,355) (2,160) (6,337) 
Strategic initiatives and other charges (3)**
(5,570) (1,037) (25,040) (3,149) 
Gain (loss) on sale of ownership interests in a subsidiary (4)
11,208  —  11,208  (4,465) 
Legal matter reserve (5)
(10,566) —  (10,566) —  
Non-recurring / incremental COVID-19 costs (6)
(1,871) —  (2,534) —  
Goodwill write-down (7)
—  —  (90,408) —  
Joint Venture depreciation, amortization, interest expense and other charges (8)
(2,473) (866) (4,732) (866) 
Stock-based compensation(2,539) (1,156) (7,078) (6,169) 
Non-service pension and postretirement expense (9)
(2,227) (951) (6,682) (2,852) 
Depreciation and amortization *
(30,168) (20,483) (88,418) (60,759) 
Interest expense(8,082) (10,508) (26,935) (31,068) 
Net loss attributable to noncontrolling interests(420) (205) (491) (541) 
(Loss) income before income taxes(4,360) 18,413  (117,724) 37,031  
Income tax benefit (provision)6,209  (3,989) 22,672  (4,429) 
Net income (loss)$1,849  $14,424  $(95,052) $32,602  


21
22


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 12.14.   Segment Information (continued)
The following table sets forth information about the Company's segments, including a reconciliation of adjusted EBITDA to net income. Segment financial information for the three and nine months ended June 30, 2018 has been revised to present the prior period information on a comparable basis.
  Three Months Ended
June 30,		 Nine Months Ended
June 30,
  2019 2018 2019 2018
Sales:  
SGK Brand Solutions $181,930
 $202,976
 $557,881
 $601,794
Memorialization 158,217
 161,979
 474,279
 475,557
Industrial Technologies 39,147
 46,666
 112,711
 117,785
Consolidated Sales $379,294
 $411,621
 $1,144,871
 $1,195,136
Adjusted EBITDA:        
SGK Brand Solutions $29,891
 $37,003
 $86,612
 $102,954
Memorialization 36,075
 39,677
 101,361
 107,598
Industrial Technologies 7,278
 8,241
 15,665
 16,809
Corporate and Non-Operating (14,290) (15,709) (42,015) (49,198)
Total Adjusted EBITDA $58,954
 $69,212
 $161,623
 $178,163
         
Acquisition costs (1)**
 (2,980) (3,519) (8,386) (9,309)
ERP integration costs (2)**
 (2,355) (2,710) (6,337) (8,278)
Strategic initiatives and other charges (3)**
 (1,037) (647) (3,149) (2,862)
Loss on divestiture (4)
 —
 —
 (4,465) —
Joint Venture depreciation, amortization and interest expense (5)
 (866) —
 (866) —
Stock-based compensation (1,156) (2,399) (6,169) (10,531)
Non-service pension and postretirement expense (6)
 (951) (1,426) (2,852) (4,276)
Depreciation and amortization *
 (20,483) (20,066) (60,759) (57,052)
Interest expense (10,508) (9,719) (31,068) (26,782)
Net loss attributable to noncontrolling interests (205) (69) (541) (201)
Income before income taxes 18,413
 28,657
 37,031
 58,872
Income tax (provision) benefit (3,989) (4,312) (4,429) 18,703
Net income $14,424
 $24,345
 $32,602
 $77,575

(1) Includes certain non-recurring costs associated with recent acquisition activities.
(2) Represents costs associated with global ERP system integration efforts.
(3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels. 
(4) Represents a lossgain (loss) on the sale of a controlling interestownership interests in a subsidiary within the Memorialization business.segment.
(5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 7, "Debt").
(6) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19.
(7) Represents the goodwill write-down for two reporting units within the SGK Brand Solutions segment (see Note 16, "Goodwill and Other Intangible Assets").
(8) Represents the Company's portion of depreciation, intangible amortization, and interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment.
(6)(9) Non-service pension and postretirement expense includes interest cost, expected return on plan assets and amortization of actuarial gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.
* Depreciation and amortization was $12,757$21,833 and $11,718$12,757 for the SGK Brand Solutions segment, $4,840$5,549 and $5,463$4,840 for the Memorialization segment, $1,545$1,450 and $1,554$1,545 for the Industrial Technologies segment, and $1,341$1,336 and $1,331$1,341 for Corporate and Non-Operating, for the three months ended June 30, 20192020 and 2018,2019, respectively. Depreciation and amortization was $37,364$65,274 and $34,550$37,364 for the SGK Brand Solutions segment, $14,898$15,024 and $14,777$14,898 for the Memorialization segment, $4,630$4,320 and $4,156$4,630 for the Industrial Technologies segment, and $3,867$3,800 and $3,569$3,867 for Corporate and Non-Operating, for the nine months ended June 30, 2020 and 2019, and 2018, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $449$1,794 and $2,299$449 for the SGK Brand Solutions segment and $5,923$4,128 and $4,108$5,923 for Corporate and Non-Operating, for the three months ended June 30, 20192020 and 2018,2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $467$697 for the Memorialization segment and $2 for the Industrial Technologies segment for the three months ended June 30, 2018.2020. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3,858$9,058 and $5,484$3,858 for the SGK Brand Solutions segment and $14,014$19,032 and $12,979$14,014 for Corporate and Non-Operating, for the nine months ended June 30, 20192020 and 2018,2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1,397$1,754 for the Memorialization segment and $589$268 for the Industrial Technologies segment, for the nine months ended June 30, 2018.2020.

22


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 13.15.   Acquisitions and Divestitures

Fiscal 2019:

On November 1, 2018 the Company acquired 80% ownership of Frost Converting Systems, Inc. (“Frost”) for a purchase price of approximately $7,183$7,162 (net of cash acquired and holdback amounts, subject to working capital adjustments)amounts). Frost is a leading global supplier of high-performance rotary dies for embossing, creasing and cutting of paperboard packaging and is included in the Company's SGK Brand Solutions segment. The preliminaryCompany finalized the allocation of the purchase price allocation related to the Frost acquisition is not finalized asin the fourth quarter of June 30,fiscal 2019, and is subjectresulting in an immaterial adjustment to changes ascertain working capital accounts.

During fiscal 2019, the Company obtains additional informationcompleted small acquisitions in the Memorialization segment for a combined purchase price of $3,094 (net of cash acquired and holdback amounts). The Company finalized the purchase price allocations related to fixed assets, intangible assets, and other assets and liabilities.

Duringthese acquisitions in the first quarter of fiscal 2020, resulting in an immaterial adjustment to certain working capital accounts.

During fiscal 2019, the Company completed the sale of a 51% ownership interest in a small Memorialization business. Net proceeds from this sale totaled approximately $8,254, and the transaction resulted in the recognition of a $4,465 loss for the nine months ended June 30, 2019, which is included as a component of administrative expenses for the nine months ended June 30, 2019.expenses. Immediately following the transaction, the Company retained a non-controlling interest in this business, which will be accounted for as an equity-method investment.business.

During fiscal 2019, the Company completed a small acquisition in the Memorialization segment for a purchase price of $3,094 (net of cash acquired and holdback amounts, subject to working capital adjustments). The preliminary purchase price allocation is not finalized as of June 30, 2019 and is subject to changes as the Company obtains additional information related to fixed assets, intangible assets, and other assets and liabilities.

Fiscal 2018:

On February 1, 2018, the Company acquired certain net assets of Star Granite and Bronze International, Inc. ("Star Granite") for a total purchase price of $35,961, consisting of cash of $30,961 (net of cash acquired and holdback amounts) and shares of Matthews common stock valued at $5,000. Star Granite manufactures and distributes granite and other memorialization products to cemetery and other customers across the United States and is included in the Company's Memorialization segment. Annual sales for this business were approximately $31,000 prior to the acquisition. The Company finalized the allocation of the purchase price related to the Star Granite acquisition in the second quarter of fiscal 2019, resulting in an immaterial adjustment to certain working capital accounts.

On November 28, 2017, the Company acquired Compass Engineering Group, Inc. ("Compass") for $51,887 (net of cash acquired). Compass provides high-quality material handling control solutions and is included in the Company's Industrial Technologies segment. Annual sales for this business were approximately $24,000 prior to the acquisition. The Company finalized the allocation of the purchase price related to the Compass acquisition in the fourth quarter of fiscal 2018, resulting in an immaterial adjustment to certain working capital accounts.

During fiscal 2018, the Company completed several additional smaller acquisitions for an aggregate purchase price of $39,465 (net of cash acquired and holdback amounts, subject to working capital adjustments). These additional acquisitions strengthen the Company's operations across the SGK Brand Solutions and Memorialization segments. The Company finalized the allocation of purchase price related to certain of these acquisitions in the fourth quarter of fiscal 2018, resulting in an immaterial adjustment to certain working capital amounts. The Company finalized the allocation of the purchase price related to the remaining acquisitions in the third quarter of 2019, resulting in an immaterial adjustment to certain working capital accounts.




23


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)

Note 14.16.   Goodwill and Other Intangible Assets

A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:
 
SGK Brand
Solutions
 Memorialization Industrial Technologies Consolidated
        
Goodwill$491,070
 $376,550
 $92,026
 $959,646
Accumulated impairment losses(5,752) (5,000) —
 (10,752)
Balance at September 30, 2018485,318
 371,550
 92,026
 948,894
        
Additions during period1,506
 3,592
 —
 5,098
Divestiture during period—
 (14,970) —
 $(14,970)
Translation and other adjustments(4,319) 623
 (219) (3,915)
Goodwill$488,257
 $365,795
 $91,807
 $945,859
Accumulated impairment losses(5,752) (5,000) —
 (10,752)
Balance at June 30, 2019$482,505
 $360,795
 $91,807
 $935,107

SGK Brand
Solutions		MemorializationIndustrial TechnologiesConsolidated
Net goodwill at September 30, 2019$395,704  $359,737  $91,366  $846,807  
Additions during period—  —  —  —  
Divestiture during period—  —  —  —  
Translation and other adjustments(1,100) 688  69  (343) 
Goodwill write-down(90,408) —  —  (90,408) 
Net goodwill at June 30, 2020$304,196  $360,425  $91,435  $756,056  
The net goodwill balances at June 30, 2020 and September 30, 2019 included $178,732 and $88,324 of accumulated impairment losses, respectively. Accumulated impairment losses at June 30, 2020 were $173,732 and $5,000 for the SGK Brand Solutions and Memorialization segments, respectively. Accumulated impairment losses at September 30, 2019 were $83,324 and $5,000 for the SGK Brand Solutions and Memorialization segments, respectively.
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 20192020 (January 1, 2020) and determined that the estimated fair valuevalues for all goodwill reporting units exceeded their carrying value, therefore no adjustments to the carrying value of goodwill were necessary. Recent market conditions in the United States have unfavorably impacted the operating results of one of thevalues. The estimated fair values for two reporting units inwithin the Company's SGK Brand Solutions segment. The estimated fair value of this reporting unitsegment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded thetheir carrying valuevalues (expressed as a percentage of carrying value) by approximatelyless than 10% as of January 1, 2020.
On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.
In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in noa re-evaluation of the goodwill impairment for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $90,408 during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of the two reporting unit.units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. If current projections are not achieved or specific valuation factors outside the reporting unit's operating results deteriorate further, an impairment charge couldCompany’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, additional goodwill write-downs may be recognizednecessary in future periods.

24


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 16.   Goodwill and Other Intangible Assets (continued)
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of June 30, 20192020 and September 30, 2018,2019, respectively.
Carrying
Amount		Accumulated
Amortization		Net
June 30, 2020:    
Indefinite-lived trade names$30,540  $—  $30,540  
Definite-lived trade names148,672  (53,941) 94,731  
Customer relationships374,448  (158,819) 215,629  
Copyrights/patents/other20,420  (14,115) 6,305  
 $574,080  $(226,875) $347,205  
September 30, 2019:
   
Indefinite-lived trade names$30,540  $—  $30,540  
Definite-lived trade names148,628  (22,653) 125,975  
Customer relationships374,515  (137,330) 237,185  
Copyrights/patents/other20,463  (13,513) 6,950  
$574,146  $(173,496) $400,650  
 
Carrying
Amount
 
Accumulated
Amortization
 Net
June 30, 2019     
Trade names$33,547
 $—
*$33,547
Trade names145,795
 (11,696) 134,099
Customer relationships376,392
 (130,550) 245,842
Copyrights/patents/other20,706
 (13,399) 7,307
 $576,440
 $(155,645) $420,795
      
September 30, 2018:
 
  
  
Trade names$126,047
 $—
*$126,047
Trade names53,523
 (5,444) 48,079
Customer relationships372,382
 (110,760) 261,622
Copyrights/patents/other20,848
 (12,686) 8,162
     *Not subject to amortization$572,800
 $(128,890) $443,910


The net change in intangible assets during the nine months ended June 30, 20192020 included the impact of foreign currency fluctuations during the period additional amortization, additions related to the Frost acquisition, and reductions from the divestiture of a Memorialization business. During the second quarter of fiscal 2019, the Company reassessed certain of its trade names and converted them from indefinite-lived to definite-lived, and accordingly, these intangible assets are now subject toadditional amortization.

Amortization expense on intangible assets was $9,543$17,825 and $8,334$9,543 for the three-month periods ended June 30, 20192020 and 2018,2019, respectively.  For the nine-month periods ended June 30, 20192020 and 2018,2019, amortization expense was $27,165$53,639 and $23,264,$27,165, respectively. Amortization expense is estimated to be $9,705$17,844 for the remainder of fiscal 2019, $37,226 in 2020, $35,753$60,156 in 2021, $34,112$46,766 in 2022, $27,833 in 2023 and $32,504$26,214 in 2023.

2024.
24
25




Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES:

The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation ("Matthews" or the "Company") and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018.2019.  Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.  Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company's products, changes in mortality and cremation rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of domestic or international competitive pressures, ability to achieve cost-reduction objectives, unknown risks in connection with the Company's acquisitions, cybersecurity concerns, effectiveness of the Company's internal controls, compliance with domestic and foreign laws and regulations, technological factors beyond the Company's control, impact of pandemics or similar outbreaks, such as coronavirus disease 2019 ("COVID-19") or other disruptions to our industries, customers or supply chains, and other factors described in Item 1A - "Risk Factors" in this Form 10-Q and Item 1A - "Risk Factors" in the Company's Form 10-K for the fiscal year ended September 30, 2018.2019.  In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors. Matthews cautions that the foregoing list of important factors is not all inclusive. Readers are also cautioned not to place undue reliance on any forward looking statements, which reflect management's analysis only as of the date of this report, even if subsequently made available by Matthews on its website or otherwise. Matthews does not undertake to update any forward looking statement, whether written or oral, that may be made from time to time by or on behalf of Matthews to reflect events or circumstances occurring after the date of this report.

Included in this report are measures of financial performance that are not defined by generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures assist management in comparing the Company's performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company's core operations. For additional information and reconciliations from the consolidated financial statements see "Non-GAAP Financial Measures" below.


RESULTS OF OPERATIONS:

The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

Beginning in fiscal 2019, the Company changed itsThe Company's primary measure of segment profitability from operating profit tois adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss.

26
25



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company has discontinued allocatingdoes not allocate corporate costs to its reportable segments beginning in fiscal 2019.segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments.

The following table sets forth the sales and adjusted EBITDA for the Company's three reporting segments for the three and nine-month periods ended June 30, 20192020 and 2018. Segment financial information for the three and nine months ended June 30, 2018 has been revised to present the prior period information on a comparable basis.2019. Refer to Note 12,14, "Segment Information" in Item 1 - "Financial Statements" for the Company's financial information by segment.

  Three Months Ended
June 30,		 Nine Months Ended
June 30,
  2019 2018 2019 2018
Sales: (Dollar amounts in thousands)
SGK Brand Solutions $181,930
 $202,976
 $557,881
 $601,794
Memorialization 158,217
 161,979
 474,279
 475,557
Industrial Technologies 39,147
 46,666
 112,711
 117,785
Consolidated Sales $379,294
 $411,621
 $1,144,871
 $1,195,136
Three Months Ended
June 30,		Nine Months Ended
June 30,
Adjusted EBITDA:        
2020201920202019
Sales:Sales:(Dollar amounts in thousands)
SGK Brand Solutions $29,891
 $37,003
 $86,612
 $102,954
SGK Brand Solutions$165,780  $181,930  $513,515  $557,881  
Memorialization 36,075
 39,677
 101,361
 107,598
Memorialization162,118  158,217  478,342  474,279  
Industrial Technologies 7,278
 8,241
 15,665
 16,809
Industrial Technologies31,524  39,147  107,309  112,711  
Corporate and Non-Operating (14,290) (15,709) (42,015) (49,198)
Total Adjusted EBITDA (1)
 $58,954
 $69,212
 $161,623
 $178,163
Consolidated SalesConsolidated Sales$359,422  $379,294  $1,099,166  $1,144,871  

Adjusted EBITDA:    
SGK Brand Solutions$20,846  $29,891  $61,808  $86,612  
Memorialization37,734  36,075  103,020  101,361  
Industrial Technologies4,679  7,278  15,205  15,665  
Corporate and Non-Operating(13,862) (14,290) (41,009) (42,015) 
Total Adjusted EBITDA (1)
$49,397  $58,954  $139,024  $161,623  
(1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.

Beginning in the second quarter of fiscal 2020, sales were unfavorably impacted by the global outbreak of COVID-19, which has caused some commercial impact and business disruptions in certain of the Company's segments and geographic locations. While substantially all of the Company's operations have remained open during the COVID-19 pandemic, management expects COVID-19 to unfavorably impact its sales and results of operations in the short-term and for the remainder of fiscal 2020 (see "Forward Looking Information" below).

Sales for the nine months ended June 30, 20192020 were $1.14$1.10 billion, compared to $1.20$1.14 billion for the nine months ended June 30, 2018,2019, representing a decrease of $50.3$45.7 million.  The decrease in fiscal 2020 sales reflected lower sales in the SGK Brand Solutions and Industrial Technologies segments, partially offset by increased sales in the Memorialization segment. Changes in foreign currency rates were estimated to have an unfavorable impact of $27.1$10.4 million on fiscal 20192020 consolidated sales compared to a year ago. The decrease in fiscal 2019 sales also reflected lower sales in the U.S. and U.K. for the SGK Brand Solutions segment, reduced sales of caskets and mausoleums for the Memorialization segment, and lower product identification and applied technologies sales for the Industrial Technologies segment. These decreases were partially offset by sales growth in the private label brand market, increased sales of surfaces and engineered products, and higher sales in Europe for the SGK Brand Solutions segment, higher sales of cremation and incineration equipment in the U.K. for the Memorialization segment, increased sales of warehouse automation systems for the Industrial Technologies segment, and benefits from recently completed acquisitions, net of divestitures (see "Acquisitions and Divestitures" below).


In the SGK Brand Solutions segment, sales for the first nine months of fiscal 20192020 were $557.9$513.5 million, compared to $601.8$557.9 million for the first nine months of fiscal 2018.2019.  The decrease primarily resulted from lower brand sales in the U.S. and the U.K., sales declines in the private label brand market, and lower sales of cylinders, surfaces and engineered products in Europe. These decreases were partially offset by sales growth in the Asia-Pacific region and increased sales for the merchandising solutions business. Changes in foreign currency exchange rates had an unfavorable impact of $22.9$8.5 million on the segment's sales compared to the prior year. The decrease also resulted from lower sales in the U.S., reflecting a significant brand client electing to transition their work internally (approximately $19 million impact on sales), and lower sales in the U.K. These decreases were partially offset by sales growth in the private label brand market, increased sales of surfaces and engineered products, increased sales in Europe, and benefits from the recently completed acquisition of Frost Converting Systems, Inc. Memorialization segment sales for the first nine months of fiscal 20192020 were $474.3$478.3 million, compared to $475.6$474.3 million for the first nine months of fiscal 2018.2019. The increase in sales decreaseprimarily resulted from lowerincreased unit sales of caskets (reflecting an estimated decline in U.S. casketed deaths), lower sales of mausoleums, the impact of unfavorable changes in foreign currencies against the U.S. dollar, and the divestiture of a small pet cremation business in fiscal 2019. These decreases were partially offset by increasedhigher sales of cremation and incineration equipment in the U.K., and benefits from the February 2018 acquisitionequipment. These increases were partially offset by lower unit sales of Star Granite and Bronze International, Inc.cemetery memorial products, which were impacted by COVID-19 related stay-at-home orders that limited families' access with cemeteries to arrange for their memorials. Changes in foreign currency exchange rates had an unfavorable impact of $2.3$1.1 million on the segment's sales compared to the prior year. Industrial Technologies segment sales were $107.3 million for the first nine months of fiscal 2020, compared to $112.7 million for the first nine months of fiscal 2019, compared to $117.8 million for the first nine months of fiscal 2018.2019. The decrease reflected lower product identificationsales of warehouse automation systems and decreased applied technologies sales, partially offset by higher
27


26



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


applied technologies sales, partially offset by higher sales ofproduct identification sales. Orders for warehouse automation systems, and benefits from the November 2017 acquisition of Compass Engineering Group, Inc. ("Compass Engineering").solutions remained strong, but access to job sites to complete these projects has been restricted due to COVID-19. Changes in foreign currency exchange rates also had an unfavorable impact of $1.9 million$824,000 on the segment's sales compared to the prior year.

Gross profit for the nine months ended June 30, 20192020 was $399.9$361.4 million, compared to $434.7$399.9 million for the same period a year ago.  Consolidated gross profit as a percent of sales was 34.9%32.9% and 36.4%34.9% for the first nine months of fiscal 20192020 and fiscal 2018,2019, respectively.  The decrease in gross profit primarily reflected lower sales, higher material costs, increased transportation costs,unfavorable changes in product mix, ongoing price competition in the brand market, and unfavorable changes in foreign currency values againstmargins for cylinders, surfaces and engineered products within the U.S. dollar.SGK Brand Solutions segment. These declines were partially offset by the benefits from recently completed acquisitions, and the realization of acquisition synergiesproductivity improvements and productivity improvements.cost-reduction initiatives. Gross profit also included acquisition integration costs and other charges totaling $1.5$6.6 million and $1.3$1.5 million for the nine months ended June 30, 20192020 and 2018,2019, respectively.

Selling and administrative expenses for the nine months ended June 30, 20192020 were $302.6$302.2 million, compared to $321.6$302.6 million for the first nine months of fiscal 2018.2019.  Consolidated selling and administrative expenses, as a percent of sales, were 26.4%27.5% for the nine months ended June 30, 2019,2020, compared to 26.9%26.4% for the same period last year.  The decrease in selling and administrative expenses primarily reflected benefits from ongoing cost reduction initiatives, including acquisition synergies, a reduction in performance-based compensation compared to fiscal 2018, and the impact of lower sales in fiscal 2019. These decreases were partially offset by additional expenses from recently completed acquisitions, and the recognition of a $4.5 million loss on the divestiture of a controlling interest in a pet cremation business. Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost reductioncost-reduction initiatives totaling $25.6 million in fiscal 2020, compared to $16.3 million in fiscal 2019, compared to $19.22019. Fiscal 2020 selling and administrative expenses also included a $10.6 million charge for a legal matter involving a letter of credit for a customer in Saudi Arabia (see "Liquidity and Capital Resources" below). These increases in selling and administrative expenses were partially offset by the impact of lower sales in fiscal 2018.2020, reduced travel and entertainment costs resulting from the COVID-19 pandemic, and benefits from ongoing cost-reduction initiatives. Selling and administrative expenses also included an $11.2 million gain and a $4.5 million loss recognized on the sales of ownership interests in a Memorialization business completed in fiscal 2020 and 2019, respectively. Intangible amortization for the nine months ended June 30, 20192020 was $27.2$53.6 million, compared to $23.3$27.2 million for the nine months ended June 30, 2018.2019. The increase in intangible amortization primarily reflected $1.5 million of incremental amortization related to recently completed acquisitions, and $3.1$25.0 million of incremental amortization resulting from the conversion offiscal 2019 reduction in useful lives for certain trade names from indefinite-lived to definite-lived duringthat are being discontinued. During the second quarter of fiscal 2019.2020, the Company recorded a goodwill write-down totaling $90.4 million related to its two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products). Refer to Note 16, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements" for further details.

Adjusted EBITDA was $139.0 million for the nine months ended June 30, 2020 and $161.6 million for the nine months ended June 30, 2019 and $178.2 million for the nine months ended June 30, 2018.2019. Adjusted EBITDA for the SGK Brand Solutions segment was $86.6$61.8 million for the first nine months of fiscal 20192020 compared to $103.0$86.6 million for the same period a year ago. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, in the U.S. and U.K., and the impact of unfavorable changes in foreign currencies against the U.S. dollar.product mix, ongoing price competition, and a decline in margins for cylinders, surfaces and engineered products. Changes in foreign currency exchange rates had an unfavorable impact of $3.5$1.5 million on the segment's adjusted EBITDA compared to the prior year. These decreases in segment adjusted EBITDA were partially offset by the impact of sales growth in the private label brand market,Asia-Pacific region and a reduction in performance-based compensation compared to fiscal 2018.benefits from cost-reduction initiatives. Memorialization segment adjusted EBITDA was $103.0 million for the first nine months of fiscal 2020 compared to $101.4 million for the first nine months of fiscal 2019 compared to $107.6 million for the first nine months of fiscal 2018.2019. The decreaseincrease in segment adjusted EBITDA reflected the impact of lowerhigher sales of caskets and mausoleums, and higher material and transportation costs. These decreases werebenefits from productivity initiatives, partially offset by benefits from the acquisitionlower margins on sales of Star Granite,cremation and the favorable impact of acquisition synergies and other productivity initiatives.incineration products. Adjusted EBITDA for the Industrial Technologies segment for the nine months ended June 30, 20192020 was $15.7$15.2 million, compared to $16.8$15.7 million for the same period a year ago. Industrial Technologies segment adjusted EBITDA reflected the impact of lower product identificationsales of warehouse automation systems and decreased applied technologies sales, and higher investments in the segment's product development, partially offset by the impact of higher sales of warehouse automation systems and a reduction in performance-based compensation compared to fiscal 2018.product identification sales.

Investment income was $1.4 million for both the nine months ended June 30, 2019, compared to $931,000 for2020 and the nine months ended June 30, 2018. The increase2019. Investment income for both periods primarily reflected increaseschanges in the value of investments (primarily marketable securities) held in trust for certain of the Company's benefit plans.  Interest expense for the first nine months of fiscal 20192020 was $31.1$26.9 million, compared to $26.8$31.1 million for the same period last year.  The increasedecrease in interest expense reflected an increaselower average interest rates and a decrease in average borrowing levels primarily related to acquisitions, higher average interest rates in the current fiscal year, and incremental financing costs associated with the 5.25% Senior Notes (see "Liquidity and Capital Resources" below).year.  Other income (deductions), net, for the nine months ended June 30, 20192020 represented a decrease in pre-tax income of $3.4$7.4 million, compared to a decrease in pre-tax income of $5.2$3.4 million for the same period last year.  Other income (deductions), net generally includeincludes the non-service components of pension and postretirement expense, which totaled $6.7 million and $2.9 million for the nine months ended June 30, 2020 and 2019, respectively. Refer to Note 11, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" for further details. Other income (deductions), net also includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. Other income (deductions), net also includes the non-service components of pension and postretirement expense (see "Recently Issued Accounting Pronouncements" below), which totaled $2.9 million and $4.3 million for the nine months ended June 30, 2019 and 2018, respectively.


27
28



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the nine months ended June 30, 20192020 were a benefit of $22.7 million, compared to an expense of $4.4 million, compared to an income tax benefit of $18.7 million for the first nine months of fiscal 2018.2019. The differences between the Company'sCompany’s consolidated income taxes for the first nine months of fiscal 2019 nine month effective tax rate and2020 versus the same period for fiscal 2018 nine month effective tax rate2019 primarily resulted from the implementationfiscal 2020 consolidated loss before income taxes, which reflected the goodwill write-down recorded during the second quarter of fiscal 2020 which was partially non-deductible, as well as a benefit for an expected net operating loss (“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory rate of 35%. The Company’s fiscal 2020 nine-month effective tax rate varied from the U.S. Tax Cutsstatutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, the goodwill write-down, the expected NOL carryback, and Jobs Act (the "Tax Act")discrete tax benefits recognized during fiscal 2018.the current year. The Company’s fiscal 2019 nine monthnine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to tax planning completed during the second quarter of fiscal 2019 that resulted in a discrete tax benefit. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 and the amounts are no longer considered provisional.

Net losses attributable to noncontrolling interests were $541,000$491,000 for the nine months ended June 30, 2019,2020, compared to $201,000net losses of $541,000 for the same period a year ago.  The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.


NON-GAAP FINANCIAL MEASURES:

Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense. Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures.

The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business. Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations. This measure may be useful to an investor in evaluating operating performance. It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance. Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. The Company's definition of adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

29
28



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


The reconciliation of net income to adjusted EBITDA is as follows:
Three Months Ended
June 30,		Nine Months Ended
June 30,
2020201920202019
(Dollar amounts in thousands)
Net income (loss)$1,849  $14,424  $(95,052) $32,602  
Income tax (benefit) provision(6,209) 3,989  (22,672) 4,429  
(Loss) income before income taxes(4,360) 18,413  (117,724) 37,031  
Net losses attributable to noncontrolling interests420  205  491  541  
Interest expense8,082  10,508  26,935  31,068  
Depreciation and amortization *
30,168  20,483  88,418  60,759  
Acquisition costs (1)**
304  2,980  2,912  8,386  
ERP integration costs (2)**
745  2,355  2,160  6,337  
Strategic initiatives and other charges (3)**
5,570  1,037  25,040  3,149  
(Gain) loss on sale of ownership interests in a subsidiary (4)
(11,208) —  (11,208) 4,465  
Legal matter reserve (5)
10,566  —  10,566  —  
Non-recurring / incremental COVID-19 costs (6)
1,871  —  2,534  —  
Goodwill write-down (7)
—  —  90,408  —  
Joint Venture depreciation, amortization, interest expense and other charges (8)
2,473  866  4,732  866  
Stock-based compensation2,539  1,156  7,078  6,169  
Non-service pension and postretirement expense (9)
2,227  951  6,682  2,852  
Total Adjusted EBITDA$49,397  $58,954  $139,024  $161,623  
 Three Months Ended
June 30,		 Nine Months Ended
June 30,
 2019 2018 2019 2018
 (Dollar amounts in thousands)
Net income$14,424
 $24,345
 $32,602
 $77,575
Income tax provision (benefit)3,989
 4,312
 4,429
 (18,703)
Income before income taxes18,413
 28,657
 37,031
 58,872
Net loss attributable to noncontrolling interests205
 69
 541
 201
Interest expense10,508
 9,719
 31,068
 26,782
Depreciation and amortization *
20,483
 20,066
 60,759
 57,052
Acquisition costs (1)**
2,980
 3,519
 8,386
 9,309
ERP integration costs (2)**
2,355
 2,710
 6,337
 8,278
Strategic initiatives and other charges (3)**
1,037
 647
 3,149
 2,862
Loss on divestiture (4)
—
 —
 4,465
 —
Joint Venture depreciation, amortization and interest expense (5)
866
 —
 866
 —
Stock-based compensation1,156
 2,399
 6,169
 10,531
Non-service pension and postretirement expense (6)
951
 1,426
 2,852
 4,276
Total Adjusted EBITDA$58,954
 $69,212
 $161,623
 $178,163
(1) Includes certain non-recurring costs associated with recent acquisition activities.
(2) Represents costs associated with global ERP system integration efforts.
(3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels. 
(4) Represents a (gain) loss on the sale of a controlling interestownership interests in a subsidiary within the Memorialization business.segment.
(5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 7, "Debt" in Item 1 - "Financial Statements").
(6) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19.
(7) Represents the goodwill write-down for two reporting units within the SGK Brand Solutions segment (see Note 16, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements").
(8) Represents the Company's portion of depreciation, intangible amortization, and interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment.
(6)(9) Non-service pension and postretirement expense includes interest cost, expected return on plan assets and amortization of actuarial gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.
* Depreciation and amortization was $12.8$21.8 million and $11.7$12.8 million for the SGK Brand Solutions segment, $4.8$5.5 million and $5.5$4.8 million for the Memorialization segment, $1.5$1.5 million and $1.6$1.5 million for the Industrial Technologies segment, and $1.3$1.3 million and $1.3$1.3 million for Corporate and Non-Operating, for the three months ended June 30, 20192020 and 2018,2019, respectively. Depreciation and amortization was $37.4$65.3 million and $34.6$37.4 million for the SGK Brand Solutions segment, $14.9$15.0 million and $14.8$14.9 million for the Memorialization segment, $4.6$4.3 million and $4.2$4.6 million for the Industrial Technologies segment, and $3.9$3.8 million and $3.6$3.9 million for Corporate and Non-Operating, for the nine months ended June 30, 2020 and 2019, and 2018, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $0.4$1.8 million and $2.3 million$449,000 for the SGK Brand Solutions segment and $5.9$4.1 million and $4.1$5.9 million for Corporate and Non-Operating, for the three months ended June 30, 20192020 and 2018,2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $0.5 million$697,000 for the Memorialization segment and $0.0 million for the Industrial Technologies segment for the three months ended June 30, 2018.2020. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3.9$9.1 million and $5.5$3.9 million for the SGK Brand Solutions segment and $14.0$19.0 million and $13.0$14.0 million for Corporate and Non-Operating, for the nine months ended June 30, 20192020 and 2018,2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.4$1.8 million for the Memorialization segment and $0.6 million$268,000 for the Industrial Technologies segment, for the nine months ended June 30, 2018.2020.

30



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $123.6 million for the first nine months of fiscal 2020, compared to $89.4 million for the first nine months of fiscal 2019, compared to $82.8 million for the first nine months of fiscal 2018.2019.  Operating cash flow for both periods reflectedprincipally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net (gains) losses related to investments, non-cash pension expense, and other non-cash adjustments.adjustments, and changes in working capital items. Net changes in working capital items which reflectedcontributed $41.7 million to operating cash flow in fiscal 2020, reflecting decreases in accounts receivable and changes in other accounts. Net changes in working capital items reduced operating cash flow by $14.5 million in fiscal 2019, reflecting decreases in accounts receivable and accrued compensation, increases in inventory, and changes in other accounts (including increased amounts recognized in excess of billings for certain customer projects), resulted in a use of working capital of approximately $14.5 million in fiscal 2019. Net changes. The favorable movements in working capital items, which reflected increases in inventory, decreases in accounts payable, and changes in other accounts, resulted in a use of working capital of approximately $5.9 million in fiscal 2018.2020 primarily reflected enhanced accounts receivable collection efforts as the Company has been focusing its efforts on cash management.

29



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


Cash provided by investing activities was $7.4 millionfor the nine months ended June 30, 2020, compared to cash used in investing activities wasof $66.8 million for the nine months ended June 30, 2019, compared to $160.6 million2019.  Investing activities for the first nine months ended June 30, 2018.of fiscal 2020 primarily reflected capital expenditures of$25.5 million, proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business, and investments and advances of $9.7 million.  Investing activities for the first nine months of fiscal 2019 primarily reflected capital expenditures of $32.0 million, acquisition payments (net of cash acquired or received from sellers) totaling $11.5 million, proceeds of $8.3 million from the divestituresale of a controlling interest in a small pet cremationMemorialization business, and additional investments made in non-consolidated subsidiaries of $33.1 million.  Investing activities for the first nine months of fiscal 2018 primarily reflected capital expenditures of $32.2 million, acquisition payments (net of cash acquired or received from sellers) totaling $120.0 million, and the purchase of an investment for $11.9 million.

Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements.  Capital expenditures for the last three fiscal years were primarily financed through operating cash.  Capital spending for property, plant and equipment has averaged $43.0$41.9 million for the last three fiscal years.  Capital spending for fiscal 20192020 is currently expectedestimated to be in the range of $45.0$35 million to $40 million.  The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cashused infinancing activities for the nine months ended June 30, 2020 was$123.1 million, primarily reflecting repayments, net of proceeds, on long-term debt of $92.1 million, treasury stock purchases of $2.4 million, dividends of $19.8 million to the Company's shareholders, $4.7 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million (see below). Cash used in financing activities for the nine months ended June 30, 2019 was $30.2 million, primarily reflecting proceeds, net of repayments, on long-term debt of $16.4 million, treasury stock purchases of $21.8 million, dividends of $19.3 million to the Company's shareholders and $3.4 million of holdback and contingent consideration payments related to a fiscal 2018 acquisition. Cash provided by financing activities for the nine months ended June 30, 2018 was $75.8 million, primarily reflecting proceeds, net of repayments, on long-term debt of $114.4 million, treasury stock purchases of $20.1 million, and dividends of $18.5 million to the Company's shareholders.acquisitions.

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement includes a $900.0$750.0 million senior secured revolving credit facility, which matures in March 2025, and a $250.0$35.0 million senior secured amortizing term loan.loan, which matures in July 2021. A portion of the revolving credit facility (not to exceed $150.0$350.0 million) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal payments of 5.0% of the outstanding principal in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments.  Pursuant to the terms of the domestic credit facility agreement, principal payments may be made on the term loan prior to the scheduled due dates. The balance of the revolving credit facility and the term loan are due on theits maturity date of April 26, 2021.date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.5%(1.50% at June 30, 2019)2020) based on the Company's secured leverage ratio.  The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.25%0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs of approximately $2.0 million in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35.0 million) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at June 30, 20192020 and September 30, 20182019 were $360.1$275.0 million and $319.5$325.6 million, respectively. During the third quarter of fiscal 2019, the Company borrowed €125.0 million on the revolving credit facility. Proceeds from the Euro denominated borrowing were used to make a principal payment of $140 million on the outstanding balance of the term loan. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2020 and September 30, 2019 were €125.0 million ($142.2140.4 million). There were no Euro denominated borrowings on the revolving credit facility at September 30, 2018. and €125.0 million ($136.5 million), respectively. Outstanding borrowings on the term loan at June 30, 20192020 and September 30, 20182019 were $53.5$28.6 million and $212.1$53.5 million, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at June 30, 2020 and 2019 was 2.44% and June 30, 2018 was 2.75% and 2.82%, respectively.
31



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

The Company has $300.0 million of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $2.9 million and $3.3 million at June 30, 2020 and September 30, 2019, respectively.

The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutionsinstitutions. The Securitization Facility, which matures onhad a maturity date of April 11, 2020, and the Company intendswas amended in March 2020 to extend this facility.the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables

30



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at June 30, 20192020 and September 30, 20182019 were $98.9$85.3 million and $102.3$94.0 million, respectively. At June 30, 20192020 and 2018,2019, the interest rate on borrowings under this facility was 3.15%0.91% and 2.84%3.15%, respectively.

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges (dollar amounts in thousands):
June 30, 2020September 30, 2019
Pay fixed swaps - notional amount$343,750  $293,750  
Net unrealized loss$(6,269) $(534) 
Weighted-average maturity period (years)2.61.9
Weighted-average received rate0.16 %2.02 %
Weighted-average pay rate1.33 %1.41 %
  June 30, 2019 September 30, 2018
Pay fixed swaps - notional amount $300,000
 $343,750
Net unrealized gain $775
 $11,309
Weighted-average maturity period (years) 2.2
 2.7
Weighted-average received rate 2.40% 2.26%
Weighted-average pay rate 1.40% 1.37%

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring.  Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized gain,loss, net of unrealized losses,gains, of $775,000$6.3 million ($585,0004.7 million after tax) at June 30, 20192020 and an unrealized gainloss, net of $11.3 millionunrealized gains, of $534,000 ($8.5 million403,000 after tax) at September 30, 2018.2019. The net unrealized gain lossis included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").  Assuming market rates remain constant with the rates at June 30, 2019,2020, a gainloss (net of tax) of approximately $452,000$2.2 million included in AOCI is expected to be recognized in earnings over the next twelve months.

The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €35.0 million ($39.839.3 million).  The credit facility matures in December 20192020 andthe Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €4.3€12.1 million ($4.913.6 million) and €2.8€12.8 million ($3.214.0 million) at June 30, 20192020 and September 30, 2018,2019, respectively. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 20192020 and 20182019 was 1.25% and 1.75%, respectively..

The Company’s German subsidiary, Matthews Europe GmbH, & Co. KG, hashad €15.0 million ($17.1 million)16.4 million at September 30, 2019) of senior unsecured notes with European banks.  The notes are guaranteed by Matthews and maturematured in November 2019.  A portion of the notes (€5.0 million) have a fixed interest rate of 1.40%, and the remainder bear interest2019 at Euro LIBOR plus 1.40%.which point they were paid.  The weighted-average interest rate on the notes at June 30, 2019 and 2018 was 1.40%.

OtherFinance lease liabilities included as a component of debt totaled $2.9$10.2 millionand $5.4$3.6 million at June 30, 20192020 and September 30, 2018,2019, respectively. See Note 8, "Leases" in Item 1 - "Financial Statements" for further discussion on the Company's lease obligations. Other debt totaled $10.7 million and $395,000 at June 30, 2020 and September 30, 2019, respectively. The weighted-average interest rate on these outstanding borrowingsother debt was 5.81%2.14% and 3.08%5.81% at June 30, 20192020 and 2018, June 30, 2019,
32



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

respectively. The Company was in compliance with all of its debt covenants as of June 30, 2019.

The2020.The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $1.0$374,000 (net of income taxes of $121,000) and $3.3 million (net of income taxes of $325,000)$1.1 million), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for the three and nine months endedat June 30, 2019. The Company did not have any net investment hedges in the prior year.2020 and September 30, 2019, respectively.

In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8.6 million ($10.910.6 million at June 30, 2019)2020) with respect to a performance guarantee on an environmental solutionsincineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.KU.K. Court ruled completely in favor of Matthews following a trial on the merits. However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be

31



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued


in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia. The Company is currently pursuingcontinues to pursue a trial on the merits in Saudi Arabia whichArabia; however, given the recent COVID-19 pandemic, the trial is schedulednow not likely to conclude inuntil calendar year 2019. It is necessary to obtain an equivalent favorable ruling in2021. As the courts of Saudi Arabia to effectively enforce judgmentCompany has successfully completed the project and commence collection efforts. Thesubsequently operated the equipment, the Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the U.K. Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations.   The Company’s level of success in recovering funds from the customer will depend upon a number ofseveral factors including a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of cooperation fromsupport of the Saudi Arabian government to enforce a potential judgment against the creditor. Thecustomer.

During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company has determined that resolutionwill not be able to support the operation of this matter may take anthe incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered collectively with the extended perioddelay in the trial date and other collectability risks, the Company established a reserve for the full value of time and therefore has classified the funded letter of credit as of June 30, 2020. The funded letter of credit was previously classified within other assets on the Consolidated Balance SheetsSheet as of June 30, 2019 and September 30, 2018.2019. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

The Company has a stock repurchase program.  Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 852,618638,736 shares remain available for repurchase as of June 30, 2019.2020. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share.  Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation.

The Company is currently evaluating the Coronavirus Aid, Relief, and Economic Security Act (commonly referred to as the CARES Act) and other similar economic relief initiatives that have been enacted in response to COVID-19. The Company expects to utilize certain provisions allowing for the deferral of payments for certain taxes, primarily U.S. payroll taxes, which are estimated to be approximately $9.0 million for fiscal 2020.

Consolidated working capital of the Company was $300.4$264.6 million at June 30, 2019,2020, compared to $328.7$303.8 million at September 30, 2018.2019.  Cash and cash equivalents were $33.6$42.9 million at June 30, 2019,2020, compared to $41.6$35.3 million at September 30, 2018.2019.  The Company's current ratio was 2.01.9 and 2.1 at June 30, 20192020 and September 30, 2018,2019, respectively.


ENVIRONMENTAL MATTERS:

The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment.  These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations.  As such, the Company has developed environmental, health, and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.
33



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

The Company is party to various environmental matters.  These include obligations to investigate and mitigate the effects on the environment of non-operating former manufacturing sites acquired through corporate acquisitions and the disposal of certain materials at non-owned waste management facilities.  The Company is currently performing environmental assessments and remediation at these sites, as appropriate.

At June 30, 2019, an accrual of approximately $1.6 million had been recorded for environmental remediation (of which $600,000 was classified in other current liabilities), related to the non-operating former manufacturing sites, representing management's best estimate of the probable and reasonably estimable costs of known remediation obligations for one of the Company's subsidiaries.  The accrual does not consider the effects of inflation and anticipated expenditures are not discounted to their present value.  Changes in the accrued environmental remediation obligation from the prior fiscal year reflect payments charged against the accrual. While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.


ACQUISITIONS AND DIVESTITURES:

Refer to Note 13,15, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures.


32



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued



FORWARD-LOOKING INFORMATION:

The Company's current strategy to attain annual growth in earnings per share primarily consists of the following:  internal growth (which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products), acquisitions and integration activities to achieve synergy benefits and share repurchases.

The significant factors (excluding acquisitions) influencing sales growth in the SGK Brand Solutions segment are global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation. Due to the global footprint of this segment, currency fluctuations can also be a significant factor. For the Memorialization segment, North America death rates, the cremation trend, and price realization impact sales growth for the Company's bronze and granite memorials, caskets and cremation-relatedcremation and incineration-related products. For the Industrial Technologies segment, sales growth drivers include economic/industrial market conditions, new product development, and the e-commerce trend.

With respect to the remainder ofDuring fiscal 2019, the Company initiated a strategic evaluation to improve profitability and reduce the Company's cost structure. These actions leveraged the benefit of the Company's new global ERP platform, primarily targeted at the SGK Brand Solutions segment, both operational and commercial structure, and the Company's shared financial services and other administrative functions. This evaluation identified opportunities for significant cost structure improvements, which the Company expects to continueachieve through fiscal 2022.  The Company's recent strategic review has also resulted in improvements to devotethe commercial structure within the SGK Brand Solutions segment, including the consolidation of several of the segment's trade names. As a significantresult, the amortization of these intangible assets will significantly increase in fiscal 2020 through fiscal 2022.

On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.

Considerable judgement is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results. Management expects that each of its business segments will experience some level of effortunfavorable sales impacts in the short-term, primarily due to customer business disruptions, facilities shut-downs, weaker global economic conditions, and potential customer project delays. Longer-term financial impacts will depend on global economic conditions eventually resulting from COVID-19. Management expects each of its businesses to experience increased financial volatility in the integrationsshort-term, but currently anticipates its core businesses will return to a more normalized future state once the COVID-19 pandemic subsides.

34



Item 2.   Management's Discussion and Analysis of recent acquisitions,Financial Condition and systems integration.  The costs associated with these integrations will impact the Company's operating results for fiscal 2019.  Consistent with its practice, the Company plans to identify these costs on a quarterly basis as incurred.Results of Operations, Continued


CRITICAL ACCOUNTING POLICIES:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques.  Actual results may differ from those estimates.   A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018.2019.

A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2018.2019.  Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 20192020 (January 1, 2020) and determined that the estimated fair valuevalues for all goodwill reporting units exceeded their carrying value, therefore no adjustments to the carrying value of goodwill were necessary. Recent market conditions in the United States have unfavorably impacted the operating results of one of thevalues. The estimated fair values for two reporting units inwithin the Company's SGK Brand Solutions segment. The estimated fair value of this reporting unitsegment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded thetheir carrying valuevalues (expressed as a percentage of carrying value) by approximatelyless than 10% as of January 1, 2020.

In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in noa re-evaluation of the goodwill impairment for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $90.4 million during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of the two reporting unit.units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. If current projections are not achieved or specific valuation factors outside the reporting unit's operating results deteriorate further, an impairment charge couldCompany’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, additional goodwill write-downs may be recognizednecessary in future periods.

33



Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued



LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at June 30, 2019,2020, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
 Payments due in fiscal year:
Total2020
Remainder
2021 (1) to 2022
2023 to 2024After
2024
Contractual Cash Obligations:(Dollar amounts in thousands)
Revolving credit facilities$428,988  $—  $13,617  $—  $415,371  
Securitization Facility85,270  —  85,270  —  —  
Senior secured term loan28,563  —  28,563  —  —  
2025 Senior Notes383,746  —  31,500  31,500  320,746  
Finance lease obligations (2)
11,113  957  6,529  1,527  2,100  
Non-cancelable operating leases (2)
78,980  6,738  42,029  20,065  10,148  
Other19,381  1,072  7,780  2,867  7,662  
Total contractual cash obligations$1,036,041  $8,767  $215,288  $55,959  $756,027  
(1)The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $13.6 million. These balances have been classified as non-current on the Company's Consolidated Balance Sheet.
(2)Lease obligations have not been discounted to their present value.
35


 Payments due in fiscal year:
 Total 
2019
Remainder
 2020 to 2021 2022 to 2023 
After
2023
Contractual Cash Obligations:(Dollar amounts in thousands)
Revolving credit facilities$507,151
 $12,457
 $494,694
 $—
 $—
Securitization Facility98,850
 —
 98,850
 —
 —
Senior secured term loan53,456
 6,250
 47,206
 —
 —
2025 Senior Notes398,956
 —
 31,500
 31,500
 335,956
Notes payable to banks17,253
 190
 17,063
 —
 —
Short-term borrowings2,727
 2,727
 —
 —
 —
Capital lease obligations4,403
 242
 1,019
 698
 2,444
Non-cancelable operating leases85,699
 7,542
 41,957
 21,091
 15,109
Other11,608
 843
 5,953
 3,820
 992
          
Total contractual cash obligations$1,180,103
 $30,251
 $738,242
 $57,109
 $354,501

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

A significant portion of the loans included in the table above bear interest at variable rates.  At June 30, 2019,2020, the weighted-average interest rate was 2.75%2.44% on the Company's domestic credit facility, 3.15%0.91% on the Company's Securitization Facility and 1.25% on the credit facility through the Company's European subsidiaries, 1.40% on notes issued by the Company's wholly-owned subsidiary, Matthews Europe GmbH & Co. KG, and 5.81% on other outstanding debt.subsidiaries.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations. In accordance with this bill, the Company is no longer required to make contributions for fiscal 2020 to its principal retirement plan. The Company currently expects to make a contribution of approximately $15.0 million to its principal retirement plan during the fourth quarter of fiscal 2020, which may consist of cash and/or shares of Matthews Class A Common Stock. The Company is not required to make any significantalso currently evaluating potential additional cash and/or stock contributions to its principal retirement plan induring fiscal 2019.2020. During the nine months ended June 30, 20192020 contributions of $587,000$589,000 and $914,000$726,000 were made under the supplemental retirement plan and postretirement plan, respectively. The Company currently anticipates contributing an additional $270,000$293,000 and $161,000$263,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2019.2020.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities.  If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary.  As of June 30, 2019,2020, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $14.5$11.8 million.  The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.


34



Item 3.   Quantitative and Qualitative Disclosures About Market Risk:Risk

There have been no material changes in the Company’s market risk during the three and nine months ended June 30, 2019.2020. For additional information see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.2019.


Item 4.  Controls and Procedures:Procedures

The Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that information required to be disclosed in our reports filed under that Act (the "Exchange Act"), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. These disclosure controls and procedures also are designed to provide reasonable assurance that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of June 30, 2019.2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2019,2020, the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, and that such information is recorded, summarized and properly reported within the appropriate time period, relating to the Company and its consolidated subsidiaries, required to be included in the Exchange Act reports, including this Quarterly Report on Form 10-Q.
There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended June 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

36
35




PART II ‑ OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to various legal proceedings and claims arising in the ordinary course of business.  Management does not expect that the results of any of these legal proceedings will have a material adverse effect on Matthews' financial condition, results of operations or cash flows.


Item 1A. Risk Factors

ThereExcept as set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item IA1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.2019, except as disclosed below. The risk factors disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,2019, in addition to the other information set forth in this report, could adversely affect the Company's operating performance and financial condition. Additional risks not currently known or deemed immaterial may also result in adverse effects on the Company.

Pandemics or similar outbreaks may cause unfavorable economic or market conditions which could impact demand patterns and/or disrupt global supply chains and production operations. Collectively, these outcomes could materially and adversely affect the Company’s business, results of operations and financial condition. Pandemics or similar outbreaks, such as coronavirus disease 2019 (“COVID-19”), could adversely affect the economies of developed and emerging markets, potentially resulting in an economic downturn that could affect customers’ demand for the Company’s products and services, as well as the Company's ability to access capital at acceptable interest rates. The spread of pandemics or similar outbreaks may also disrupt the Company’s manufacturing and production operations, as well as its distribution systems, which include import and export for delivery of the Company’s products to its customers. These factors could materially and adversely affect the Company’s business, financial condition and results of operations.

Due to the uncertainty relating to a pandemic or similar outbreak, the Company, its customers or its suppliers may be required, or believe that it is advantageous, to take precautionary measures intended to minimize the risk of a virus or disease spreading to employees, customers, and the communities in which they operate, and these measures could negatively impact the Company’s business. Further, if the scope and severity of an outbreak, such as COVID-19, worsens and the Company’s contingency plans prove ineffective, its global operations could potentially experience disruptions, such as temporary closure of facilities or delays or suspensions in product offerings and services, which may materially and adversely affect the Company’s business, financial condition and results of operations.

37



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchase Plan

The Company has a stock repurchase program.  The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share.  Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company's Restated Articles of Incorporation.  Under the current authorization, the Company's Board of Directors had authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 852,618638,736 shares remain available for repurchase as of June 30, 2019.2020.

The following table shows the monthly fiscal 20192020 stock repurchase activity:
PeriodTotal number of shares purchasedWeighted-average price paid per shareTotal number of shares purchased as part of a publicly announced planMaximum number of shares that may yet be purchased under the plan
October 20199,800  $35.87  9,800  702,512  
November 201938,425  35.02  38,425  664,087  
December 20193,879  38.10  3,879  660,208  
January 2020750  37.04  750  659,458  
February 2020—  —  —  659,458  
March 202020,000  23.91  20,000  639,458  
April 2020—  —  —  639,458  
May 202048634.02486  638,972  
June 202023620.93236  638,736  
Total73,576  $32.25  73,576   

Period Total number of shares purchased Weighted-average price paid per share Total number of shares purchased as part of a publicly announced plan Maximum number of shares that may yet be purchased under the plan
October 2018 332
 $51.88
 332
 1,421,950
November 2018 141,722
 42.18
 141,722
 1,280,228
December 2018 44,363
 39.63
 44,363
 1,235,865
January 2019 14,135
 40.93
 14,135
 1,221,730
February 2019 78,708
 39.09
 78,708
 1,143,022
March 2019 50,249
 37.36
 50,249
 1,092,773
April 2019 18,323
 36.62
 18,323
 1,074,450
May 2019 167,000
 35.80
 167,000
 907,450
June 2019 54,832
 34.29
 54,832
 852,618
Total 569,664
 $38.29
 569,664
  

Item 3. Defaults Upon Senior Securities

Not Applicable.


Item 4. Mine Safety Disclosures

Not Applicable.


Item 5. Other Information

Not Applicable.

38
36





Item 6. Exhibits and Reports on Form 8‑K8-K

(a)Exhibits
(a)Exhibits
Exhibit No.DescriptionMethod of Filing
31.1Filed herewith
31.2Filed herewith
32.1Furnished herewith
32.2Furnished herewith
101.INSXBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentFiled herewith
101.SCHXBRL Taxonomy Extension SchemaFiled herewith
101.CALXBRL Taxonomy Extension Calculation LinkbaseFiled herewith
101.DEFXBRL Taxonomy Extension Definition LinkbaseFiled herewith
101.LABXBRL Taxonomy Extension Label LinkbaseFiled herewith
101.PREXBRL Taxonomy Extension Presentation LinkbaseFiled herewith



37
39





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MATTHEWS INTERNATIONAL CORPORATION
(Registrant)

 
Date:August 2, 2019July 31, 2020By: /s/ Joseph C. Bartolacci
Joseph C. Bartolacci, President
and Chief Executive Officer
Date:August 2, 2019July 31, 2020By: /s/ Steven F. Nicola
Steven F. Nicola, Chief Financial Officer
and Secretary


38
40