UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
__________________________________________________________________________________________________________________________
FORM 10-K
☒
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2019
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 CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
25-0644320
(I.R.S. Employer Identification No.)
Two Northshore Center, Pittsburgh, PA
(Address of principal executive offices)
15212‑5851
(Zip Code)
(Registrant's telephone number, including area code)
(412) 442-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $1.00 par value
Trading Symbol
MATW
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
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 ☒ No ☐
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.
Yes ☒ No ☐
Large accelerated filer
Non-accelerated filer
☒
☐
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 ☒
The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Class
A Common Stock on the Nasdaq Global Select Market on March 31, 2019, the last business day of the registrant's most recently completed
second fiscal quarter, was approximately $1.1 billion.
As of October 31, 2019, shares of common stock outstanding were: Class A Common Stock 31,339,703 shares.
Documents incorporated by reference: Specified portions of the Proxy Statement for the 2020 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Report.
PART I
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL
MEASURES:
Any forward-looking statements contained in this Annual Report on Form 10-K (including, but not limited to, those contained in
Item 1, "Business," Item 1A, "Risk Factors" and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations") are included in this report 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
actual results of Matthews International Corporation ("Matthews" or the "Company") 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. In addition to the risk factors
previously disclosed and those discussed elsewhere in this Annual Report on Form 10-K, 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, and other factors described in Item 1A,
"Risk Factors" in this Form 10-K. 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. Refer to "Non-GAAP Financial Measures" in Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 1. BUSINESS.
Matthews, founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of brand solutions, memorialization
products and industrial technologies. Brand solutions 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. Memorialization products consist primarily of bronze and
granite memorials and other memorialization products, caskets and cremation 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.
At October 31, 2019, the Company and its majority-owned subsidiaries had approximately 11,000 employees. The Company's
principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212, its telephone number is (412)
442-8200 and its website is www.matw.com. The Company files or furnishes all required reports with the Securities and Exchange
Commission ("SEC") in accordance with the Exchange Act. The Company's Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports are available free of charge on the
Company's website as soon as reasonably practicable after being filed or furnished to the SEC. The Company's reports filed or
furnished with the SEC, including exhibits attached to such reports, are also available on the SEC's website at www.sec.gov.
2
ITEM 1.
BUSINESS, (continued)
The Company manages its business under three reporting segments, SGK Brand Solutions, Memorialization, and Industrial
Technologies. The following table sets forth reported sales for the Company's business segments for the past three fiscal years.
Detailed financial information relating to business segments and to domestic and international operations is presented in Note 19,
"Segment Information" in Item 8 - "Financial Statements and Supplemental Data."
Sales to external customers:
SGK Brand Solutions
Memorialization
Industrial Technologies
Consolidated Sales
2019
Years Ended September 30,
2018
(Amounts in thousands)
2017
$
$
743,869
636,892
156,515
1,537,276
$
$
805,274
631,392
165,914
1,602,580
$
$
770,181
615,882
129,545
1,515,608
In fiscal 2019, approximately 68% of the Company's sales were made from North America, 28% were made from Europe, 3%
were made from Asia, and 1% were made from other regions. For further information on segments, see Note 19, "Segment
Information" in Item 8 - "Financial Statements and Supplementary Data" on page 69 of this Report. Products and services of the
SGK Brand Solutions segment are sold throughout the world, with principal locations in North America, Europe and Asia.
Memorialization segment products are sold throughout the world, with the segment's principal operations located in North America,
Europe, and Australia. The Industrial Technologies segment sells equipment and consumables directly to industrial consumers
and distributors in North America and internationally through the Company's subsidiaries in Sweden, Germany and China, and
other foreign distributors. Matthews owns a minority interest in Industrial Technologies product distributors in Asia, Australia
and Europe.
SGK Brand Solutions:
The SGK Brand Solutions segment provides both integrated and stand-alone products, services and solutions designed to help
companies market their brands more efficiently. The value in these products and services ranges from helping companies deliver
new product innovations to market in order to address consumer demand; to connecting product packaging to digital brand
experiences off-shelf to provide the consumer with a more engaging and connected brand experience - all of which helps marketers
grow their businesses.
The segment’s principal products, services and solutions include: 1) brand development and graphic design, 2) brand deployment
and activation, 3) brand delivery, 4) consulting and 5) digital tools.
Brand development and graphic design: This business creates visual intellectual properties, packaging and content that helps
clients differentiate their brands in the marketplace and appeal to consumer targets.
Brand deployment and activation: This business supports in-store promotion of its client’s brands through the design and
production of merchandising exhibits and shopper experiences and across digital and printed media channels to drive consumer
interest, engagement and sales.
Brand delivery: This business produces digital packaging artwork files, pre-media graphics services for print and digital channels,
and image carriers such as printing plates and gravure cylinders.
Consulting: This business advises brand owners on workflow best practices, management and technologies, and printing quality,
measurement and consistency.
Digital tools: This business develops digital tools that deliver connectivity, efficiency and insights about its packaging and
marketing operations to clients.
The SGK Brand Solutions segment’s principal clients are global, multinational and regional companies in highly-regulated
industries such as food and beverage, pharmaceutical and healthcare, beauty and cosmetics, and alcohol and tobacco. The segment
also serves clients in a diverse range of sectors which includes leaders in home improvement, personal care, technology and
electronics, snack food and confections, telecommunications, and apparel, as well as a diverse range of shopping formats which
include: big-box stores, department stores, specialty stores, grocery stores, pharmacy chains, and online retailers. These large,
well-known companies represent a variety of brands across the market place covering both national and private label brands with
numerous packaging and marketing requirements. The segment also includes global packaging industry converters as clients to
which it supplies printing tools and files.
3
ITEM 1.
BUSINESS, (continued)
The segment’s products, services and solutions are purchased in part or whole by companies with operations in and/or across the
North America, Europe and Asia regions. A large portion of these purchases result in annual or multi-year contracts; others are
initiative-based. The segment generates new business opportunities through referrals and relationships, marketing and lead
generation and select industry partnerships. The Company has many long-standing relationships among its client base that span
decades and has new relationships with well-known global technology companies that are driving change in how consumers
engage with brands and use devices like smartphones to shop and buy online and in-store.
Major raw materials for this segment’s products include photopolymers, steel, copper, film, wood, particleboard, corrugated
materials, structural steel, plastic, laminates, inks and graphic art supplies. All such materials are presently available in adequate
supply from various industry sources.
The combination of the segment’s businesses in North America, Europe and Asia is an important part of Matthews’ strategy to be
a world leader in the packaging and marketing content industry by providing graphics-related products, services and solutions that
help companies scale the creation and production of their brand content globally as efficiently as possible. Competition is on the
basis of product quality, timeliness of delivery and price, and increasingly, the ability to provide a holistic solution for brand content
beyond its use for packaging, while at the same time elevating the role of packaging in the marketing mix.
The segment competes in an industry that is constantly challenged by emerging technologies that impact packaging and marketing.
These challenges can create new opportunities for the segment to create, produce and manage large volumes of brand content.
They also provide the segment with opportunities to advise its clients on how to plan for, manage and execute the digital
transformation of their packaging and marketing operations. The SGK Brand Solutions segment’s more than 100 years in the
packaging business is comprised of a broad technical expertise relating to the creation and production of graphics, their workflows
and best practices for the packaging marketing channel. This combination of knowledge, experience and skill helps the SGK Brand
Solutions segment differentiate itself from competitors by enabling it to provide a better overall experience to its clients with the
ability to quickly scale its packaging and content requirements globally.
Memorialization:
The Memorialization segment manufactures and markets a full line of memorialization products used primarily in cemeteries,
funeral homes and crematories. The segment's products, which are sold principally in North America, Europe and Australia, include
cast bronze memorials, granite memorials, caskets, cremation equipment and other memorialization products. The segment also
manufactures and markets architectural products that are used to identify or commemorate people, places, events and
accomplishments.
Memorial products include flush bronze and granite memorials, upright granite memorials and monuments, cremation
memorialization products, granite benches, flower vases, crypt plates and letters, cremation urns, niche units, cemetery features
and statues, along with other related products and services. Flush memorials are bronze plaques or granite memorials which contain
personal information about a deceased individual (such as name, birth date, and death date), photos and emblems. Flush bronze
and granite memorials are even or "flush" with the ground and therefore are preferred by many cemeteries for easier lawn mowing
and general maintenance. The segment's memorial products also include community and family mausoleums within North
America. In addition, the segment's other memorial products include bronze plaques, letters, emblems, vases, lights and photo
ceramics that can be affixed to granite monuments, mausoleums, crypts and flush memorials. Principal customers for memorial
products are cemeteries and memorial parks, which in turn sell the Company's products to the consumer.
Customers of the Memorialization segment can also purchase memorials and vases on a "pre-need" basis. The "pre-need" concept
permits families to arrange for these purchases in advance of their actual need. Upon request, the Company will manufacture the
memorial to the customer's specifications (e.g., name and birth date) and place it in storage for future delivery. Memorials in
storage have been paid in full with title conveyed to each pre-need purchaser.
The segment is also a leading manufacturer and distributor of caskets and other funeral home products in North America. The
segment produces and markets metal, wood and cremation caskets. Caskets are offered in a variety of colors, interior designs,
handles and trim in order to accommodate specific religious, ethnic or other personal preferences. The segment also markets other
funeral home products such as urns, jewelry and stationery. The segment offers individually personalized caskets through its
distribution network.
4
ITEM 1.
BUSINESS, (continued)
Metal caskets are made from various gauges of cold-rolled steel, stainless steel, copper and bronze. Metal caskets are generally
categorized by whether the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper, or steel) and in the case of
steel, by the gauge (thickness) of the metal. Wood caskets are primarily manufactured from nine different species of wood. The
species of wood used are poplar, pine, ash, oak, pecan, maple, cherry, walnut and mahogany. The Memorialization segment is a
leading manufacturer of all-wood constructed caskets, which are manufactured using pegged and dowelled construction, and
include no metal parts. Cremation caskets are made primarily from wood or cardboard covered with cloth or veneer. These caskets
appeal primarily to cremation consumers, environmentally concerned consumers, and value buyers.
The Memorialization segment also produces casket components. Casket components include stamped metal parts, metal locking
mechanisms for gasketed metal caskets, adjustable beds and interior panels. Metal casket parts are produced by stamping cold-
rolled steel, stainless steel, copper and bronze sheets into casket component parts. Locking mechanisms and adjustable beds are
produced by stamping and assembling a variety of steel parts. The segment purchases from sawmills and lumber distributors
various species of uncured wood, which it dries and cures. The cured wood is processed into casket components.
In addition, the segment provides product and service assortment planning, as well as merchandising and display products to
funeral service businesses. These products assist funeral service professionals in providing information, value and satisfaction to
their client families.
The segment also provides cremation systems, crematory management, and cremation service and supplies to the pet and human
sector, and standard and specialized incineration systems, including abated filtration systems to satisfy strict environmental
requirements. The primary market areas for these products and services are North America and Europe, although the segment
also sells into Latin America and the Caribbean, Australia, the Middle East and Asia.
Cremation systems include flame-based systems for cremation of humans and pets, as well as equipment for processing the
cremated remains and other related equipment (ventilated work stations, tables, cooler racks, vacuums). The principal markets
for these products are funeral homes, cemeteries, crematories, pet crematories, animal disposers and veterinarians. These products
primarily are marketed directly by segment personnel. Human crematory management/operations represent the actual operation
and management of client-owned crematories. Currently the segment provides these services primarily to municipalities and
private operators in the United States and Europe. Cremation service and supplies consist of operator training, preventative
maintenance and on-demand service work performed on various makes and models of equipment. This work can be as simple as
replacing defective bulbs or as complex as complete reconstruction and upgrading or retro-fitting on site. Supplies are consumable
items and replacement parts associated with normal crematory operations.
Waste incineration systems encompass both batch load and continuous feed, static and rotary systems for incineration of all waste
types, as well as equipment for in-loading waste, out-loading ash and energy recovery. The principal markets for these products
are animal and medical waste disposal, oil and gas "work camp" wastes, industrial wastes and bio-mass generators. Environmental
and energy systems include emissions filtration units, waste heat recovery equipment, waste gas treatment products, as well as
energy recovery. The segment also provides commissioning, training and user support for customers of incineration systems. The
principal markets are municipalities or public/state agencies, the cremation industry and other industries which utilize incinerators
for waste reduction and energy production.
The Memorialization segment also manufactures a full line of other products, including urns in a variety of sizes, styles and shapes
as well as standard and custom designed granite cremation pedestals and benches. The segment manufactures bronze and granite
niche units, which are comprised of numerous compartments used to display cremation urns in mausoleums and churches. The
Company also markets turnkey cremation gardens, which include the design and all related products for a cremation memorial
garden.
Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate
and identify people, places, events and accomplishments. The Company's plaques are frequently used to identify the name of a
building or the names of companies or individuals located within a building. Such products are also used to commemorate events
or accomplishments, such as military service or financial donations. The principal markets for the segment's architectural products
are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies. These products are
sold to and distributed through a network of independent dealers including sign suppliers, awards and recognition companies, and
trophy dealers.
5
ITEM 1.
BUSINESS, (continued)
Raw materials used by the Memorialization segment to manufacture memorials consist principally of bronze and aluminum ingot,
granite, sheet metal, coating materials, photopolymers and construction materials and are generally available in adequate supply.
Ingot is obtained from various North American, European and Australian smelters. The primary materials required for casket
manufacturing are cold-rolled steel and lumber. The segment also purchases copper, bronze, stainless steel, particleboard,
corrugated materials, paper veneer, cloth, ornamental hardware and coating materials. Purchase orders or supply agreements are
typically negotiated with large, integrated steel producers that have demonstrated timely delivery, high quality material and
competitive prices. Lumber is purchased from a number of sawmills and lumber distributors. Raw materials used to manufacture
cremation and incineration products consist principally of structural steel, sheet metal, electrical components, combustion devices
and refractory materials. These are generally available in adequate supply from numerous suppliers.
Competition from other manufacturers of memorial products is on the basis of reputation, product quality, delivery, price, and
design availability. The Company believes that its superior quality, broad product lines, innovative designs, delivery capability,
customer responsiveness, experienced personnel and consumer-oriented merchandising systems are competitive advantages in its
markets. Competition in the mausoleum construction industry includes various construction companies throughout North America
and is on the basis of design, quality and price. Competitors in the architectural market are numerous and include companies that
manufacture cast and painted signs, plastic materials, sand-blasted wood and other fabricated products.
The Memorialization segment markets its casket products in the United States through a combination of Company-owned and
independent casket distribution facilities. The Company operates approximately 100 distribution centers in the United States.
Approximately 85% of the segment's casket products are currently sold through Company-owned distribution centers. The casket
business is highly competitive and the Company competes with other manufacturers on the basis of product quality, price, service,
design availability and breadth of product line. The Memorialization segment provides a line of casket products that it believes
is as comprehensive as any of its major competitors. There are a large number of casket industry participants operating in North
America and also a few foreign casket manufacturers, primarily from China, participating in the North American market.
The Company competes with several manufacturers in the cremation and accessory equipment market principally on the basis of
product design, quality and price. The Memorialization segment and its three largest global competitors account for a substantial
portion of the United States and European cremation equipment market.
The Memorialization segment works to provide a total solution to customers that own and operate businesses in both the cemetery
and funeral home markets. The Company's memorial and casket products serve the relatively stable casketed and in-ground burial
death market, while its memorial products and cremation equipment also serve the growing cremation market.
Industrial Technologies:
The Industrial Technologies segment designs, manufactures and distributes a wide range of marking and coding equipment and
consumables, industrial automation solutions, and warehouse automation systems. Manufacturers, suppliers and distributors
worldwide rely on Matthews' integrated systems to identify, track and pick their products.
Marking systems range from stand-alone marking products to complex ink-jet printing systems that integrate into a customer's
production process. The Company manufactures and markets products and systems that employ different marking technologies,
including laser and ink-jet printing. These technologies apply product information required for identification and traceability, as
well as to facilitate inventory and quality control, regulatory compliance and brand name communication.
Warehouse automation systems complement the tracking and distribution of a customer's products with automated order fulfillment
technologies, autonomous mobile robotics, and controls for material handling systems. Material handling customers include some
of the largest retail, eCommerce, and automated assembly companies in the United States. The Company also engineers innovative,
custom solutions to address specific customer requirements in a variety of industries, including oil field services and security
scanning.
A significant portion of the revenue of the Industrial Technologies segment is attributable to the sale of consumables and replacement
parts required by the marking, coding and tracking products sold by Matthews. The Company develops inks exclusively for the
use with its marking equipment which is critical to ensure ongoing equipment reliability and mark quality.
The principal customers for the Company's marking and fulfillment systems products are manufacturers, suppliers and distributors
of durable goods, building products, consumer goods manufacturers (including food and beverage processors) and producers of
pharmaceuticals. The Company also serves a wide variety of industrial markets, including metal fabricators, manufacturers of
woven and non-woven fabrics, plastic, rubber and automotive products.
6
ITEM 1.
BUSINESS, (continued)
A portion of this segment's sales are outside the United States, with distribution sourced through the Company's subsidiaries in
Sweden, Germany and China in addition to other international distributors. The Company owns a minority interest in distributors
in Asia, Australia and Europe.
Major raw materials for this segment's products include precision components, electronics, printing components and chemicals,
all of which are presently available in adequate supply from various sources.
Competitors in the marking and fulfillment systems industries are diverse, with some companies offering limited product lines
for well-defined specialty markets, while others operate similarly to the Company, offering a broad product line and competing
in multiple product markets and countries. Competitive differentiation for marking and fulfillment systems products is based on
product performance, ease of integration into the manufacturing and/or distribution process, service and price. The Company
typically competes with specialty companies in specific brand marking solutions and traceability applications. The Company
believes that, in general, its Industrial Technologies segment offers one of the broadest lines of products to address a wide variety
of marking, coding and industrial automation applications.
PATENTS, TRADEMARKS AND LICENSES:
The Company holds a number of trademarks and in excess of 100 domestic and foreign patents for its products and related
technologies. However, the Company believes the loss of any individual or a significant number of patents or trademarks would
not have a material impact on consolidated operations or revenues.
BACKLOG:
Because the nature of the Company's SGK Brand Solutions, Memorialization and Industrial Technologies businesses are primarily
custom products made to order and services with short lead times, backlogs are not generally material except for rotogravure
engineering projects in the SGK Brand Solutions segment, mausoleums and cremation equipment in the Memorialization segment
and industrial automation and order fulfillment systems in the Industrial Technologies segment. Backlogs vary in a range of
approximately six to twelve months of sales for rotogravure engineering projects and mausoleums. Cremation equipment sales
backlogs vary in a range of eight to ten months of sales. Backlogs for Industrial Technologies segment sales generally vary in a
range of up to four weeks for standard products and eighteen weeks for custom systems. The Company's current backlog is
expected to be substantially filled in fiscal 2020.
REGULATORY MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the
environment. The Company is party to various environmental matters which include obligations to investigate and mitigate the
effects on the environment of certain materials at various operating and non-operating sites. The Company is currently performing
environmental assessments and remediation at these sites, as appropriate. Refer to Note 17, "Environmental Matters" in Item 8 -
"Financial Statements and Supplementary Data," for further details.
7
ITEM 1A. RISK FACTORS.
There are inherent risks and uncertainties associated with the Company's businesses that could adversely affect its operating
performance and financial condition. Set forth below are descriptions of those risks and uncertainties that the Company currently
believes to be material. Additional risks not currently known or deemed immaterial may also result in adverse effects on the
Company.
Changes in Economic Conditions. Generally, changes in domestic and international economic conditions affect the industries
in which the Company and its customers and suppliers operate. These changes include changes in the rate of consumption or use
of the Company's products due to economic downturns, volatility in currency exchange rates, and changes in raw material prices
resulting from supply and/or demand conditions.
Uncertainty about current global economic conditions poses a risk, as consumers and businesses may continue to postpone or
cancel spending. Other factors that could influence customer spending include energy costs, conditions in the credit markets,
consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have an
effect on demand for the Company's products and services and negatively impact the Company's financial condition and results
of operations.
Foreign Operations. The Company conducts business in more than 25 countries around the world, and in fiscal 2019
approximately 35% of the Company's sales to external customers were to customers outside the United States. In addition, the
Company's manufacturing operations, suppliers and employees are located in many places around the world. As such, the
Company's future success depends in part on its ability to grow sales in non-U.S. markets. Sales and operations outside of the
United States are subject to certain inherent risks, including fluctuations in the value of the U.S. dollar relative to foreign currencies,
global economic uncertainties, tariffs, quotas, taxes and other market barriers, political and economic instability, restrictions on
the export or import of technology, potentially limited intellectual property protection, difficulties in staffing and managing
international operations, potentially adverse tax consequences, and required compliance with non-U.S. laws and regulations.
Changes in Foreign Currency Exchange Rates. Manufacturing and sales of a significant portion of the Company's products
are outside the United States, and accordingly, the Company holds assets, incurs liabilities, earns revenue and pays expenses in a
variety of currencies. The Company's consolidated financial statements are presented in U.S. dollars, and therefore, the Company
must translate the reported values of its foreign assets, liabilities, revenue and expenses into U.S. dollars. Increases or decreases
in the value of the U.S. dollar compared to foreign currencies may negatively affect the value of these items in the Company's
consolidated financial statements, even though their value has not changed in local currency.
Increased Prices for Raw Materials. The Company's profitability is affected by the prices of the raw materials used in the
manufacture of its products. These prices may fluctuate based on a number of factors, including changes in supply and demand,
domestic and global economic conditions, volatility in commodity markets, currency exchange rates, labor costs, tariffs and fuel-
related costs. If suppliers increase the price of critical raw materials, alternative sources of supply, or alternative materials, may
not exist or be readily available.
The Company has standard selling price structures (i.e., list prices) in certain of its segments, which are reviewed for adjustment
generally on an annual basis. In addition, the Company has established pricing terms with several of its customers through contracts
or similar arrangements. Based on competitive market conditions and to the extent that the Company has established pricing terms
with customers, the Company's ability to immediately increase the price of its products to offset the increased costs may be
limited. Significant raw material price increases that cannot be mitigated by selling price increases or productivity improvements
will negatively affect the Company's results of operations.
Changes in Mortality and Cremation Rates. Generally, life expectancy in the United States and other countries in which the
Company's Memorialization segment operates has increased steadily for several decades and is expected to continue to do so in
the future. The increase in life expectancy is also expected to impact the number of deaths in the future. Additionally, cremations
have steadily grown as a percentage of total deaths in the United States since the 1960's, and are expected to continue to increase
in the future. The Company expects that these trends will continue in the future and sales of the Company's Memorialization
segment may benefit from the continued growth in the number of cremations; however, such trends may adversely affect the
volume of bronze and granite memorialization products and burial caskets sold in the United States.
8
ITEM 1A.
RISK FACTORS, (continued)
Changes in Product Demand or Pricing. The Company's businesses have and will continue to operate in competitive markets.
Changes in product demand or pricing are affected by domestic and foreign competition and an increase in consolidated purchasing
by large customers operating in both domestic and global markets. The Memorialization businesses generally operate in markets
with ample supply capacity and demand which is correlated to death rates. The Brand Solutions businesses serve global customers
that are requiring their suppliers to be global in scope and price-competitive. Additionally, in recent years the Company has
witnessed an increase in products manufactured offshore, primarily in China, and imported into the Company's U.S. markets. It
is expected that these trends will continue and may affect the Company's future results of operations.
Changes in the Distribution of the Company's Products or the Loss of a Large Customer. Although the Company does not
have any customer that is individually significant to consolidated sales, it does have contracts with several large customers in both
the Memorialization and SGK Brand Solutions segments. While these contracts provide important access to large purchasers of
the Company's products, they can obligate the Company to sell products at contracted prices for extended periods of time.
Additionally, any significant divestiture of business properties or operations by current customers could result in a loss of business
if the Company is not able to maintain the business with the subsequent owners of the businesses.
Risks in Connection with Acquisitions. The Company has grown, in part, through acquisitions, and continues to evaluate
acquisition opportunities that have the potential to support and strengthen its businesses. There is no assurance however that future
acquisition opportunities will arise, or that if they do, that they will be consummated. In addition, acquisitions involve inherent
risks that the businesses acquired will not perform in accordance with expectations, or that synergies expected from the integration
of the acquisitions will not be achieved as rapidly as expected, if at all. Failure to effectively integrate acquired businesses could
prevent the realization of expected rates of return on the acquisition investment, including the achievement of cost-reduction
objectives, and could have a negative effect on the Company's results of operations and financial condition.
Protection of Intellectual Property. Certain of the Company's businesses rely on various intellectual property rights, including
patents, copyrights, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish
proprietary rights. If the Company does not enforce its intellectual property rights successfully, its competitive position may suffer
which could harm the Company's operating results. In addition, the Company's patents, copyrights, trademarks and other intellectual
property rights may not provide a significant competitive advantage. The Company may need to spend significant resources
monitoring its intellectual property rights and may or may not be able to detect infringement by third parties. The Company's
competitive position may be harmed if it cannot detect infringement and enforce its intellectual property rights quickly or at all.
In some circumstances, the Company may choose to not pursue enforcement because an infringer has a dominant intellectual
property position or for other business reasons. In addition, competitors might avoid infringement by designing around the
Company's intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and
the Company's ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors
to capture market share and could result in lost revenues.
Environmental Remediation and Compliance. The Company is subject to the risk of environmental liability and limitations
on its operations due to environmental laws and regulations. The Company is subject to extensive federal, state, local and foreign
environmental, health and safety laws and regulations concerning matters such as air emissions, wastewater discharges, solid and
hazardous waste handling and disposal and the investigation and remediation of contamination. The risks of potentially substantial
costs and liabilities related to compliance with these laws and regulations are an inherent part of the Company's business, and
future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities
and costs. Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting
and costly than the Company anticipates, and there is no assurance that significant expenditures related to such compliance may
not be required in the future.
From time to time, the Company may be subject to legal proceedings brought by private parties or governmental authorities with
respect to environmental matters, including matters involving alleged noncompliance with or liability under environmental, health
and safety laws, property damage or personal injury. New laws and regulations, including those which may relate to emissions of
greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or
the imposition of new clean-up requirements could require the Company to incur costs or become the basis for new or increased
liabilities that could have a material adverse effect on the Company's business, financial condition or results of operations.
Technological Factors Beyond the Company's Control. The Company operates in certain markets in which technological
product development contributes to its ability to compete effectively. There can be no assurance that the Company will be able
to develop new products, that new products can be manufactured and marketed profitably, or that new products will successfully
meet the expectations of customers.
9
ITEM 1A.
RISK FACTORS, (continued)
Cybersecurity and Data Breaches. In the course of business, the Company collects and stores sensitive data and proprietary
business information. The Company could be subject to service outages or breaches of security systems which may result in
disruption, unauthorized access, misappropriation, or corruption of this information. Security breaches of the Company's network
or data including physical or electronic break-ins, vendor service outages, computer viruses, attacks by hackers or similar breaches
can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Although the Company is not
aware of any significant incidents to date, if it is unable to prevent such security or privacy breaches, its operations could be
disrupted or the Company may suffer legal claims, loss of reputation, financial loss, property damage, or regulatory penalties
because of lost or misappropriated information.
Changes in Laws and Regulations Governing Data Privacy and Data Protection. The Company is subject to many data
privacy, data protection, and data breach notification laws, including the European Union General Data Protection Regulation (the
“GDPR”), which became effective in May of 2018. The GDPR contains numerous requirements, including more robust obligations
and increased documentation requirements for data protection compliance programs by companies. Complying with the GDPR
may cause the Company to incur substantial operational costs or require the Company to change its business practices. The
Company’s measures to assess the requirements of, and to comply with, the GDPR, as well as new and existing data-related laws
and regulations of other jurisdictions, could be challenged, including by authorities that regulate data-related compliance. The
Company’s ongoing compliance measures could result in the incurrence of significant expense in facilitating and responding to
regulatory investigations, and if the measures initiated by the Company are deemed to be inadequate, the Company could be
subject to enforcement actions that may require operational changes, fines, penalties or damages, which could have an adverse
impact on the Company’s business or results of operations.
Changes in Tax Rules. The enactment of the U.S. Tax Cuts and Jobs Act (the “Act”) in December 2017 significantly affected
U.S. tax law by changing how the U.S. imposes tax on multinational corporations. The U.S. Department of Treasury has broad
authority under the Act to issue regulations and interpretive guidance. The Company has applied available guidance to estimate
its tax obligations, but new guidance issued by the U.S. Treasury Department may cause the Company to make adjustments to
its tax estimates in future periods.
Compliance with Foreign Laws and Regulations. Due to the international scope of the Company's operations, Matthews is
subject to a complex system of commercial and trade regulations around the world, and the Company's foreign operations are
governed by laws, rules and business practices that often differ from those of the United States. The Company cannot predict the
nature, scope or effect of future regulatory requirements to which the Company's operations might be subject or the manner in
which existing laws might be administered or interpreted, which could have a material and negative impact on the Company's
business and results of operation. For example, recent years have seen an increase in the development and enforcement of laws
regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws in other countries.
While Matthews maintains a variety of internal policies and controls and takes steps, including periodic training and internal
audits, that the Company believes are reasonably calculated to discourage, prevent and detect violations of such laws, the Company
cannot guarantee that such actions will be effective or that individual employees will not engage in inappropriate behavior in
contravention of the Company's policies and instructions. Such conduct, or even the allegation thereof, could result in costly
investigations and the imposition of severe criminal or civil sanctions, could disrupt the Company's business, and could materially
and adversely affect the Company's reputation, business and results of operations or financial condition.
Further, the Company is subject to laws and regulations worldwide affecting its operations outside the United States in areas
including, but not limited to, intellectual property ownership and infringement, tax, customs, import and export requirements, anti-
corruption and anti-bribery, foreign exchange controls and cash repatriation restrictions, foreign investment, data privacy
requirements, anti-competition, pensions and social insurance, employment, and environment, health, and safety. Compliance with
these laws and regulations may be onerous and expensive and requirements may differ among jurisdictions. Further, the
promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative
impact on the Company's business and prospects. In addition, certain laws and regulations are relatively new and their interpretation
and enforcement involve significant uncertainties. There can be no assurance that any of these factors will not have a material
adverse effect on the Company's business, results of operations or financial condition.
10
ITEM 1A.
RISK FACTORS, (continued)
Effectiveness of Internal Controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires a comprehensive evaluation of the
Company's internal control over financial reporting. To comply with this statute, the Company is required to document and test
its internal control over financial reporting, management is required to assess and issue a report concerning internal control over
financial reporting, and the Company's independent registered public accounting firm is required to attest to and report on the
Company's assessment of the effectiveness of internal control over financial reporting. Any failure to maintain or implement
required new or improved controls could cause the Company to fail to meet its periodic reporting obligations or result in material
misstatements in the consolidated financial statements, and substantial costs and resources may be required to rectify these or
other internal control deficiencies. If the Company cannot produce reliable financial reports, investors could lose confidence in
the Company's reported financial information, the market price of the Company's common stock could decline significantly, and
its business, financial condition, and reputation could be harmed.
Compliance with Securities Laws and Regulations; Conflict Minerals Reporting. The Company is required to comply with
various securities laws and regulations, including but not limited to the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall
Street Reform and Consumer Protection Act ("Dodd-Frank"). Dodd-Frank contains provisions, among others, designed to improve
transparency and accountability concerning the supply chains of certain minerals originating from the Democratic Republic of
Congo and adjoining countries that are believed to be benefiting armed groups ("Conflict Minerals"). While Dodd-Frank does not
prohibit companies from using Conflict Minerals, the SEC mandates due diligence, disclosure and reporting requirements for
companies for which Conflict Minerals are necessary to the functionality or production of a product. The Company's efforts to
comply with Dodd-Frank and other evolving laws, regulations and standards could result in increased costs and expenses related
to compliance and potential violations.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
11
ITEM 2. PROPERTIES.
Principal properties of the Company and its majority-owned subsidiaries as of October 31, 2019 were as follows (properties are
owned by the Company except as noted):
Location
Description of Property
SGK Brand Solutions:
Antwerp, Belgium
Battle Creek, MI
Burlington, NC
Chennai, India
Chicago, IL
Cincinnati, OH
Cleckheaton, England
Dachnow, Poland
Gateshead, England
East Butler, PA
Goslar, Germany
Grenzach-Wyhlen, Germany
Istanbul, Turkey
Izmir, Turkey
Jülich, Germany
Manchester, England
Marietta, GA
Minneapolis, MN
Mississauga, Canada
Mönchengladbach, Germany
Mönchengladbach, Germany
Munich, Germany
New Berlin, WI
Novgorod, Russia
Nuremberg, Germany
Penang, Malaysia
Portland, OR
Queretaro, Mexico
Redmond, WA
St. Louis, MO
San Francisco, CA
Shanghai, China
Shenzhen, China
Tarnowo Podgorne, Poland
Tualatin, OR
Vreden, Germany
Vreden, Germany
Vreden, Germany
Wilsonville, OR
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Manufacturing
Operating facility
Manufacturing
Operating facility
Operating facilities
Operating facility
Operating facility
Manufacturing
Operating facility
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Operating facility
Operating facility
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Operating facility
Operating facility
Operating facility
Operating facility
Manufacturing
Operating facility
Operating facility
Operating facility
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Operating facility
Operating facility
12
ITEM 2.
PROPERTIES, (continued)
Location
Description of Property
Memorialization (2):
Pittsburgh, PA
Pittsburgh, PA
Apopka, FL
Aurora, IN
Colorno, Italy
Dallas, TX
Dandenong, Australia
Dewy Rose, GA
Elberton, GA
Elberton, GA
Fontana, CA
Harrisburg, PA
Hyde, England
Indianapolis, IN
Kingwood, WV
Monterrey, Mexico
Richmond, IN
Richmond, IN
Searcy, AR
Stone Mountain, GA
Udine, Italy
Vestone, Italy
West Point, MS
Whittier, CA
York, PA
Industrial Technologies:
Pittsburgh, PA
Cincinnati, OH
Cincinnati, OH
Corvallis, OR
Gothenburg, Sweden
Lima, Costa Rica
Pewaukee, WI
Tianjin City, China
Wilsonville, OR
Manufacturing / Division Offices
Division Offices
Manufacturing / Division Offices
Manufacturing
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Distribution Hub
Distribution Hub
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Distribution
Manufacturing
Manufacturing
Manufacturing / Division Offices
Manufacturing
Manufacturing / Distribution
Manufacturing
Manufacturing / Distribution
Manufacturing
Manufacturing
Manufacturing
Manufacturing
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Corporate and Administrative Offices:
Pittsburgh, PA
Pittsburgh, PA
Des Plaines, IL
General Offices
General Offices
General Offices
(1)
(2)
These properties are leased by the Company under operating lease arrangements.
In addition to the properties listed, the Memorialization segment leases warehouse facilities totaling approximately 1.0 million square feet in 37 states
under operating leases.
All of the owned properties are unencumbered. The Company believes its facilities are generally well suited for their respective
uses and are of adequate size and design to provide the operating efficiencies necessary for the Company to be competitive. The
Company's facilities provide adequate space for meeting its near-term production requirements and have availability for additional
capacity. The Company intends to continue to expand and modernize its facilities as necessary to meet the demand for its products.
13
ITEM 3. LEGAL PROCEEDINGS.
Matthews 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 4. MINE SAFETY DISCLOSURES.
Not applicable.
14
OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
The following information is furnished with respect to officers and executive management as of October 31, 2019:
Name
Joseph C. Bartolacci
Gregory S. Babe
Edward M. Brady
Marcy L. Campbell
Brian J. Dunn
Steven D. Gackenbach
Paul C. Jensen
Gary R. Kohl
Robert M. Marsh
Steven F. Nicola
David A. Schawk
Brian D. Walters
Age
59
Positions with Registrant
President and Chief Executive Officer
62
61
56
62
56
61
56
51
59
63
50
Chief Technology Officer
Chief Information Officer
Senior Vice President, Human Resources
Executive Vice President, Strategy and Corporate Development
Group President, Memorialization
Division President, Industrial Technologies
President, SGK Brand Solutions
Vice President and Treasurer
Chief Financial Officer and Secretary
Group President, SGK Brand Solutions
Senior Vice President and General Counsel
Joseph C. Bartolacci was appointed President and Chief Executive Officer effective October 2006.
Gregory S. Babe was appointed Chief Technology Officer effective November 2015. Prior thereto, he had been interim Executive
Vice President, Global Information Technology and Integration since November 2014 when he joined the Company. Prior to
joining the Company, Mr. Babe was President and Chief Executive Officer of Liquid X Printed Metals, Inc. from June 2013 to
November 2014.
Edward M. Brady was appointed Chief Information Officer effective January 2016, when he joined the Company. Prior thereto,
he was a leader in the Information Technology consulting practice of IBM since June 2006.
Marcy L. Campbell was appointed Senior Vice President, Human Resources effective February 2018. Prior thereto, Ms. Campbell
served as Vice President, Human Resources since November 2014. Prior thereto, she served as Director, Regional Human Resources
since January 2013.
Brian J. Dunn was appointed Executive Vice President, Strategy and Corporate Development effective July 2014.
Steven D. Gackenbach was appointed Group President, Memorialization effective October 31, 2011.
Paul C. Jensen was appointed Division President, Industrial Technologies effective October 1, 2008.
Gary R. Kohl was appointed President, SGK Brand Solutions effective May 2017. Prior thereto, he served as Executive Vice
President, SGK Global Business Development since December 2015 when he joined the Company. Prior to joining the Company,
Mr. Kohl was the Group Senior Vice President of R. R. Donnelley & Sons Company.
Robert M. Marsh was appointed Vice President and Treasurer in February 2016. He served as Treasurer since December 2014
when he joined the Company. Prior to joining the Company, Mr. Marsh was a partner of PNC Mezzanine Capital, the principal
mezzanine investment business of The PNC Financial Services Group, LLC ("PNC"). Mr. Marsh joined PNC in 1997.
Steven F. Nicola was appointed Chief Financial Officer and Secretary effective December 2003.
David A. Schawk joined the Company in July 2014 as President, SGK Brand Solutions upon Matthews' acquisition of Schawk.
On November 1, 2019, Mr. Schawk retired from his role as President, SGK Brand Solutions.
Brian D. Walters was appointed Senior Vice President and General Counsel effective February 2018. Prior thereto, Mr. Walters
served as Vice President and General Counsel since February 2009.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information:
The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1.00 par value. At
September 30, 2019, 31,348,483 shares were outstanding. The Company's Class A Common Stock is traded on the NASDAQ
Global Select Market under the symbol "MATW".
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 set forth in the Company's Restated Articles
of Incorporation. 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 712,312 shares remain available for repurchase as of
September 30, 2019. All purchases of the Company's common stock during fiscal 2019 were part of this repurchase program.
The following table shows the monthly fiscal 2019 stock repurchase activity:
Period
Total number
of shares
purchased
332
141,722
44,363
14,135
78,708
50,249
18,323
167,000
54,832
840
104,344
35,122
709,970
Total number
of shares
purchased as
part of a
publicly
announced
plan
332
141,722
44,363
14,135
78,708
50,249
18,323
167,000
54,832
840
104,344
35,122
709,970
Maximum
number of
shares that
may yet be
purchased
under the plan
1,421,950
1,280,228
1,235,865
1,221,730
1,143,022
1,092,773
1,074,450
907,450
852,618
851,778
747,434
712,312
Weighted-
average price
paid per share
51.88
$
42.18
39.63
40.93
39.09
37.36
36.62
35.80
34.29
34.74
31.15
29.39
36.80
$
October 2018
November 2018
December 2018
January 2019
February 2019
March 2019
April 2019
May 2019
June 2019
July 2019
August 2019
September 2019
Total
Holders:
Based on records available to the Company, the number of record holders of the Company's common stock was 582 at October
31, 2019.
Securities Authorized for Issuance Under Equity Compensation Plans:
See Equity Compensation Plans in Item 12 "Security Ownership of Certain Beneficial Owners and Management" on page 77 of
this report.
16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN *
AMONG MATTHEWS INTERNATIONAL CORPORATION,
S&P 500 INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX
e
u
l
a
V
x
e
d
n
I
$300
$250
$200
$150
$100
$50
2014
2015
2016
2017
2018
2019
Fiscal Year Ended September 30
Matthews
S&P 500
S&P MidCap 400
S&P SmallCap 600
* Total return assumes dividend reinvestment
Note: Performance graph assumes $100 invested on October 1, 2014 in Matthews International Corporation Common Stock,
Standard & Poor's (S&P) 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index. The results are not necessarily
indicative of future performance.
17
ITEM 6. SELECTED FINANCIAL DATA.
2019(1)
Net sales
$ 1,537,276
2018(2)
Years Ended September 30,
2017(3)
(Amounts in thousands, except per share data)
(Unaudited)
$ 1,515,608
$ 1,480,464
$ 1,602,580
2016(4)
2015(5)
$ 1,426,068
Operating profit (6)
Interest expense
Net (loss) income attributable to
Matthews shareholders
(Loss) earnings per common share:
Basic
Diluted
Weighted-average common
shares outstanding:
Basic
Diluted
10,303
138,557
121,376
127,228
110,700
40,962
37,427
26,371
24,344
20,610
(37,988) $
107,371
$
74,368
$
66,749
$
63,449
(1.21) $
(1.21)
$
3.39
3.37
$
2.31
2.28
$
2.04
2.03
1.93
1.91
$
$
31,416
31,416
31,674
31,861
32,240
32,570
32,642
32,904
32,939
33,196
Cash dividends per share
$
0.80
$
0.76
$
0.68
$
0.60
$
0.54
Total assets
Long-term debt, non-current
$ 2,190,603
898,194
$ 2,357,744
929,342
$ 2,244,649
881,602
$ 2,091,041
844,807
$ 2,143,611
891,217
(1)
(2)
(3)
(4)
(5)
(6)
Fiscal 2019 included net pre-tax charges of $114,768, primarily related to a goodwill write-down, losses from cost-method investments, losses on divestitures,
acquisition-related costs, strategic cost-reduction initiatives, and net gains from the sale of buildings and vacant properties. Charges of $111,069 and $3,699
impacted operating profit and other deductions, respectively.
Fiscal 2018 included net pre-tax charges of $27,115 and income of $3,771, which impacted operating profit and other deductions, respectively. These pre-
tax charges primarily consisted of acquisition-related costs, and strategic cost-reduction initiatives. The pre-tax income primarily consisted of gains recognized
on the disposition of certain cost-method investments.
Fiscal 2017 included net pre-tax charges of $38,458 and income of $10,483, which impacted operating profit and other deductions, respectively. These pre-
tax charges primarily consisted of acquisition-related costs, and strategic cost-reduction initiatives. The pre-tax income primarily consisted of loss recoveries,
net of related costs, related to the previously disclosed theft of funds by a former employee.
Fiscal 2016 included net pre-tax charges of $36,057 and income of $78, which impacted operating profit and other deductions, respectively. These amounts
primarily consisted of acquisition-related costs and strategic cost-reduction initiatives.
Fiscal 2015 included pre-tax charges of $36,883 and income of $8,726, which impacted operating profit and other deductions, respectively, and also included
the unfavorable effect of related adjustments of $1,334 to income tax expense. These amounts primarily consisted of acquisition-related costs, trade name
write-offs, strategic cost-reduction initiatives, and losses related to a theft of funds, partially offset by a gain on the settlement of a multi-employer pension
plan obligation, and the impact of the favorable settlement of litigation, net of related expenses.
Amounts were revised to reflect retrospective application for adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost" on October 1, 2018. As a result, operating income increased by $5,723, $8,773, $8,413, and $5,677 for fiscal
years 2018, 2017, 2016, and 2015, respectively.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion should be read in conjunction with the consolidated financial statements of Matthews and related notes
thereto. In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report
on Form 10-K.
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 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 its primary measure of segment profitability from operating profit to 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.
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 allocating corporate costs to
its reportable segments beginning in fiscal 2019. 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.
19
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The following table sets forth sales and adjusted EBITDA for the Company's SGK Brand Solutions, Memorialization and Industrial
Technologies segments for each of the last three fiscal years. The segment financial information for fiscal years 2018 and 2017
has been revised to present the prior period information on a comparable basis. Refer to Note 19, "Segment Information" in Item
8 - "Financial Statements and Supplemental Data" for the Company's financial information by segment.
Sales to external customers:
SGK Brand Solutions
Memorialization
Industrial Technologies
Consolidated Sales
Adjusted EBITDA:
SGK Brand Solutions
Memorialization
Industrial Technologies
Corporate and Non-Operating
Total Adjusted EBITDA(1)
2019
Years Ended September 30,
2018
(Dollars in thousands)
2017
$
$
$
$
743,869
636,892
156,515
1,537,276
119,493
134,286
24,082
(56,989)
220,872
$
$
$
$
805,274
631,392
165,914
1,602,580
150,233
145,487
25,864
(66,470)
255,114
$
$
$
$
770,181
615,882
129,545
1,515,608
144,783
139,192
18,481
(63,773)
238,683
(1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.
Comparison of Fiscal 2019 and Fiscal 2018:
Sales for the year ended September 30, 2019 were $1.54 billion, compared to $1.60 billion for the year ended September 30, 2018,
representing a decrease of $65.3 million. Changes in foreign currency rates were estimated to have an unfavorable impact of
$32.6 million on fiscal 2019 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 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 fiscal 2019 were $743.9 million, compared to $805.3 million in fiscal 2018.
Changes in foreign currency exchange rates had an unfavorable impact of $27.2 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 $24 million impact on sales), lower sales in the U.K, and reduced sales of surfaces and engineered
products in Europe. These decreases were partially offset by sales growth in the private label brand market, increased brand sales
in Europe, and benefits from the recently completed acquisition of Frost Converting Systems, Inc. Memorialization segment sales
for fiscal 2019 were $636.9 million, compared to $631.4 million for fiscal 2018. The sales increase reflected higher sales of
memorial products, cremation and incineration equipment in the U.K., and benefits from the February 2018 acquisition of Star
Granite and Bronze International, Inc. These increases were partially offset by lower 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. Changes in foreign currency exchange rates had
an unfavorable impact of $3.0 million on the segment's sales compared to the prior year. Industrial Technologies segment sales
for fiscal 2019 were $156.5 million, compared to $165.9 million for fiscal 2018. The decrease reflected lower product identification
and applied technologies sales, partially offset by higher sales of warehouse automation systems, and benefits from the November
2017 acquisition of Compass Engineering Group, Inc. ("Compass Engineering"). Changes in foreign currency exchange rates
also had an unfavorable impact of $2.3 million on the segment's sales compared to the prior year.
20
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Gross profit for the year ended September 30, 2019 was $542.5 million, compared to $584.2 million for fiscal 2018. Consolidated
gross profit as a percent of sales was 35.3% and 36.5% in fiscal 2019 and fiscal 2018, respectively. The decrease in gross profit
primarily reflected lower sales, higher material costs, increased transportation costs, and unfavorable changes in foreign currency
values against the U.S. dollar. These declines were partially offset by the benefits of recently completed acquisitions, and the
realization of acquisition synergies and productivity improvements. Gross profit also included acquisition integration costs and
other charges totaling $2.4 million and $3.0 million in fiscal 2019 and 2018, respectively.
Selling and administrative expenses for the year ended September 30, 2019 were $408.8 million, compared to $414.1 million for
fiscal 2018. Consolidated selling and administrative expenses as a percent of sales were 26.6% for fiscal 2019, compared to 25.8%
in fiscal 2018. 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, the
recognition of $7.3 million of net gains from the sale of buildings and vacant properties, 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
$6.5 million of losses on divestitures within the Memorialization segment. Selling and administrative expenses also included
acquisition integration and related systems-integration costs, and other charges primarily in connection with cost reduction
initiatives totaling $30.5 million in fiscal 2019, compared to $24.1 million in fiscal 2018. Intangible amortization for the year
ended September 30, 2019 was $45.8 million, compared to $31.6 million for fiscal 2018. The increase in intangible amortization
primarily reflected $1.6 million of incremental amortization related to recently completed acquisitions, and $13.0 million of
incremental amortization resulting from a reduction in useful lives for certain trade names that are being discontinued, as well as
the impact of converting certain trade names from indefinite-lived to definite-lived. During the fourth quarter of fiscal 2019, the
Company recorded a goodwill write-down of $77.6 million related to its Graphics Imaging reporting unit within the SGK Brand
Solutions segment. Refer to Note 21, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary
Data" for further details.
Adjusted EBITDA for fiscal 2019 was $220.9 million, compared to $255.1 million for fiscal 2018. Adjusted EBITDA for the
SGK Brand Solutions segment for fiscal 2019 was $119.5 million, compared to $150.2 million for fiscal 2018. The decrease in
segment adjusted EBITDA primarily reflected the impact of lower sales, unfavorable margins in Europe, and the impact of
unfavorable changes in foreign currencies against the U.S. dollar. Changes in foreign currency exchange rates had an unfavorable
impact of $3.9 million on the segment's adjusted EBITDA compared to the prior year. These decreases in segment adjusted
EBITDA were partially offset by growth in the private label brand market, improved mix for merchandising solutions, and a
reduction in performance-based compensation compared to fiscal 2018. Memorialization segment adjusted EBITDA for fiscal
2019 was $134.3 million, compared to $145.5 million for fiscal 2018. The decrease in segment adjusted EBITDA primarily
reflected the impact of higher material and transportation costs. These decreases were partially offset by benefits from the acquisition
of Star Granite, and the favorable impact of acquisition synergies and other productivity initiatives. Adjusted EBITDA for the
Industrial Technologies segment for fiscal 2019 was $24.1 million, compared to $25.9 million in fiscal 2018. Industrial Technologies
segment adjusted EBITDA reflected the impact of lower 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.
Investment income for the year ended September 30, 2019 was $1.5 million, compared to $1.6 million for the year ended September
30, 2018. The decrease primarily reflected lower rates of return on investments (primarily marketable securities) held in trust for
certain of the Company's benefit plans. Interest expense for fiscal 2019 was $41.0 million, compared to $37.4 million in fiscal
2018. The increase in interest expense reflected an increase 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). Other income (deductions), net for the year ended September 30, 2019 represented a
decrease in pre-tax income of $8.9 million, compared to a decrease in pre-tax income of $4.7 million in fiscal 2018. Other income
(deductions), net generally include 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 expenses (see "Recently Issued Accounting Pronouncements" below), which totaled $3.8 million and $5.7 million
in fiscal years 2019 and 2018, respectively. Fiscal 2019 other income (deductions), net also included a $3.7 million loss from the
write-down of a cost-method investment and related assets. Fiscal 2018 other income (deductions), net included $3.8 million of
gains recognized in connection with the sale of certain cost-method investments.
21
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company's consolidated income taxes for the year ended September 30, 2019 were a charge of $806,000, compared to an
income tax benefit of $9.1 million for fiscal 2018. The increase in the fiscal 2019 effective tax rate, compared to fiscal 2018,
primarily reflected the fiscal 2018 U.S. deferred tax benefit from the U.S. Tax Cuts and Jobs Act (the “Act”) enactment. For 2019
the Company’s effective tax rate was unfavorable compared to the U.S. federal statutory rate primarily due to the 2019 goodwill
write-down, the majority of which did not have an accompanying tax benefit. The 2019 effective tax rate benefited from research
and development and foreign tax credits and the elimination, achieved through tax planning, of a taxable basis difference. Refer
to Note 15, “Income Taxes” in Item 8 - “Financial Statements and Supplementary Data” for further details regarding income taxes.
Net losses attributable to noncontrolling interests were $901,000 in fiscal 2019, compared to $260,000 in fiscal 2018. The net
losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.
Comparison of Fiscal 2018 and Fiscal 2017:
Sales for the year ended September 30, 2018 were $1.60 billion, compared to $1.52 billion for the year ended September 30, 2017.
The increase in fiscal 2018 sales of $87.0 million principally reflected higher sales of marking products and fulfillment systems
(Industrial Technologies), increased sales in the U.K., Europe, and Asia Pacific brand markets, benefits from acquisitions (see
"Acquisitions" below for annual revenue information for significant acquisitions) and the favorable impact of changes in foreign
currencies against the U.S. dollar. Changes in foreign currency rates were estimated to have a favorable impact of $26.9 million
on fiscal 2018 consolidated sales compared to fiscal 2017. These increases were partially offset by slower brand market conditions
in North America for the SGK Brand Solutions segment, and lower unit sales of memorials and caskets. Comparability was also
impacted by a significant merchandising display project in fiscal 2017 in the SGK Brand Solutions segment.
In the SGK Brand Solutions segment, sales for fiscal 2018 were $805.3 million, compared to $770.2 million in fiscal 2017. The
increase in sales reflected sales growth in the U.K., Europe, and Asia Pacific markets, and benefits from acquisitions. Changes
in foreign currency exchange rates also had a favorable impact of $22.8 million on the segment's sales compared to fiscal 2017.
These increases were partially offset by slower brand market conditions in North America, lower sales of merchandising displays,
and the divestiture of a small business in the U.K. Lower merchandising display sales reflected a large project (approximately
$18.0 million) in fiscal 2017 that did not repeat in fiscal 2018. Memorialization segment sales for fiscal 2018 were $631.4 million
compared to $615.9 million for fiscal 2017. The sales increase reflected the benefits of acquisitions, partially offset by lower unit
sales of memorials and caskets, consistent with an estimated decline in U.S. casketed deaths. Changes in foreign currency exchange
rates also had a favorable impact of $2.8 million on the segment's sales compared to fiscal 2017. Industrial Technologies segment
sales for fiscal 2018 were $165.9 million, compared to $129.5 million for fiscal 2017. The increase reflected higher sales of
marking products and fulfillment systems, and benefits from acquisitions. Changes in foreign currency exchange rates also had
a favorable impact of $1.2 million on the segment's sales compared to fiscal 2017.
Gross profit for the year ended September 30, 2018 was $584.2 million, compared to $567.8 million for fiscal 2017. Consolidated
gross profit as a percent of sales was 36.5% and 37.5% in fiscal 2018 and fiscal 2017, respectively. The increase in gross profit
primarily reflected the impact of higher sales, including recent acquisitions, the benefits of productivity initiatives, and realization
of acquisition synergies. These increases were partially offset by higher material costs, particularly bronze and steel, and lower
U.S. sales (excluding acquisitions) in the SGK Brand Solutions and Memorialization segments. Fiscal 2018 gross profit also
included acquisition integration costs and other charges totaling $3.0 million. Fiscal 2017 gross profit included an expense of
$2.0 million for the write-off of inventory step-up value related to fiscal 2017 acquisitions.
Selling and administrative expenses for the year ended September 30, 2018 were $414.1 million, compared to $423.1 million for
fiscal 2017. Consolidated selling and administrative expenses as a percent of sales were 25.8% for fiscal 2018, compared to 27.9%
in fiscal 2017. Selling and administrative expenses in fiscal 2018 included acquisition integration and related systems-integration
costs, and other charges primarily in connection with cost reduction initiatives totaling $24.1 million, compared to $35.2 million
in fiscal 2017. Selling and administrative expenses in fiscal 2018 also included benefits from cost reduction initiatives, including
acquisition-integration synergies and a reduction in performance-based compensation compared to fiscal 2017. These benefits
were partially offset by additional expenses in fiscal 2018 from recently completed acquisitions. Intangible amortization for the
year ended September 30, 2018 was $31.6 million, compared to $23.3 million for fiscal 2017. The increase in intangible amortization
primarily reflected $6.7 million of incremental amortization related to recently completed acquisitions.
22
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Adjusted EBITDA for fiscal 2018 was $255.1 million, compared to $238.7 million for fiscal 2017. The SGK Brand Solutions
segment adjusted EBITDA for fiscal 2018 was $150.2 million, compared to $144.8 million for fiscal 2017. Fiscal 2018 adjusted
EBITDA for the SGK Brand Solutions segment reflected benefits from recently completed acquisitions, reductions in performance-
based compensation, and the favorable impact of changes in foreign currencies against the U.S. dollar of approximately $3.9
million. These improvements were partially offset by the impact of lower sales (excluding acquisitions) in North America.
Memorialization segment adjusted EBITDA for fiscal 2018 was $145.5 million, compared to $139.2 million for fiscal 2017. The
increase in segment adjusted EBITDA reflected the benefits from recently completed acquisitions, and the favorable impact of
acquisition synergies and other productivity initiatives. These increases were partially offset by higher material costs, and the
impact of lower memorial and casket sales volume. Adjusted EBITDA for the Industrial Technologies segment for fiscal 2018
was $25.9 million, compared to $18.5 million in fiscal 2017. The increase in segment adjusted EBITDA reflected higher sales of
marking products, fulfillment systems, and OEM solutions, and the benefits from recently completed acquisitions. These increases
were partially offset by higher investments in the segment's product development.
Investment income for the year ended September 30, 2018 was $1.6 million, compared to $2.5 million for the year ended September
30, 2017. The decrease reflected lower rates of return on investments held in trust for certain of the Company's benefit plans.
Interest expense for fiscal 2018 was $37.4 million, compared to $26.4 million in fiscal 2017. The increase in interest expense
reflected an increase in average borrowing levels, primarily related to acquisitions, higher average interest rates in fiscal 2018,
and incremental financing costs associated with the 5.25% Senior Notes (see "Liquidity and Capital Resources" below). Other
income (deductions), net, for the year ended September 30, 2018 represented a decrease in pre-tax income of $4.7 million, compared
to a decrease in pre-tax income of $1.2 million in fiscal 2017. Other income and deductions generally include 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 post-retirement expense (see "Recently Issued
Accounting Pronouncements" below), which totaled $5.7 million and $8.8 million in fiscal years 2018 and 2017, respectively.
Fiscal 2018 other income and deductions also included $3.8 million of gains recognized in connection with the sale of certain
cost-method investments. Fiscal 2017 other income and deductions included loss recoveries of $11.3 million related to the
previously disclosed theft of funds by a former employee initially identified in fiscal 2015.
The Company's consolidated income taxes for the year ended September 30, 2018 were a benefit of $9.1 million, compared to
income tax expense of $22.4 million for fiscal 2017. The difference between the Company's fiscal 2018 effective tax rate and the
fiscal 2017 effective tax rate primarily resulted from the impacts of the U.S. Tax Cuts and Jobs Act which was enacted on December
22, 2017. The Act reduced the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018, which resulted in
a blended U.S. statutory tax rate of 24.5% for the Company in fiscal 2018. The Act also required a one-time transition tax on
earnings of certain foreign subsidiaries that were previously deferred, and created new taxes on certain foreign-sourced earnings.
At September 30, 2018, the Company had not finalized its accounting for the tax effects of the Act; however, management had
made a reasonable estimate of the effects on existing deferred tax balances and had recorded an estimated amount for its one-time
transition tax. For the items for which the Company was able to determine a reasonable estimate, a provisional net tax benefit of
$29.2 million was recognized, which was included entirely as a component of income tax benefit (provision) for the year ended
September 30, 2018. The difference between the Company's fiscal 2018 effective tax rate and the blended U.S. federal statutory
rate of 24.5% primarily reflected the re-measurement of U.S. deferred taxes and the benefit of credits and incentives, partially
offset by the one-time transition tax and the impact of state taxes. Refer to Note 15, “Income Taxes” in Item 8 - “Financial
Statements and Supplementary Data” for further details regarding income taxes.
Net losses attributable to noncontrolling interests were $260,000 in fiscal 2018, compared to $435,000 in fiscal 2017. The net
losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned Memorialization and Industrial
Technologies businesses.
23
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
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.
24
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The reconciliation of net income to adjusted EBITDA is as follows:
2019
Years Ended September 30,
2018
(Dollar amounts in thousands)
2017
Net (loss) income
Income tax provision (benefit)
(Loss) income before income taxes
Net loss attributable to noncontrolling interests
Interest expense
Depreciation and amortization *
Acquisition costs (1)**
ERP integration costs (2)**
Strategic initiatives and other charges (3)**
Loss recoveries, net of costs (4)
Joint Venture depreciation, amortization and interest expense (5)
Goodwill write-down (6)
Net realized losses (gains) on divestitures and asset dispositions:
Loss on divestitures (7)
Realized loss (gain) on cost-method investments (8)
Net gains from the sale of buildings and vacant properties (9)
Stock-based compensation
Non-service pension and postretirement expense (10)
Total Adjusted EBITDA
$
(38,889) $
806
(38,083)
901
40,962
90,793
10,872
7,508
13,449
—
1,514
77,572
6,469
4,731
(7,347)
7,729
3,802
220,872
$
107,111
(9,118)
97,993
260
37,427
76,974
10,918
10,864
5,266
—
—
—
—
(3,771)
—
13,460
5,723
255,114
73,933
22,354
96,287
435
26,371
67,981
17,722
8,026
9,209
(10,683)
—
—
—
—
—
14,562
8,773
238,683
(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 primarily associated with productivity and cost-reduction initiatives intended to result in improved operating performance,
profitability and working capital levels.
(4) Represents loss recoveries, net of related costs, related to the theft of funds by a former employee.
(5) Represents the Company's portion of depreciation, intangible amortization and interest expense incurred by non-consolidated subsidiaries accounted for as
equity-method investments within the Memorialization segment.
(6) Represents the goodwill write-down for a reporting unit within the SGK Brand Solutions segment.
(7) Represents a loss on the sale of a controlling interest in a subsidiary and divestiture of a business within the Memorialization segment.
(8) Includes gains/losses related to cost-method investments, and related assets, within SGK Brand Solutions and Memorialization segments.
(9) Includes significant building and vacant property transactions resulting in a gain of $8.7 million within the Industrial Technologies segment and losses of $0.9
million and $0.4 million within the SGK Brand Solutions and Memorialization segments, respectively.
(10) 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 $59.7 million, $46.3 million, and $41.9 million for the SGK Brand Solutions segment, $19.7 million, $20.0 million,
and $19.8 million for the Memorialization segment, $6.2 million, $5.8 million, and $2.9 million for the Industrial Technologies segment, and $5.2 million, $4.9
million, and $3.4 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2019, 2018, and 2017, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $8.9 million, $11.0 million, and $14.5 million for the SGK Brand
Solutions segment, $3.1 million, $0.6 million, and $0.6 million for the Industrial Technologies segment, and $19.9 million, $14.0 million, and $19.1 million for
Corporate and Non-Operating, for the fiscal years ended September 30, 2019, 2018, and 2017, respectively. Acquisition costs, ERP integration costs, and strategic
initiatives and other charges were $1.4 million, and $0.8 million for the Memorialization segment for the fiscal years ended September 30, 2018 and 2017,
respectively.
25
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $131.1 million for the year ended September 30, 2019, compared to $147.6 million
and $149.3 million for fiscal years 2018 and 2017, respectively. Operating cash flow for fiscal 2019 principally included net (loss)
income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill
and investments, net gains from the sale of buildings and other property, and non-cash pension expense, and an increase in working
capital items. Fiscal 2019 operating cash flow also included cash contributions of $2.3 million to the Company's pension and
other postretirement plans. The fiscal 2019 decline primarily reflected the impact of lower adjusted EBITDA for fiscal 2019,
compared to fiscal 2018. Operating cash flow for fiscal 2018 principally included net income adjusted for deferred taxes,
depreciation and amortization, stock-based compensation expense, and non-cash pension expense, and an increase in working
capital items, primarily reflecting a decrease in accrued compensation amounts. Fiscal 2018 operating cash flow also included
cash contributions of $12.7 million to the Company's pension and other postretirement plans. Operating cash flow for fiscal 2017
principally included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, and
non-cash pension expense, and a decrease in working capital items, partially offset by cash contributions of $8.7 million to the
Company's pension and other postretirement plans. Fiscal 2017 operating cash flow also included cash proceeds from loss recoveries
of $10.0 million.
Cash used in investing activities was $60.8 million for the year ended September 30, 2019, compared to $162.3 million and $141.6
million for fiscal years 2018 and 2017, respectively. Investing activities for fiscal 2019 primarily reflected capital expenditures
of $37.7 million, acquisition payments (net of cash acquired or received from sellers) of $11.5 million, proceeds of $13.3 million
from the sale of assets, proceeds of $8.3 million from the divestiture of a controlling interest in a small pet cremation business
(see "Acquisitions and Divestitures" below), and additional investments made in non-consolidated subsidiaries of $33.1 million.
Investing activities for fiscal 2018 primarily reflected capital expenditures of $43.2 million, acquisition payments (net of cash
acquired or received from sellers) of $121.1 million (see "Acquisitions and Divestitures" below), proceeds of $9.2 million from
the sale of certain cost-method investments, and cash payments of $11.9 million for purchases of investments. Investing activities
for fiscal 2017 primarily reflected capital expenditures of $44.9 million and acquisition payments (net of cash acquired or received
from sellers) of $98.2 million (see "Acquisitions and Divestitures" below).
Capital expenditures were $37.7 million for the year ended September 30, 2019, compared to $43.2 million and $44.9 million for
fiscal years 2018 and 2017, respectively. Capital expenditures in each of the last three fiscal years reflected reinvestments 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 spending for property, plant and equipment has averaged $41.9 million for the last three fiscal
years. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for
fiscal 2020 is currently estimated to be approximately $50 million. The Company expects to generate sufficient cash from operations
to fund all anticipated capital spending projects.
Cash used in financing activities for the year ended September 30, 2019 was $75.0 million, and principally reflected repayments,
net of proceeds, on long-term debt of $16.0 million, purchases of treasury stock of $26.1 million, payment of dividends to the
Company's shareholders of $25.6 million ($0.80 per share), and $4.4 million of holdback and contingent consideration payments
related to a fiscal 2018 acquisition. Cash provided by financing activities for the year ended September 30, 2018 was $0.9 million,
and primarily reflected proceeds, net of repayments, on long-term debt of $53.0 million, purchases of treasury stock of $21.2
million, payment of dividends to the Company's shareholders of $24.6 million ($0.76 per share), and payment of deferred financing
fees of $4.1 million. Cash used in financing activities for the year ended September 30, 2017 was $7.2 million, and reflected
proceeds, net of repayments on long-term debt of $28.6 million, purchases of treasury stock of $14.0 million, and payment of
dividends to the Company's shareholders of $21.8 million ($0.68 per share).
The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900.0 million senior secured
revolving credit facility and a $250.0 million senior secured amortizing term loan. A portion of the revolving credit facility (not
to exceed $150.0 million ) can be drawn in foreign currencies. The term loan requires scheduled 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 date. The balance of the revolving credit facility and the term loan are due on the maturity date of April 26, 2021.
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 September 30, 2019) 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
26
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
commitment fee ranging from 0.15% to 0.25% (based on the Company's leverage ratio) of the unused portion of the revolving
credit 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 September 30, 2019 and 2018 were $325.6 million and $319.5 million,
respectively. During fiscal 2019, the Company borrowed €125.0 million on the revolving credit facility. Proceeds from the Euro
denominated borrowings were used to make a principal payment of $140.0 million on the outstanding balance of the term loan.
Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2019 were €125.0 million ($136.5
million). There were no Euro denominated borrowings on the revolving credit facility at September 30, 2018. Outstanding
borrowings on the term loan at September 30, 2019 and 2018 were $53.5 million and $212.1 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 September 30, 2019 and 2018 was 2.65% and 3.12%, respectively.
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 2025 Senior Notes of $4.1
million, which are being deferred and amortized over the term of the 2025 Senior Notes.
The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial
institutions which matures on April 11, 2020, and the Company intends to extend this facility. 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 from 0.25% to 0.35% of
the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at September 30, 2019
and 2018 were $94.0 million and $102.3 million, respectively. The interest rate on borrowings under this facility at September 30,
2019 and 2018 was 2.77% and 3.01%, respectively.
The following table presents information related to interest rate contracts entered into by the Company and designated as cash
flow hedges:
Pay fixed swaps - notional amount
Net unrealized (loss) gain
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
September 30, 2019
September 30, 2018
$
$
$
$
(Dollars in thousands)
293,750
(534)
1.9
2.02%
1.41%
343,750
11,309
2.7
2.26%
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 loss, net of unrealized gains, of $534,000 ($403,000 after tax) and
an unrealized gain of $11.3 million ($8.5 million after tax) at September 30, 2019 and 2018, respectively, that is included in
shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with
the rates at September 30, 2019, a gain (net of tax) of approximately $48,000 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 borrowings available under this facility is €35.0 million ($38.2 million). The credit facility
matures in December 2019 and the Company intends to extend this facility. Outstanding borrowings under this facility totaled
27
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
€12.8 million ($14.0 million) and €2.8 million ($3.2 million) at September 30, 2019 and 2018, respectively. The weighted-average
interest rate on outstanding borrowings under this facility at September 30, 2019 and 2018 was 1.25% and 1.75% respectively.
The Company’s German subsidiary, Matthews Europe GmbH & Co. KG, has €15.0 million ($16.4 million) 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 September 30, 2019 and 2018 was 1.40%.
Other debt, including capital leases totaled $395,000 and $5.4 million at September 30, 2019 and 2018, respectively. The weighted-
average interest rate on these outstanding borrowings was 2.17% and 2.21% at September 30, 2019 and 2018, respectively. The
Company was in compliance with all of its debt covenants as of September 30, 2019.
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of
$3.3 million (net of income taxes of $1.1 million), which represent effective hedges of net investments, were reported as a component
of AOCI within currency translation adjustment for the fiscal year 2019. The Company did not have any net investments hedges
in the prior year.
In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8.6 million ($10.5 million
at September 30, 2019) with respect to a performance guarantee on an environmental solutions 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.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 pursuing a
trial on the merits in Saudi Arabia which may not finally be resolved until calendar year 2020. It is necessary to obtain an equivalent
favorable ruling in the courts of Saudi Arabia to effectively enforce judgment and commence collection efforts. 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 of 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 from the Saudi Arabian government to enforce a potential judgment
against the creditor. The Company has determined that resolution of this matter may take an extended period of time and therefore
has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of September 30, 2019 and
2018. 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 712,312 shares remain
available for repurchase as of September 30, 2019. 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.
Consolidated working capital was $303.8 million at September 30, 2019, compared to $328.7 million at September 30, 2018.
Cash and cash equivalents were $35.3 million at September 30, 2019, compared to $41.6 million at September 30, 2018. The
Company's current ratio was 2.1 at September 30, 2019 and 2018.
ENVIRONMENTAL MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the
environment. The Company is party to various environmental matters which include obligations to investigate and mitigate the
effects on the environment of certain materials at various operating and non-operating sites. The Company is currently performing
environmental assessments and remediation at certain sites, as appropriate. Refer to Note 17, "Environmental Matters" in Item 8
- "Financial Statements and Supplementary Data," for further details.
28
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
ACQUISITIONS AND DIVESTITURES:
Refer to Note 20, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data," for further details
on the Company's acquisitions.
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 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. At present, the Company is currently
targeting revenue growth in fiscal 2020 in its Industrial Technologies and Memorialization segments, with relatively stable year-
over-year revenues for the SGK Brand Solutions segment.
During 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
achieve over the next two fiscal years. The Company's recent strategic review has also resulted in improvements to the commercial
structure within the SGK Brand Solutions segment, including the consolidation of several of the segment's trade names. As a
result, the amortization of these intangible assets will significantly increase for the next three years.
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," of this Annual Report on Form 10-K.
The Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K. 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
following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's
consolidated financial statements for the year ended September 30, 2019.
Long-Lived Assets, including Property, Plant and Equipment:
Long-lived assets are recorded at their respective cost basis on the date of acquisition. Depreciation on property, plant and equipment
is computed primarily on the straight-line method over the estimated useful lives of the assets. Intangible assets with finite useful
lives are amortized over their estimated useful lives. The Company reviews long-lived assets, including property, plant and
equipment, and intangibles with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash
flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets
exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during the years
presented.
29
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Goodwill and Indefinite-Lived Intangibles:
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment, or when
circumstances indicate that a possible impairment may exist. In general, when the carrying value of these assets exceeds the
implied fair value, an impairment loss must be recognized. A significant decline in cash flows generated from these assets may
result in a write-down of the carrying values of the related assets. For purposes of testing goodwill for impairment, the Company
uses a combination of valuation techniques, including discounted cash flows and other market indicators. A number of assumptions
and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including sales
volumes and pricing, costs to produce, tax rates, capital spending, working capital changes, and discount rates. The Company
estimates future cash flows using volume and pricing assumptions based largely on existing customer relationships and contracts,
and operating cost assumptions management believes are reasonable based on historical performance and projected future
performance as reflected in its most recent operating plans and projections. The discount rates used in the discounted cash flow
analyses are developed with the assistance of valuation experts and management believes the discount rates appropriately reflect
the risks associated with the Company's operating cash flows. In order to further validate the reasonableness of the estimated fair
values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market
capitalization is performed using a reasonable control premium.
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of
fiscal 2019. As a result of this review, the Company determined that the estimated fair value of all reporting units exceeded carrying
value. Due to challenging market conditions affecting the Graphics Imaging reporting unit within the SGK Brand Solutions
segment and the estimated fair value of this reporting unit exceeding its carrying value by approximately 10%, the Company
provided additional disclosure in its Form 10-Q for the second and third quarters of fiscal 2019 indicating that further deterioration
of conditions could result in a future goodwill write-down for this reporting unit.
In consideration of continued challenging market conditions affecting the SGK Brand Solutions segment throughout the remainder
of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the segment during the fourth
quarter. This review identified certain opportunities to improve the segment’s profitability and reduce its operating cost structure
and, as a result, the Company revised its estimates of future earnings and cash flows for the Graphics Imaging reporting unit. In
response to these revised projections, the Company re-evaluated the goodwill for the Graphics Imaging reporting unit, as of
September 1, 2019. As a result of this interim assessment, the Company recorded a goodwill write-down of $77.6 million during
the fiscal 2019 fourth quarter. Subsequent to this write-down, the fair value of the Graphics Imaging reporting unit approximates
carrying value at September 30, 2019. If current projections are not achieved or specific valuation factors outside the Company’s
control (such as discount rates) significantly change, additional goodwill write-downs may be necessary in future periods.
Pension and Postretirement Benefits:
Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of
the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes
in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets
and changes in the selected discount rate will affect the amount of pension cost.
The Company's principal pension plan maintains a substantial portion of its assets in equity securities in accordance with the
investment policy established by the Company's pension board. Based on an analysis of the historical performance of the plan's
assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption
for these assets at 6.75% at September 30, 2018 for purposes of determining fiscal 2019 pension cost. The Company's discount
rate assumption used in determining the present value of the projected benefit obligation is based upon published indices as of
September 30, 2019 and September 30, 2018 for the fiscal year end valuation. The discount rate was 3.13%, 4.21% and 3.76% in
fiscal 2019, 2018 and 2017, respectively. Refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this
Annual Report on Form 10-K, for disclosure about the hypothetical impact of changes in actuarial assumptions.
Income Taxes:
Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income taxes
have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now
exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign
operations.
30
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The following table summarizes the Company's contractual obligations at September 30, 2019, and the effect such obligations are
expected to have on its liquidity and cash flows in future periods.
Payments due in fiscal year:
Contractual Cash Obligations:
Revolving credit facilities
Securitization facility
Senior secured term loan
2025 Senior Notes
Notes payable to banks
Short-term borrowings
Capital lease obligations
Non-cancelable operating leases
Other
Total contractual cash obligations
Total
$
476,132
93,950
53,497
399,091
16,376
395
4,417
90,611
10,525
$ 1,144,994
$
$
2023 to
2024
2020*
$
$
2021 to
2022
(Dollar amounts in thousands)
14,024
93,950
25,000
15,750
16,376
395
640
28,557
2,861
197,553
462,108
—
28,497
31,500
—
—
930
36,322
5,724
565,081
$
$
— $
—
—
31,500
—
—
753
16,088
947
49,288
$
After
2024
—
—
—
320,341
—
—
2,094
9,644
993
333,072
* The Company maintains certain debt facilities with current maturity dates in fiscal 2020 that it intends and has the ability to extend beyond fiscal 2020 totaling
$108.0 million. These balances have been classified as non-current on the Company's Consolidated Balance Sheet.
A significant portion of the loans included in the table above bear interest at variable rates. At September 30, 2019, the weighted-
average interest rate was 2.65% on the Company's domestic credit facility, 2.77% on the Company's Securitization Facility, 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 2.17% on other outstanding debt.
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. Under I.R.S.
regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2019.
The Company is required to make cash contributions of approximately $4.3 million to its principal retirement plan in fiscal 2020.
The Company estimates that benefit payments to participants under its retirement plans (including its supplemental retirement
plan) and postretirement benefit payments will be approximately $10.7 million and $1.0 million, respectively, in fiscal 2020. The
amounts are expected to increase incrementally each year thereafter, to $14.0 million and $1.1 million, respectively, in 2024. 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.
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 September 30, 2019, the Company had unrecognized
tax benefits, excluding penalties and interest, of approximately $15.5 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.
INFLATION:
Except for the volatility in the cost of bronze ingot, steel, wood, granite and fuel (see "Results of Operations"), inflation has not
had a material impact on the Company over the past three years nor is it anticipated to have a material impact for the foreseeable
future.
31
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Refer to Note 3, "Accounting Pronouncements" in Item 8 - "Financial Statements and Supplementary Data," for further details
on recently issued accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The following discussion about the Company's market risk involves forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements. The Company has market risk related to changes in interest
rates, commodity prices and foreign currency exchange rates. The Company does not generally use derivative financial instruments
in connection with these market risks, except as noted below.
Interest Rates - The Company's most significant long-term instrument is the domestic credit facility, which bears interest at
variable rates based on LIBOR (Euro-LIBOR for balances drawn in Euros).
The following table presents information related to interest rate contracts entered into by the Company and designated as cash
flow hedges:
Pay fixed swaps - notional amount
Net unrealized (loss) gain
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
September 30, 2019
September 30, 2018
$
$
$
$
(Dollars in thousands)
293,750
(534)
1.9
2.02%
1.41%
343,750
11,309
2.7
2.26%
1.37%
The interest rate swaps have been designated as cash flow hedges of the future variable interest payments which are considered
probable of occurring. Based on the Company's assessment, all 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 loss, net of unrealized gains, of $534,000 ($403,000 after-tax) at
September 30, 2019 that is included in equity as part of AOCI. A decrease of 10% in market interest rates (e.g., a decrease from
5.0% to 4.5%) would result in a decrease of approximately $1.0 million in the fair value of the interest rate swaps.
Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to
the purchases of certain materials and supplies (such as bronze ingot, steel, granite, fuel and wood) used in its manufacturing
operations. The Company obtains competitive prices for materials and supplies when available. In addition, based on competitive
market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar
arrangements, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited.
Foreign Currency Exchange Rates - The Company is subject to changes in various foreign currency exchange rates, primarily
including the Euro, British Pound, Canadian Dollar, and Australian Dollar in the conversion from local currencies to the U.S.
dollar of the reported financial position and operating results of its non-U.S. based subsidiaries. An adverse change (strengthening
U.S. dollar) of 10% in exchange rates would have resulted in a decrease in reported sales of $53.3 million and a decrease in reported
operating income of $3.1 million for the year ended September 30, 2019.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, (continued)
Actuarial Assumptions - The most significant actuarial assumptions affecting pension expense and pension obligations include
the valuation of retirement plan assets, the discount rates and the estimated return on plan assets. The estimated return on plan
assets is currently based upon projections provided by the Company's independent investment advisor, considering the investment
policy of the plan and the plan's asset allocation. The fair value of plan assets and discount rates are "point-in-time" measures,
and volatility of the debt and equity markets makes estimating future changes in fair value of plan assets and discount rates
challenging. The Company elected to value its principal retirement and other postretirement benefit plan liabilities using a modified
assumption of future mortality that reflects a significant improvement in life expectancy over the previous mortality assumptions.
Refer to Note 13, "Pension and Other Postretirement Plans" in Item 8 – "Financial Statements and Supplementary Data" for
additional information.
The following table summarizes the impact on the September 30, 2019 actuarial valuations of changes in the primary assumptions
affecting the Company's retirement plans and supplemental retirement plan.
Change in Discount
Rates
Impact of Changes in Actuarial Assumptions
Change in Expected
Return
Change in Market Value
of Assets
(Decrease) increase in net benefit
cost
$
(4,538) $
5,570
$
(1,513) $
1,513
$
(1,553) $
1,553
+1%
-1%
+1%
-1%
+5%
-5%
(Dollar amounts in thousands)
(Decrease) increase in projected
benefit obligation
(36,762)
46,133
Increase (decrease) in funded status
36,762
(46,133)
—
—
—
—
—
—
7,766
(7,766)
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Description
Management's Report to Shareholders
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of September 30, 2019 and 2018
Consolidated Statements of Income for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Supplementary Financial Information (unaudited)
Financial Statement Schedule – Schedule II-Valuation and Qualifying
Accounts for the years ended September 30, 2019, 2018 and 2017
Pages
35
36
37
39
41
42
43
44
45
76
77
34
MANAGEMENT'S REPORT TO SHAREHOLDERS
To the Shareholders and the Board of Directors of
Matthews International Corporation and Subsidiaries:
Management's Report on Financial Statements
The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the
"Company") were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared
in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments
and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial
statements.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company,
as such term is defined in Exchange Act Rule 13a-15f. In order to evaluate the effectiveness of internal control over financial
reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework (2013), issued
by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Internal controls over financial reporting
is a process under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the Company's
board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the Company's internal control over financial reporting based on criteria in Internal Control – Integrated
Framework (2013) issued by the COSO, and has concluded that the Company maintained effective internal control over financial
reporting as of September 30, 2019. The effectiveness of the Company's internal control over financial reporting as of September
30, 2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which
is included herein.
Management's Certifications
The certifications of the Company's Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have
been included as Exhibits 31 and 32 in this Annual Report on Form 10-K.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Matthews International Corporation and Subsidiaries:
Opinion on Internal Control over Financial Reporting
We have audited Matthews International Corporation and Subsidiaries’ internal control over financial reporting as of September
30, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Matthews International
Corporation and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting
as of September 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of September 30, 2019 and 2018, the related consolidated statements
of income, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended
September 30, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report
dated November 22, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 22, 2019
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Matthews International Corporation and Subsidiaries:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Matthews International Corporation and Subsidiaries (the
Company) as of September 30, 2019 and 2018, the related consolidated statements of income, comprehensive income (loss),
shareholders' equity and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and
the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended
September 30, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of September 30, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated November 22, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
37
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Valuation of Graphics Imaging Reporting Unit Goodwill
As more fully described in Note 21 to the consolidated financial statements, during 2019 the Company
recorded a $77.6 million goodwill impairment charge attributable to its Graphics Imaging (Graphics)
reporting unit within the Company’s SGK Brand Solutions segment. The continuation of challenging
market conditions affecting Graphics, combined with adverse foreign currency trends, unfavorably
impacted the financial results and forecasts for this reporting unit. Because of these challenging market
conditions, as of September 1, 2019, the Company evaluated the goodwill attributable to this reporting
unit, determining that the reporting unit’s carrying value exceeded its estimated fair value and, therefore,
goodwill was impaired. Significant assumptions used in the Company’s fair value estimate included
revenue growth, operating profit margin, market participant assumptions, and the discount rate.
Auditing the goodwill impairment charge was complex, as it included estimating the fair value of the
reporting unit. In particular, the fair value estimates are sensitive to the significant assumptions named
above, which are affected by expected future market or economic conditions.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal
controls over the Company’s goodwill impairment review process. These controls include management’s
assessment of indicators of impairment, management's review of the assumptions utilized to develop the
estimate, and management’s verification of the completeness and accuracy of the underlying data utilized
to project future operating results for the reporting unit.
To test the fair value of the reporting unit, our audit procedures included, among others, involving our
valuation specialists to assist in assessing the valuation methodologies utilized by the Company and its
valuation expert and testing the significant assumptions and underlying data used by the Company. We
compared the significant assumptions used by management to current industry and economic trends,
changes in the Company’s business model, and other relevant factors. We also assessed the historical
accuracy of management’s estimates. We performed sensitivity analyses of significant assumptions to
evaluate the sensitivity of the fair value of the reporting unit resulting from changes in key assumptions.
We reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the
Company and assessed the resulting control premium.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Pittsburgh, Pennsylvania
November 22, 2019
38
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2019 and 2018
(Dollar amounts in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful
accounts of $10,846 and $11,158, respectively
Inventories
Other current assets
Total current assets
Investments
Property, plant and equipment, net
Deferred income taxes
Other assets
Goodwill
Other intangible assets, net
Total assets
The accompanying notes are an integral part of these consolidated financial statements.
2019
2018
$
35,302
$
41,572
318,756
180,274
49,384
331,463
180,451
61,592
583,716
615,078
85,501
45,430
237,442
252,775
5,032
1,837
31,455
49,820
846,807
948,894
400,650
443,910
$ 2,190,603
$ 2,357,744
39
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
September 30, 2019 and 2018
(Dollar amounts in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities
Trade accounts payable
Accrued compensation
Accrued income taxes
Other current liabilities
Total current liabilities
Long-term debt
Accrued pension
Postretirement benefits
Deferred income taxes
Other liabilities
Total liabilities
Shareholders' equity-Matthews:
Class A common stock, $1.00 par value; authorized
70,000,000 shares; 36,333,992 shares issued
Preferred stock, $100 par value, authorized 10,000 shares, none issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, 4,985,508 and 4,259,206 shares, respectively, at cost
Total shareholders' equity-Matthews
Noncontrolling interests
Total shareholders' equity
2019
2018
$
$
42,503
74,558
42,545
5,997
114,276
279,879
31,260
70,044
51,490
11,413
122,195
286,402
898,194
929,342
133,762
82,035
19,963
17,753
102,482
121,519
37,087
1,471,367
51,979
1,489,030
36,334
—
137,774
972,594
(228,361)
(200,235)
718,106
1,130
719,236
36,334
—
129,252
1,040,378
(164,298)
(173,315)
868,351
363
868,714
Total liabilities and shareholders' equity
$ 2,190,603
$ 2,357,744
The accompanying notes are an integral part of these consolidated financial statements.
40
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 2019, 2018 and 2017
(Dollar amounts in thousands, except per share data)
Sales
Cost of sales
Gross profit
Selling expense
Administrative expense
Intangible amortization
Goodwill write-down
Operating profit
Investment income
Interest expense
Other income (deductions), net
2019
$ 1,537,276
(994,810)
2018
$ 1,602,580
(1,018,359)
2017
$ 1,515,608
(947,820)
542,466
584,221
567,788
(133,368)
(275,467)
(45,756)
(77,572)
(141,570)
(272,532)
(31,562)
—
(142,783)
(280,316)
(23,313)
—
10,303
138,557
121,376
1,494
(40,962)
(8,918)
1,570
(37,427)
(4,707)
2,468
(26,371)
(1,186)
(Loss) income before income taxes
(38,083)
97,993
96,287
Income tax (provision) benefit
(806)
9,118
(22,354)
Net (loss) income
(38,889)
107,111
73,933
Net loss attributable to noncontrolling interests
901
260
435
Net (loss) income attributable to Matthews shareholders
$
(37,988) $
107,371
$
74,368
(Loss) earnings per share attributable to Matthews shareholders:
Basic
Diluted
$
$
(1.21) $
3.39
(1.21) $
3.37
$
$
2.31
2.28
The accompanying notes are an integral part of these consolidated financial statements.
41
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the years ended September 30, 2019, 2018 and 2017
(Dollar amounts in thousands)
Net loss
Other comprehensive loss, net of tax:
Foreign currency translation adjustment
Pension plans and other postretirement benefits
Unrecognized loss on derivatives:
Net change from periodic revaluation
Net amount reclassified to earnings
Net change in unrecognized loss on derivatives
Other comprehensive loss, net of tax
Comprehensive loss
Net income (loss)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment
Pension plans and other postretirement benefits
Unrecognized gain (loss) on derivatives:
Net change from periodic revaluation
Net amount reclassified to earnings
Net change in unrecognized gain (loss) on
derivatives
Other comprehensive (loss) income, net of tax
Comprehensive income (loss)
Net income (loss)
Other comprehensive income, net of tax:
Foreign currency translation adjustment
Pension plans and other postretirement benefits
Unrecognized gain (loss) on derivatives:
Net change from periodic revaluation
Net amount reclassified to earnings
Net change in unrecognized gain (loss) on
derivatives
Other comprehensive income, net of tax
Comprehensive income (loss)
Year Ended September 30, 2019
Noncontrolling
Interest
Matthews
Total
$
(37,988) $
(901) $
(38,889)
(21,254)
(33,867)
(6,540)
(2,402)
(8,942)
(64,063)
(102,051) $
$
(92)
—
—
—
—
(92)
(993) $
(21,346)
(33,867)
(6,540)
(2,402)
(8,942)
(64,155)
(103,044)
Year Ended September 30, 2018
Noncontrolling
Interest
Matthews
Total
$
107,371
$
(260) $
107,111
(22,053)
15,631
6,095
(1,042)
5,053
(1,369)
106,002
$
$
71
—
—
—
—
71
(189) $
(21,982)
15,631
6,095
(1,042)
5,053
(1,298)
105,813
Year Ended September 30, 2017
Noncontrolling
Interest
Matthews
Total
$
74,368
$
(435) $
73,933
9,352
12,427
7,043
(1,069)
5,974
27,753
102,121
$
$
119
—
—
—
—
119
(316) $
9,471
12,427
7,043
(1,069)
5,974
27,872
101,805
The accompanying notes are an integral part of these consolidated financial statements.
42
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2019, 2018 and 2017
(Dollar amounts in thousands, except per share data)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
(net of tax)
Treasury
Stock
Non-
controlling
Interests
Total
$
36,334
$
117,088
$ 896,224
$
(181,868) $ (159,113) $
669
$ 709,334
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14,562
—
(8,397)
179
—
—
74,368
—
—
—
—
—
—
—
(21,762)
—
—
12,427
9,352
5,974
—
—
—
—
—
—
—
—
—
—
—
(14,025)
8,543
(179)
—
—
$
36,334
$
123,432
$ 948,830
$
(154,115) $ (164,774) $
—
—
—
—
—
—
—
—
—
—
—
—
—
13,460
—
(8,040)
107,371
—
—
—
—
—
—
400
—
—
(24,637)
—
15,631
(22,053)
5,053
—
—
—
—
—
—
—
—
—
—
(21,181)
13,040
(400)
—
—
36,334
$
—
129,252
8,814
$ 1,040,378
$
(8,814)
—
$
(164,298) $ (173,315) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,729
—
(154)
947
—
—
—
(37,988)
—
—
—
—
—
—
—
—
(25,620)
—
(4,176)
(33,867)
(21,254)
(8,942)
—
—
—
—
—
—
—
—
—
—
—
—
(26,127)
154
(947)
—
—
—
(435)
73,933
—
119
—
—
—
—
—
—
12,427
9,471
5,974
101,805
14,562
(14,025)
146
—
(21,762)
199
552
199
$ 790,259
(260)
107,111
—
71
—
—
—
—
—
—
15,631
(21,982)
5,053
105,813
13,460
(21,181)
5,000
—
(24,637)
—
363
—
$ 868,714
(901)
(38,889)
—
(92)
—
—
—
—
—
—
1,760
(33,867)
(21,346)
(8,942)
(103,044)
7,729
(26,127)
—
—
(25,620)
1,760
—
(4,176)
$
36,334
$
137,774
$ 972,594
$
(228,361) $ (200,235) $
1,130
$ 719,236
Balance, September 30, 2016
Net income
Pension plans and other
postretirement benefits
Translation adjustment
Fair value of derivatives
Total comprehensive income
Stock-based compensation
Purchase of 212,424 shares
of treasury stock
Issuance of 221,958 shares
of treasury stock
Cancellation of 2,640 shares of
treasury stock
Dividends
Transactions with
noncontrolling interests
Balance, September 30, 2017
Net income
Pension plans and other
postretirement benefits
Translation adjustment
Fair value of derivatives
Total comprehensive income
Stock-based compensation
Purchase of 393,864 shares
of treasury stock
Issuance of 326,827 shares
of treasury stock
Cancellation of 6,756 shares of
treasury stock
Dividends
Reclassification of accumulated
other comprehensive (loss)
income ("AOCI") tax effects
Balance, September 30, 2018
Net loss
Pension plans and other
postretirement benefits
Translation adjustment
Fair value of derivatives
Total comprehensive loss
Stock-based compensation
Purchase of 709,970 shares
of treasury stock
Issuance of 3,782 shares
of treasury stock
Cancellation of 20,114 shares of
treasury stock
Dividends
Acquisition
Cumulative tax adjustment for
intra-entity transfers
Balance, September 30, 2019
The accompanying notes are an integral part of these consolidated financial statements.
43
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2019, 2018 and 2017
(Dollar amounts in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred tax (benefit) provision
Gain on sale of assets, net
Loss on divestitures
Unrealized gain on investments in mutual funds
Losses from equity-method investments
Realized loss (gain) on cost-method investments
Goodwill write-down
Changes in working capital items
Decrease (increase) in other assets
Increase in other liabilities
Other operating activities, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions, net of cash acquired
Proceeds from sale of assets
Proceeds from sale of investments
Proceeds from divestiture
Purchases of investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Payments on long-term debt
Acquisition holdback and contingent consideration payments
Purchases of treasury stock
Proceeds from the exercise of stock options
Dividends
Other financing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes
Non-cash investing and financing activities:
Acquisition of long-term asset under financing arrangement
2019
2018
2017
$
(38,889) $
107,111
$
73,933
90,793
7,729
(6,783)
(8,567)
6,469
(305)
2,050
4,731
77,572
(12,482)
4,677
7,540
(3,452)
131,083
(37,688)
(11,504)
13,253
—
8,254
(33,074)
(60,759)
503,693
(519,731)
(4,421)
(26,127)
—
(25,620)
(2,836)
(75,042)
(1,552)
(6,270)
41,572
35,302
41,453
15,467
$
$
76,974
13,460
(23,125)
(2,190)
—
(1,304)
—
(3,771)
—
(9,934)
(9,872)
5,406
(5,181)
147,574
(43,200)
(121,065)
4,705
9,158
—
(11,934)
(162,336)
704,188
(651,166)
—
(21,181)
—
(24,637)
(6,303)
901
(2,082)
(15,943)
57,515
41,572
37,232
11,014
$
$
67,981
14,562
9,725
(776)
—
(2,660)
—
—
—
5,784
(17,256)
2,539
(4,533)
149,299
(44,935)
(98,235)
3,764
—
—
(2,211)
(141,617)
417,043
(388,447)
—
(14,025)
14
(21,762)
—
(7,177)
1,299
1,804
55,711
57,515
26,271
8,472
— $
14,544
$
—
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
44
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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 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.
Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and
cremation 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 the North America, Europe, Asia, Australia, and Central and South America.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
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.
Use of Estimates:
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 the 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.
Reclassifications:
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.
Cash and Cash Equivalents:
The Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. The
carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments.
Trade Receivables and Allowance for Doubtful Accounts:
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus
trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days
past due. The allowance for doubtful accounts is based on an evaluation of specific customer accounts for which available facts
and circumstances indicate collectability may be uncertain.
Inventories:
Inventories are stated at the lower of cost or net realizable value with cost generally determined under the average cost method.
Inventory costs include material, labor, and applicable manufacturing overhead (including depreciation) and other direct costs.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is computed primarily on the straight-line method over the estimated
useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment.
Gains or losses from the disposition of assets are reflected in operating profit. The cost of maintenance and repairs is charged to
expense as incurred. Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized.
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted
net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount
of the assets exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during
the years presented.
Goodwill and Other Intangible Assets:
Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from 2 to 15 years, and are reviewed
when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite
lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may
exist. In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized.
A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related
assets. For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including
discounted cash flows and other market indicators. For purposes of testing indefinite-lived intangible assets, the Company generally
uses a relief from royalty method.
Pension and Other Postretirement Plans:
Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of
the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes
in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets
and changes in the selected discount rate will affect the amount of pension cost. Differences between actual and expected results
or changes in the value of the obligations and plan assets are initially recognized through other comprehensive income and
subsequently amortized to the Consolidated Statement of Income.
Environmental:
Costs that mitigate or prevent future environmental issues or extend the life or improve equipment utilized in current operations
are capitalized and depreciated on a straight-line basis over the estimated useful lives of the related assets. Costs that relate to
current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when
the Company's obligation is probable and reasonably estimable. Accruals for losses from environmental remediation obligations
do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value.
Derivatives and Hedging:
Derivatives are held as part of a formal documented hedging program. All derivatives are held for purposes other than trading.
Matthews measures effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of
changes in the fair value or future cash flows of the hedged item. If the hedging relationship ceases to be highly effective or it
becomes probable that an expected transaction will no longer occur, gains and losses on the derivative will be recorded in other
income (deductions) at that time.
Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) ("OCI"),
net of tax, and are reclassified to earnings in a manner consistent with the underlying hedged item. The cash flows from derivative
activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Foreign Currency:
The functional currency of the Company's foreign subsidiaries is generally the local currency. Balance sheet accounts for foreign
subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date. Gains or losses that
result from this process are recorded in accumulated other comprehensive income (loss). The revenue and expense accounts of
foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Realized gains
and losses from foreign currency transactions are presented in the Statement of Income in a consistent manner with the underlying
transaction based upon the provisions of Accounting Standards Codification ("ASC") 830 "Foreign Currency Matters."
Comprehensive Income (Loss):
Comprehensive income (loss) consists of net income adjusted for changes, net of any related income tax effect, in cumulative
foreign currency translation, the fair value of derivatives, unrealized investment gains and losses and remeasurement of pension
and other postretirement liabilities.
Treasury Stock:
Treasury stock is carried at cost. The cost of treasury shares sold is determined under the average cost method.
Revenue Recognition:
Revenue is recognized when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a
customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining
benefits from that good or service. 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. 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 years ended September 30, 2019, 2018 and 2017. The Company
is entitled to collection of the sales price under normal credit terms in the regions in which it operates. Refer to Note 4, “Revenue
Recognition,” for a further discussion.
Shipping and Handling Fees and Costs:
All fees billed to the customer for shipping and handling are classified as a component of net revenues. All costs associated with
shipping and handling are classified as a component of cost of sales or selling expense.
Research and Development Expenses:
Research and development costs are expensed as incurred and were approximately $26,176, $24,984 and $20,722 for the years
ended September 30, 2019, 2018 and 2017, respectively.
Stock-Based Compensation:
Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over
the employee requisite service period. A binomial lattice model is utilized to determine the fair value of awards that have vesting
conditions based on market targets.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Income Taxes:
Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income taxes
have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now
exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign
operations.
Earnings Per Share:
Basic earnings per share is computed by dividing net income by the average number of common shares outstanding. Diluted
earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive
securities.
3.
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 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 material impact on the Company's consolidated financial
statements.
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 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. The adoption of this ASU is not expected to have a
material 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 this transition method at the adoption date of
October 1, 2019. ASU No. 2016-02 and the related ASUs referenced above are effective for the Company beginning in interim
periods starting in fiscal year 2020. The Company expects the estimated right-of-use asset and related lease liability recognized
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
3.
ACCOUNTING PRONOUNCEMENTS, (continued)
on the Consolidated Balance Sheet to approximate $85 million. The Company does not expect the adoption to have a material
impact to its Consolidated Statement of Cash Flows or Consolidated Statement of Income.
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 had 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 related 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 applying the
presentation requirements retrospectively. For the year ended September 30, 2018, the Company reclassified net benefit costs of
$2,871, $907 and $1,945, from cost of sales, selling expense and administrative expense, respectively, to other income (deductions),
net. For the year ended September 30, 2017, the Company reclassified net benefit costs of $4,401, $1,391 and $2,981, from cost
of sales, selling expense and administrative expense, respectively, to other income (deductions), net.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment, which provides new guidance intended to simplify the subsequent measurement of goodwill and removing
Step 2 from the goodwill impairment process. The Company early adopted this ASU in the first quarter ended December 31, 2017.
The adoption of this ASU had no impact on the Company's consolidated financial statements, but modifies the methodology to
assess and measure goodwill impairment prospectively.
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.
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 July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which provides new guidance to
simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The
adoption of this ASU in the first quarter ended December 31, 2017 had no impact on the Company's consolidated financial
statements.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
3.
ACCOUNTING PRONOUNCEMENTS, (continued)
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. Refer to Note 4, “Revenue Recognition,” for a further discussion.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which
provides new guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded
tax effects resulting from the U.S. Tax Cuts and Jobs Act. The amount of reclassification is the difference between the Company's
historical U.S. income tax rate and the newly enacted 21% corporate income tax rate. The Company early adopted this ASU in
the third quarter ended June 30, 2018. The adoption of this ASU resulted in a decrease to AOCI and corresponding increase to
retained earnings of $8,814.
4.
REVENUE RECOGNITION:
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 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.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
4.
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 years ended September 30, 2019, 2018 and 2017 were as follows:
North
America
Central and
South
America
Europe
Australia
Asia
Consolidated
SGK Brand Solutions:
2019
2018
2017
$
Memorialization:
2019
2018
2017
$
320,553
351,631
371,961
590,575
583,942
569,662
Industrial Technologies:
2019
2018
2017
$
127,140
130,794
102,301
Consolidated:
2019
2018
2017
$
1,038,268
1,066,367
1,043,924
$
$
$
$
$
5,853
6,171
6,518
362,088
389,151
338,988
— $
—
—
— $
—
—
37,199
36,773
35,271
26,966
30,154
21,983
$
5,853
6,171
6,518
426,253
456,078
396,242
$
$
$
$
$
$
11,767
12,599
10,558
9,118
10,677
10,949
— $
—
—
$
20,885
23,276
21,507
$
43,608
45,722
42,156
743,869
805,274
770,181
— $
—
—
636,892
631,392
615,882
$
$
2,409
4,966
5,261
46,017
50,688
47,417
156,515
165,914
129,545
1,537,276
1,602,580
1,515,608
5.
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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
5.
FAIR VALUE MEASUREMENTS, (continued)
As of September 30, 2019 and 2018, the fair values of the Company's assets and liabilities measured on a recurring basis were
categorized as follows:
Assets:
Derivatives (1)
Equity and fixed income mutual funds
Life insurance policies
Total assets at fair value
Liabilities:
Derivatives (1)
Total liabilities at fair value
Level 1
September 30, 2019
Level 3
Level 2
Total
$
$
$
$
— $
—
—
— $
845
22,986
4,030
27,861
— $
— $
1,379
1,379
$
$
$
$
— $
—
—
— $
845
22,986
4,030
27,861
— $
— $
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.
Assets:
Derivatives (1)
Equity and fixed income mutual funds
Life insurance policies
Total assets at fair value
Liabilities:
Derivatives (1)
Total liabilities at fair value
Level 1
September 30, 2018
Level 3
Level 2
Total
— $
—
—
— $
11,309
22,758
5,894
39,961
$
$
— $
—
—
— $
11,309
22,758
5,894
39,961
— $
— $
— $
— $
— $
— $
—
—
$
$
$
$
(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
6.
INVENTORIES:
Inventories at September 30, 2019 and 2018 consisted of the following:
Raw materials
Work in process
Finished goods
2019
35,616
76,297
68,361
180,274
$
$
2018
34,880
67,827
77,744
180,451
$
$
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
7.
INVESTMENTS:
Equity and fixed income mutual funds are classified as trading securities and recorded at fair value. The market value of these
investments exceeded cost by $941 and $838 at September 30, 2019 and 2018, respectively. Realized and unrealized gains and
losses are recorded in investment income. Realized gains (losses) for fiscal 2019, 2018 and 2017 were not material. Cost-method
investments include ownership interests in various entities of less than 20%.
At September 30, 2019 and 2018, non-current investments were as follows:
Equity and fixed income mutual funds
Life insurance policies
Equity-method investments
Cost-method investments
2019
2018
$
$
22,986
4,030
39,761
18,724
85,501
$
$
22,758
5,894
—
16,778
45,430
During fiscal 2019, the Company completed the sale of a 51% ownership interest in a small Memorialization business. Immediately
following the transaction, the Company retained a non-controlling interest in this business, which was accounted for as an equity-
method investment. The Company made additional capital contributions to this non-consolidated subsidiary totaling $29,148
during fiscal 2019 and continued to account for this non-controlling interest as an equity method investment. Changes in cost-
method investments during fiscal 2019 resulted from additional purchases of investments in the SGK Brand Solutions segment,
partially offset by losses from certain investments in the SGK Brand Solutions and Memorialization segments.
During fiscal 2018, the Company purchased an $11,747 ownership interest in a company in the SGK Brand Solutions segment,
which was recorded as a cost-method investment. In fiscal 2018, the Company also sold certain of its cost-method investments
for net proceeds totaling $9,159. In connection with these dispositions, the Company recognized $3,771 of pre-tax gains within
other income (deductions), net.
8.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related accumulated depreciation at September 30, 2019 and 2018 were as follows:
Buildings
Machinery, equipment and other
Less accumulated depreciation
Land
Construction in progress
2019
114,276
446,356
560,632
(361,193)
199,439
17,310
20,693
237,442
$
$
$
$
2018
113,027
452,846
565,873
(357,827)
208,046
18,017
26,712
252,775
Depreciation expense, including amortization of assets under capital lease, was $45,037, $45,412 and $44,668 for each of the three
years ended September 30, 2019, 2018 and 2017, respectively.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9.
LONG-TERM DEBT:
Long-term debt at September 30, 2019 and 2018 consisted of the following:
Revolving credit facilities
Securitization facility
Senior secured term loan
2025 Senior Notes
Notes payable to banks
Short-term borrowings
Capital lease obligations
Less current maturities
2019
476,132
93,950
53,497
296,716
16,376
395
3,631
940,697
(42,503)
898,194
$
$
$
$
2018
322,711
102,250
212,086
296,176
17,895
4,915
4,569
960,602
(31,260)
929,342
The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900,000 senior secured
revolving credit facility and a $250,000 senior secured amortizing term loan. A portion of the revolving credit facility (not to
exceed $150,000) can be drawn in foreign currencies. The term loan requires scheduled 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 date. The balance of the revolving credit facility and the term loan are due on the maturity date of April 26, 2021.
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 September 30, 2019) 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% (based on the Company's leverage ratio) of the unused portion of the revolving
credit 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 September 30, 2019 and 2018 were $325,638 and $319,500, 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 September 30, 2019 were €125.0 million ($136,470). There were
no Euro denominated borrowings on the revolving credit facility at September 30, 2018. Outstanding borrowings on the term loan
at September 30, 2019 and 2018 were $53,497 and $212,086, 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
September 30, 2019 and 2018 was 2.65% and 3.12%, 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 2025 Senior Notes of $4,127, which
are being deferred and amortized over the term of the 2025 Senior Notes.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9.
LONG-TERM DEBT, (continued)
The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial
institutions which matures on April 11, 2020, and the Company intends to extend this facility. 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 from 0.25% to 0.35% of
the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at September 30, 2019
and 2018 were $93,950 and $102,250, respectively. The interest rate on borrowings under this facility at September 30, 2019 and
2018 was 2.77% and 3.01%, respectively.
The following table presents information related to interest rate contracts entered into by the Company and designated as cash
flow hedges:
Pay fixed swaps - notional amount
Net unrealized (loss) gain
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
September 30, 2019
293,750
$
(534)
$
1.9
2.02%
1.41%
September 30, 2018
343,750
$
11,309
$
2.7
2.26%
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 loss, net of unrealized gains, of $534 ($403 after tax) and an
unrealized gain of $11,309 ($8,538 after tax) at September 30, 2019 and 2018, respectively, that is included in shareholders' equity
as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with the rates at
September 30, 2019, a gain (net of tax) of approximately $48 included in AOCI is expected to be recognized in earnings over the
next twelve months.
At September 30, 2019 and 2018, the interest rate swap contracts were reflected on a gross-basis in the consolidated balance sheets
as follows:
Derivatives:
Current assets:
Other current assets
Long-term assets:
Other assets
Current liabilities:
Other current liabilities
Long-term liabilities:
Other liabilities
Total derivatives
2019
2018
$
548
$
3,867
297
7,442
(484)
—
(895)
(534) $
—
11,309
$
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9.
LONG-TERM DEBT, (continued)
The gains recognized on derivatives was as follows:
Derivatives in Cash Flow
Hedging Relationships
Location of Gain
Recognized in Income on
Derivatives
Amount of Gain Recognized in Income on Derivatives
2018
2019
2017
Interest rate swaps
Interest expense
$3,181
$1,380
$1,752
The Company recognized the following gains (losses) in AOCI:
Derivatives in Cash Flow
Hedging Relationships
Amount of (Loss) Gain
Recognized in AOCI on
Derivatives
2018
2017
2019
Location of Gain
Reclassified from AOCI
into Income
(Effective Portion*)
Amount of Gain Reclassified
from AOCI into Income
(Effective Portion*)
2018
2017
2019
Interest rate swaps
$(6,540)
$6,095
$7,043
Interest expense
$2,402
$1,042
$1,069
* 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 borrowings available under this facility is €35.0 million ($38,212). The credit facility matures
in December 2019 and the Company intends to extend this facility. Outstanding borrowings under this facility were €12.8 million
($14,024) and €2.8 million ($3,211) at September 30, 2019 and 2018, respectively. The weighted-average interest rate on
outstanding borrowings under this facility was 1.25% and 1.75% at September 30, 2019 and 2018, respectively.
The Company’s German subsidiary, Matthews Europe GmbH & Co. KG, has €15.0 million ($16,376) 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 September 30, 2019 and 2018 was 1.40%.
Other debt totaled $395 and $5,399 at September 30, 2019 and 2018, respectively. The weighted-average interest rate on these
outstanding borrowings was 2.17% and 2.21% at September 30, 2019 and 2018, respectively.
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of
$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 for the fiscal year 2019. The Company did not have any net investments hedges in
the prior year.
In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($10,541 at
September 30, 2019) with respect to a performance guarantee on an environmental solutions 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.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 pursuing a
trial on the merits in Saudi Arabia which may not finally be resolved until calendar year 2020. It is necessary to obtain an equivalent
favorable ruling in the courts of Saudi Arabia to effectively enforce judgment and commence collection efforts. 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 of 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 from the Saudi Arabian government to enforce a potential judgment
against the creditor. The Company has determined that resolution of this matter may take an extended period of time and therefore
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9.
LONG-TERM DEBT, (continued)
has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of September 30, 2019 and
2018. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances
evolve.
As of September 30, 2019 and 2018, the fair value of the Company's long-term debt, including current maturities, which is classified
as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company
was in compliance with all of its debt covenants as of September 30, 2019.
Aggregate maturities of long-term debt, including short-term borrowings and capital leases, is as follows:
2020
2021
2022
2023
2024
Thereafter
$
$
150,477 *
490,957
353
313
258
298,339
940,697
* The Company maintains certain debt facilities with current maturity dates in fiscal 2020 that it intends and has the ability to extend beyond fiscal 2020 totaling
$107,974. These balances have been classified as non-current on the Company's Consolidated Balance Sheet.
10.
SHAREHOLDERS' EQUITY:
The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1.00 par value.
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 set forth in the Company's Restated Articles
of Incorporation. 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 712,312 shares remain available for repurchase as of
September 30, 2019.
11.
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-year term, the maximum number of shares available for grants or awards is an aggregate
of 1,700,000. At September 30, 2019, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive
Plan, including 262,000 restricted share units that were granted during fiscal 2019. The 2017 Equity Incentive Plan is administered
by the Compensation Committee of the Board of Directors.
With respect to outstanding 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.
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 percent 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.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
11. SHARE-BASED PAYMENTS, (continued)
For the years ended September 30, 2019, 2018 and 2017, stock-based compensation cost totaled $7,729, $13,460 and $14,562,
respectively. The years ended September 30, 2019, 2018, and 2017 included $1,849, $2,850, and $3,337 respectively, of stock-
based compensation cost that was recognized at the time of grant for retirement-eligible employees. The associated future income
tax benefit recognized was $1,535, $2,826 and $5,534 for the years ended September 30, 2019, 2018 and 2017, respectively.
The transactions for restricted stock for the year ended September 30, 2019 were as follows:
Non-vested at September 30, 2018
Granted
Vested
Expired or forfeited
Non-vested at September 30, 2019
Weighted-
average
Grant-date
Fair Value
55.71
$
42.21
57.93
46.56
49.61
$
Shares
554,233
262,200
(180,661)
(20,137)
615,635
As of September 30, 2019, the total unrecognized compensation cost related to unvested restricted stock was $7,482 which is
expected to be recognized over a weighted-average period of 1.9 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, either cash or
shares of the Company's Class A Common Stock with a value equal to $85. The annual retainer fee for fiscal 2019 paid to a 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 25,682 shares had been deferred under the Director Fee Plans at September 30, 2019.
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 year 2019. 196,266 restricted shares and restricted share
units have been granted under the Director Fee Plans, 23,037 of which were issued under the 2019 Director Fee Plan. 34,542
restricted shares and restricted share units are unvested at September 30, 2019.
12.
EARNINGS PER SHARE:
The information used to compute (loss) earnings per share attributable to Matthews' common shareholders was as follows:
Net (loss) income available to Matthews shareholders
Weighted-average shares outstanding (in thousands):
Basic shares
Effect of dilutive securities
Diluted shares
2019
(37,988) $
2018
107,371
$
2017
$
74,368
31,416
—
31,416
31,674
187
31,861
32,240
330
32,570
Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal years ended September 30, 2019,
2018, and 2017.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.
PENSION AND OTHER POSTRETIREMENT PLANS:
The Company provides defined benefit pension and other postretirement plans to certain employees. Effective January 1, 2014,
the Company's principal retirement plan was closed to new participants. The following provides a reconciliation of benefit
obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 2019 and 2018:
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Exchange gain
Benefit payments
Benefit obligation, end of year
Change in plan assets:
Fair value, beginning of year
Actual return
Benefit payments (1)
Employer contributions
Fair value, end of year
Funded status
Unrecognized actuarial loss (gain)
Unrecognized prior service cost
Net amount recognized
Amounts recognized in the consolidated balance sheet:
Current liability
Noncurrent benefit liability
Accumulated other comprehensive loss (income)
Net amount recognized
Amounts recognized in accumulated
other comprehensive loss (income):
Net actuarial loss (income)
Prior service cost
Net amount recognized
Pension
Other Postretirement
2019
2018
2019
2018
$
$
241,553
7,998
9,202
43,198
(581)
(11,413)
289,957
259,672
8,159
8,210
(15,229)
(180)
(19,079)
241,553
$
18,826
244
718
2,212
—
(1,048)
20,952
158,662
6,852
(11,413)
1,212
155,313
155,634
10,914
(19,079)
11,193
158,662
—
—
(1,048)
1,048
—
20,316
335
631
(907)
—
(1,549)
18,826
—
—
(1,549)
1,549
—
(134,644)
95,741
(367)
(39,270) $
(82,892)
53,405
(552)
(30,039) $
(20,952)
(106)
(330)
(21,388) $
(18,828)
(2,376)
(525)
(21,729)
(882) $
(857) $
(989) $
(133,762)
95,374
(39,270) $
(82,035)
52,853
(30,039) $
(19,963)
(436)
(21,388) $
(1,075)
(17,753)
(2,901)
(21,729)
95,741
(367)
95,374
$
$
53,405
(552)
52,853
$
$
(106) $
(330)
(436) $
(2,376)
(525)
(2,901)
$
$
$
$
$
$
(1) Pension benefit payments in fiscal 2018 included approximately $6,800 of lump sum distributions that were made to certain terminated vested employees as
settlements of the employees' pension obligations. These distributions did not meet the threshold to qualify as settlements under U.S. GAAP and therefore, no
unamortized actuarial losses were recognized in the Statements of Income upon completion of the lump sum distributions.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.
PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Based upon actuarial valuations performed as of September 30, 2019 and 2018, the accumulated benefit obligation for the
Company's defined benefit pension plans was $270,140 and $224,265 at September 30, 2019 and 2018, respectively, and the
projected benefit obligation for the Company's defined benefit pension plans was $289,957 and $241,553 at September 30, 2019
and 2018, respectively.
Net periodic pension and other postretirement benefit cost for the plans included the following:
Service cost
Interest cost *
Expected return on plan assets *
Amortization:
Prior service cost
Net actuarial loss *
Net benefit cost
2019
7,998
9,202
(10,304)
(186)
4,245
10,955
$
$
$
$
Pension
2018
2017
Other Postretirement
2018
2017
2019
8,159
8,210
(10,136)
(138)
7,018
13,113
$
$
8,553
7,362
(9,249)
(181)
10,034
16,519
$
$
244
718
—
(195)
(59)
708
$
$
335
631
—
(195)
—
771
$
$
392
626
—
(195)
—
823
* Non-service components of pension and postretirement expense are included in other income (deductions), net.
Matthews has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net
periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation
to the relevant projected cash flows.
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 made from the Company's operating cash. Under I.R.S.
regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2019.
The Company is required to make contributions of approximately $4,333 to its principal retirement plan in fiscal 2020.
Contributions made in fiscal 2019 are as follows:
Contributions
Supplemental retirement plan
Other retirement plans
Other postretirement plan
Pension
$
Other
Postretirement
—
$
—
1,048
793
419
—
Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2020 include:
Net actuarial loss
Prior service cost
Pension
Benefits
Other
Postretirement
Benefits
$
$
9,790
(186)
—
(94)
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.
PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the
projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The measurement date
of annual actuarial valuations for the Company's principal retirement and other postretirement benefit plans was September 30,
for fiscal 2019, 2018 and 2017. The weighted-average assumptions for those plans were:
Discount rate
Return on plan assets
Compensation increase
2019
3.13%
6.75%
3.50%
Pension
2018
4.21%
6.75%
3.50%
2017
3.76%
6.75%
3.50%
Other Postretirement
2018
2017
2019
3.10%
—
—
4.19%
—
—
3.72%
—
—
In October 2014, the Society of Actuaries' Retirement Plans Experience Committee ("RPEC") released new mortality tables known
as RP 2014. Each year, RPEC releases an update to the mortality improvement assumption that was released with the RP 2014
tables. The Company considered the RPEC mortality and mortality improvement tables and performed a review of its own mortality
history to assess the appropriateness of the RPEC tables for use in generating financial results. In fiscal years 2019, 2018 and
2017, the Company elected to value its principal retirement and other postretirement benefit plan liabilities using the base RP 2014
mortality table and a slightly modified fully generational mortality improvement assumption. The revised assumption uses the
most recent RPEC mortality improvement table for all years where the RPEC tables are based on finalized data, and the most
recently published Social Security Administration Intermediate mortality improvement for subsequent years.
The underlying basis of the investment strategy of the Company's defined benefit plans is to ensure the assets are invested to
achieve a positive rate of return over the long term sufficient to meet the plans' actuarial interest rate and provide for the payment
of benefit obligations and expenses in perpetuity in a secure and prudent fashion, maintain a prudent risk level that balances growth
with the need to preserve capital, diversify plan assets so as to minimize the risk of large losses or excessive fluctuations in market
value from year to year, achieve investment results over the long term that compare favorably with other pension plans and
appropriate indices. The Company's investment policy, as established by the Company's pension board, specifies the types of
investments appropriate for the plans, asset allocation guidelines, criteria for the selection of investment managers, procedures to
monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling plan
fiduciaries to fulfill their responsibilities.
The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2019 and 2018 and weighted-
average target allocation were as follows:
Asset Category
Equity securities
Fixed income, cash and cash equivalents
Other investments
Plan Assets at
2019
105,297
39,156
10,860
155,313
2018
92,745
44,250
21,667
158,662
$
$
$
$
Target
Allocation*
65%
25%
10%
100%
* Target allocation relates to the Company's primary defined benefit pension plan as of September 30, 2019.
Based on an analysis of the historical and expected future performance of the plan's assets and information provided by its
independent investment advisor, the Company set the long-term rate of return assumption for its primary defined benefit pension
plans' assets at 6.75% in 2019 for purposes of determining pension cost and funded status under current guidance. The Company's
discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices.
The Company categorizes plan assets within a three level fair value hierarchy (see Note 5 for a further discussion of the fair value
hierarchy). The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value
hierarchy in which each type of pension plan asset is classified as follows.
Equity securities consist of direct investments in the stocks of publicly traded companies. Such investments are valued based on
the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are
classified as Level 1.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.
PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Mutual funds are valued at the closing price of shares held by the Plan at year end. As such, these mutual fund investments are
classified as Level 1.
Fixed income securities consist of publicly traded fixed interest obligations (primarily U.S. government notes and corporate and
agency bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using
quoted prices and other observable market data. As such, U.S. government notes are included in Level 1, and the remainder of
the fixed income securities are included in Level 2.
Cash and cash equivalents consist of direct cash holdings and short-term money market mutual funds. These values are valued
based on cost, which approximates fair value, and as such, are classified as Level 1.
Other investments consist primarily of real estate, commodities, private equity holdings and hedge fund investments. These
holdings are valued by investment managers based on the most recent information available. The valuation information used by
investment managers may not be readily observable. As such, these investments are classified as Level 3.
The Company's defined benefit pension plans' asset categories at September 30, 2019 and 2018 were as follows:
Asset Category
Equity securities - stocks
Equity securities - mutual funds
Fixed income securities
Cash and cash equivalents
Other investments
Total
Asset Category
Equity securities - stocks
Equity securities - mutual funds
Fixed income securities
Cash and cash equivalents
Other investments
Total
Level 1
54,985
50,312
15,829
4,359
—
125,485
Level 1
46,628
46,117
26,789
2,676
11,552
133,762
$
$
$
$
$
$
$
$
September 30, 2019
Level 3
Level 2
— $
—
18,968
—
—
18,968
$
— $
—
—
—
10,860
10,860
$
September 30, 2018
Level 3
Level 2
— $
—
14,785
—
—
14,785
$
— $
—
—
—
10,115
10,115
$
Total
54,985
50,312
34,797
4,359
10,860
155,313
Total
46,628
46,117
41,574
2,676
21,667
158,662
Changes in the fair value of Level 3 assets at September 30, 2019 and 2018 are summarized as follows:
Asset Category
Other investments:
Fiscal Year Ended:
September 30, 2019
September 30, 2018
Fair Value,
Beginning of
Period
Acquisitions Dispositions
Realized
Gains
Unrealized
Gains
(Losses)
Fair Value,
End of
Period
$
$
10,115
9,480
$
4,162
—
(2,786) $
(149)
$
685
261
(1,316) $
523
10,860
10,115
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.
PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Benefit payments expected to be paid are as follows:
Years ending September 30:
2020
2021
2022
2023
2024
2025-2029
Pension
Benefits
Other
Postretirement
Benefits
$
$
10,733
11,057
12,360
12,690
14,038
75,514
136,392
$
$
989
1,021
1,051
1,082
1,127
5,832
11,102
For measurement purposes, a rate of increase of 7.3% in the per capita cost of health care benefits was assumed for 2020;
the rate was assumed to decrease gradually to 4.0% for 2070 and remain at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by one
percentage point would have increased the accumulated postretirement benefit obligation as of September 30, 2019 by $718 and
the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by
$39. A decrease in the assumed health care cost trend rates by one percentage point would have decreased the accumulated
postretirement benefit obligation as of September 30, 2019 by $629 and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by $34.
The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions
made to these plans was $8,176, $8,685, and $8,620 for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
14.
ACCUMULATED OTHER COMPREHENSIVE INCOME:
The changes in AOCI by component, net of tax, for the years ended September 30, 2019, 2018, and 2017 were as follows:
Attributable to Matthews:
Balance, September 30, 2016
OCI before reclassification
Amounts reclassified from AOCI
Net current-period OCI
Balance, September 30, 2017
OCI before reclassification
Amounts reclassified from AOCI
Net current-period OCI
Reclassification of AOCI tax effects
Balance, September 30, 2018
OCI before reclassification
Amounts reclassified from AOCI
Net current-period OCI
Balance, September 30, 2019
Attributable to noncontrolling interest:
Balance, September 30, 2016
OCI before reclassification
Net current-period OCI
Balance, September 30, 2017
OCI before reclassification
Net current-period OCI
Balance, September 30, 2018
OCI before reclassification
Net current-period OCI
Balance, September 30, 2019
Postretirement
Benefit Plans
Currency
Translation
Adjustment
Derivatives
Total
$
$
$
$
$
$
$
$
(56,050)
6,536
5,891 (a)
12,427
(43,623)
10,584
5,047 (a)
15,631
(9,884) (c)
(37,876)
(36,784)
2,917 (a)
(33,867)
(71,743)
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
(122,259)
9,352
—
9,352
(112,907)
(22,053)
—
(22,053)
—
(134,960)
(21,254)
—
(21,254)
(156,214)
277
119
119
396
71
71
467
(92)
(92)
375
$
$
$
$
$
$
$
$
(3,559)
7,043
(1,069) (b)
5,974
2,415
6,095
(1,042) (b)
5,053
1,070 (c)
8,538
(6,540)
(2,402) (b)
(8,942)
(404)
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
(181,868)
22,931
4,822
27,753
(154,115)
(5,374)
4,005
(1,369)
(8,814)
(164,298)
(64,578)
515
(64,063)
(228,361)
277
119
119
396
71
71
467
(92)
(92)
375
(a)
(b)
(c)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 13).
Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 9).
Amounts were reclassified from AOCI to retained earnings through adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic
220) (see Note 3).
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
14.
ACCUMULATED OTHER COMPREHENSIVE INCOME, (continued)
Accumulated other comprehensive loss at September 30, 2019 and 2018 consisted of the following:
Cumulative foreign currency translation
Fair value of derivatives, net of tax of $131 and $2,771, respectively
Minimum pension liabilities, net of tax of $23,195 and $12,076, respectively
2019
2018
$ (156,214) $ (134,960)
8,538
(37,876)
$ (228,361) $ (164,298)
(404)
(71,743)
Reclassifications out of AOCI for the years ended September 30, 2019, 2018 and 2017 were as follows:
Details about AOCI
Components
Postretirement benefit plans
Prior service (cost) credit
Actuarial losses
$
$
Derivatives
Interest rate swap contracts $
$
September 30,
2019
September 30,
2018
September 30,
2017
Affected line item in the
Statement of Income
381 (a)
(4,245) (a)
(3,864) (b)
947
(2,917)
3,181
3,181 (b)
(779)
2,402
$
$
$
$
$
333
(7,018)
(6,685)
1,638
(5,047) $
1,380
1,380
(338)
1,042
$
$
376
(10,034)
(9,658)
3,767
(5,891) Net income
Income before income tax
Income taxes
Interest expense
Income before income tax
1,752
1,752
(683)
1,069 Net income
Income taxes
(a)
(b)
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 13.
For pre-tax items, positive amounts represent income and negative amounts represent expense.
15.
INCOME TAXES:
The income tax provision (benefit) consisted of the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
2019
2018
2017
$
$
3,308
2,232
2,049
7,589
(5,472)
(2,782)
1,471
(6,783)
806
$
$
(2,577) $
1,051
15,533
14,007
(24,094)
1,315
(346)
(23,125)
(9,118) $
1,542
628
10,459
12,629
11,887
905
(3,067)
9,725
22,354
The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax
rate from 35.0% to 21.0% effective January 1, 2018, which resulted in a blended U.S. statutory tax rate of 24.5% for the Company
in fiscal 2018, and a 21.0% rate for the Company in 2019. The Act also required a one-time transition tax on earnings of certain
foreign subsidiaries that were previously deferred, and created new taxes on certain foreign-sourced earnings.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15.
INCOME TAXES, (continued)
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 year ended September 30, 2019. 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.
Global intangible low taxed income ("GILTI"): The Act also 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 reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
Federal statutory tax rate
Effect of state income taxes, net of federal deduction
Foreign statutory taxes compared to federal statutory rate
Share-based compensation
U.S. manufacturing incentive
Tax credits
Tax basis difference
Transition tax
U.S. statutory tax rate change on temporary differences
Goodwill write-down
Other
Effective tax rate
2019
2018
2017
21.0 %
2.7 %
(0.8)%
(3.1)%
— %
4.9 %
9.8 %
— %
— %
(40.2)%
3.6 %
(2.1)%
24.5 %
2.2 %
1.4 %
(0.6)%
(1.3)%
(2.7)%
(1.5)%
9.0 %
(38.7)%
— %
(1.6)%
(9.3)%
35.0 %
1.4 %
(7.2)%
(1.2)%
(1.8)%
(2.6)%
— %
— %
— %
— %
(0.4)%
23.2 %
The Company's consolidated income taxes for the year ended September 30, 2019 were a charge of $806, compared to income
tax benefit of $9,118 for fiscal 2018. The increase in the fiscal 2019 effective tax rate, compared to fiscal 2018, primarily reflected
the fiscal 2018 U.S. deferred tax benefit from the Act enactment. For 2019 the Company’s effective tax rate was unfavorable
compared to the U.S. federal statutory rate primarily due to the 2019 goodwill write-down, the majority of which did not have an
accompanying tax benefit. The 2019 effective tax rate benefited from research and development and foreign tax credits and the
elimination, achieved through tax planning, of a taxable basis difference.
The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2019, 2018 and 2017 of
approximately $11,042, $56,424 and $24,118, respectively. Deferred income taxes have not been provided on undistributed earnings
of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and
Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations. At September 30, 2019, undistributed
earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $256,695.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15.
INCOME TAXES, (continued)
The components of deferred tax assets and liabilities at September 30, 2019 and 2018 are as follows:
Deferred tax assets:
Pension and postretirement benefits
Accruals and reserves not currently deductible
Income tax credit carryforward
Operating and capital loss carryforwards
Stock options
Other
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Depreciation
Unrealized gains and losses
Goodwill and intangible assets
Other
Net deferred tax liability
2019
2018
$
$
37,587
10,400
3,204
21,896
4,778
5,381
83,246
(15,352)
67,894
24,597
9,596
3,216
21,858
5,157
3,963
68,387
(15,188)
53,199
(24,792)
(565)
(138,952)
(1,035)
(165,344)
(16,156)
(8,637)
(147,571)
(517)
(172,881)
$
(97,450) $ (119,682)
At September 30, 2019, the Company had foreign net operating loss carryforwards of $65,002 and foreign capital loss carryforwards
of $19,223. The Company has recorded deferred tax assets of $4,033 for state net operating loss carryforwards, which will be
available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2020. Certain of the
foreign net operating losses begin to expire in 2020 while the majority of the Company's foreign net operating losses have no
expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes,
loss sharing between group members, and business continuation. Therefore, the Company has established tax-effected valuation
allowances against these tax benefits in the amount of $15,352 at September 30, 2019.
Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows:
Balance, beginning of year
Increases for tax positions of prior years
Decreases for tax positions of prior years
Increases based on tax positions related to the current year
Decreases due to lapse of statute of limitation
Balance, end of year
2019
2018
2017
$
$
14,827
—
—
1,420
(721)
15,526
$
$
7,968
7,886
—
882
(1,909)
14,827
$
$
13,820
839
(5,890)
378
(1,179)
7,968
The Company had unrecognized tax benefits of $11,417 at September 30, 2019, which would impact the annual effective tax rate.
It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $4,910 in the next 12
months primarily due to the completion of audits and the expiration of the statute of limitation related to specific tax positions.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties
and interest accrued were $2,880 and $2,229 at September 30, 2019 and 2018, respectively. These accruals may potentially be
applicable in the event of an unfavorable outcome of uncertain tax positions.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15.
INCOME TAXES, (continued)
The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of
limitation expires for those tax jurisdictions.
As of September 30, 2019, the tax years that remain subject to examination by major jurisdiction generally are:
United States - Federal
United States - State
Canada
Germany
United Kingdom
Australia
Singapore
2015 and forward
2015 and forward
2015 and forward
2015 and forward
2018 and forward
2015 and forward
2014 and forward
16.
COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates various production, warehouse and office facilities and equipment under operating lease agreements.
Annual rentals under these and other operating leases were $38,015, $38,934 and $36,400 in fiscal 2019, 2018 and 2017, respectively.
Future minimum rental commitments under non-cancelable operating lease arrangements for fiscal years 2020 through 2024 are
$28,557, $21,567, $14,755, $9,394 and $6,694, respectively.
The Company is party to various legal proceedings, the eventual outcome of which are not predictable. Although the ultimate
disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities
in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows.
The Company has employment agreements with certain employees, the terms of which expire at various dates between fiscal 2020
and 2023. The agreements generally provide for base salary and bonus levels and include non-compete provisions. The aggregate
commitment for salaries under these agreements at September 30, 2019 was $2,349.
The Company is involved in a dispute with a customer related to a project in Saudi Arabia. It is possible the resolution of this
matter could have an unfavorable financial impact on Matthews’ results of operations. See further discussion in Note 9.
17.
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.
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 September 30, 2019, an accrual of $1,400 had been recorded for environmental remediation (of which $583 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. 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.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
18.
SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in working capital items as presented in the Consolidated Statements of Cash Flows consisted of the following:
Current assets:
Accounts receivable
Inventories
Other current assets
Current liabilities:
Trade accounts payable
Accrued compensation
Accrued income taxes
Other current liabilities
Net change
2019
2018
2017
$
$
8,779
830
10,317
19,926
$
(790) $
(2,869)
(16,293)
(19,952)
3,715
(8,832)
(5,416)
(21,875)
(32,408)
(12,482) $
2,516
(10,940)
(9,973)
28,415
10,018
(9,934) $
(7,045)
(2,289)
4,447
(4,887)
5,672
(2,469)
5,054
2,414
10,671
5,784
19.
SEGMENT INFORMATION:
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 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 its primary measure of segment profitability from operating profit to 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.
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 allocating corporate costs to
its reportable segments beginning in fiscal 2019. 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 accounting policies of the segments are the same as those described in Summary of
Significant Accounting Policies (Note 2). Intersegment sales are accounted for at negotiated prices. Segment assets include those
assets that are used in the Company's operations within each segment. Assets classified under "Corporate and Non-Operating"
principally consist of cash and cash equivalents, investments, deferred income taxes and corporate headquarters' assets. Long-
lived assets include property, plant and equipment (net of accumulated depreciation), goodwill, and other intangible assets (net of
accumulated amortization).
Information about the Company's segments follows: (Segment financial information for the fiscal years ended September 30, 2018
and 2017 has been revised to present the prior period information on a comparable basis.)
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
19.
SEGMENT INFORMATION, (continued)
Sales to external customers:
2019
2018
2017
Intersegment sales:
2019
2018
2017
Depreciation and amortization:
2019
2018
2017
Adjusted EBITDA:
2019
2018
2017
Total assets:
2019
2018
2017
Capital expenditures:
2019
2018
2017
SGK Brand
Solutions Memorialization
Industrial
Technologies
Corporate and
Non-Operating
Consolidated
$
$
743,869
805,274
770,181
$
636,892
631,392
615,882
$
156,515
165,914
129,545
— $
—
—
1,537,276
1,602,580
1,515,608
48
9
2
6,195
5,796
2,863
24,082
25,864
18,481
191,533
196,855
161,472
2,382
2,577
4,622
—
—
—
5,183
4,873
3,369
(56,989)
(66,470)
(63,773)
62,417
61,036
65,734
3,644
2,977
9,294
776
321
358
90,793
76,974
67,981
220,872
255,114
238,683
2,190,603
2,357,744
2,244,649
37,688
43,200
44,935
703
310
356
59,684
46,300
41,941
119,493
150,233
144,783
1,106,276
1,285,053
1,276,295
22,310
22,133
22,941
25
2
—
19,731
20,005
19,808
134,286
145,487
139,192
830,377
814,800
741,148
9,352
15,513
8,078
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
19.
SEGMENT INFORMATION, (continued)
A reconciliation of adjusted EBITDA to net income follows:
Total Adjusted EBITDA
Acquisition costs (1)**
ERP integration costs (2)**
Strategic initiatives and other charges (3)**
Loss recoveries, net of costs (4)
Joint Venture depreciation, amortization and interest expense (5)
Goodwill write-down (6)
Net realized (losses) gains on divestitures and asset dispositions:
Loss on divestitures (7)
Realized (loss) gain on cost-method investments (8)
Net gains from the sale of buildings and vacant properties (9)
Stock-based compensation
Non-service pension and postretirement expense (10)
Depreciation and amortization *
Interest expense
Net loss attributable to noncontrolling interests
(Loss) income before income taxes
Income tax (provision) benefit
Net (loss) income
2019
220,872
2018
255,114
2017
238,683
(10,872) $
(7,508)
(13,449)
—
(1,514)
(77,572)
(10,918) $
(10,864)
(5,266)
—
—
—
(6,469)
(4,731)
7,347
(7,729)
(3,802)
(90,793)
(40,962)
(901)
(38,083)
(806)
(38,889)
—
3,771
—
(13,460)
(5,723)
(76,974)
(37,427)
(260)
97,993
9,118
107,111
(17,722)
(8,026)
(9,209)
10,683
—
—
—
—
—
(14,562)
(8,773)
(67,981)
(26,371)
(435)
96,287
(22,354)
73,933
$
$
(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 primarily associated with productivity and cost-reduction initiatives intended to result in improved operating performance,
profitability and working capital levels.
(4) Represents loss recoveries, net of related costs, related to the theft of funds by a former employee.
(5) Represents the Company's portion of depreciation, intangible amortization and interest expense incurred by non-consolidated subsidiaries accounted for as
equity-method investments within the Memorialization segment.
(6) Represents the goodwill write-down for a reporting unit within the SGK Brand Solutions segment.
(7) Represents a loss on the sale of a controlling interest in a subsidiary and divestiture of a business within the Memorialization segment.
(8) Includes gains/losses related to cost-method investments, and related assets, within SGK Brand Solutions and Memorialization segments.
(9) Includes significant building and vacant property transactions resulting in a gain of $8,663 within the Industrial Technologies segment and losses of $915
and $401 within the SGK Brand Solutions and Memorialization segments, respectively.
(10) 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 $59,684, $46,300, and $41,941 for the SGK Brand Solutions segment, $19,731, $20,005, and $19,808 for the Memorialization
segment, $6,195, $5,796, and $2,863 for the Industrial Technologies segment, and $5,183, $4,873, and $3,369 for Corporate and Non-Operating, for the fiscal
years ended September 30, 2019, 2018, and 2017, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $8,903, $11,044, and $14,453 for the SGK Brand Solutions segment,
$3,073, $613, and $612 for the Industrial Technologies segment, and $19,853, $13,961, and $19,050 for Corporate and Non-Operating, for the fiscal years ended
September 30, 2019, 2018, and 2017, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1,430, and $842 for
the Memorialization segment for the fiscal years ended September 30, 2018, and 2017, respectively.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
19.
SEGMENT INFORMATION, (continued)
Information about the Company's operations by geographic area follows:
North
America
Central and
South
America
Europe
Australia
Asia
Consolidated
Sales to external customers:
2019
2018
2017
1,038,268
1,066,367
1,043,924
$
$
$
5,853
6,171
6,518
$
426,253
456,078
396,242
$
20,885
23,276
21,507
$
46,017
50,688
47,417
1,537,276
1,602,580
1,515,608
Long-lived assets:
2019
2018
2017
1,047,505
1,182,250
1,069,862
15,585
16,535
13,882
342,802
365,455
382,940
21,278
23,037
24,887
57,729
58,302
66,138
1,484,899
1,645,579
1,557,709
20.
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 $7,162 (net of cash acquired and holdback amounts, subject to working capital adjustments). 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 Company finalized the allocation of the purchase price related to the Frost
acquisition in the fourth quarter of fiscal 2019, resulting in an immaterial adjustment to certain working capital accounts.
During fiscal 2019, the Company completed small acquisitions in the Memorialization segment for a combined purchase price of
$3,094 (net of cash acquired and holdback amounts, subject to working capital adjustments). The preliminary purchase price
allocations are not finalized as of September 30, 2019 and are subject to changes as the Company obtains additional information
related to fixed assets, intangible assets, and other assets and liabilities.
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 $5,587 loss, which is included as
a component of administrative expenses for the year ended September 30, 2019. Immediately following the transaction, the
Company retained a non-controlling interest in this business, which will be accounted for as an equity-method investment. The
Company also divested of a small, fully owned Memorialization business, resulting in the recognition of a $882 loss, which is
included as a component of administrative expenses for the year ended September 30, 2019.
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 purchase price related to the Compass acquisition in the fourth quarter of fiscal 2018, resulting in an immaterial adjustment to
certain working capital and intangible asset amounts.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
20.
ACQUISITIONS AND DIVESTITURES, (continued)
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). 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.
Fiscal 2017:
On March 1, 2017, the Company acquired GJ Creative Limited ("Equator") for £30.5 million ($37,596) (net of cash acquired).
Equator provides design expertise capable of taking brands from creation to shelf under one roof, and is included in the Company's
SGK Brand Solutions segment. Annual sales for this business were approximately $30,000 prior to the acquisition. The Company
finalized the allocation of purchase price related to the Equator acquisition in the second quarter of fiscal 2018, resulting in an
immaterial adjustment to certain working capital and intangible asset amounts.
On February 28, 2017, the Company acquired certain net assets of RAF Technology, Inc. ("RAF") for $8,717 (net of cash acquired).
RAF is a global leader in pattern and optical character recognition software, and is included in the Company's Industrial Technologies
segment. The Company finalized the allocation of purchase price related to the RAF acquisition in the fourth quarter of fiscal
2017, resulting in an immaterial adjustment to certain working capital accounts.
On January 13, 2017, the Company acquired VCG (Holdings) Limited ("VCG") for £8.8 million ($10,695) (net of cash acquired).
VCG is a leading graphics, plate-making, and creative design company and is included in the Company's SGK Brand Solutions
segment. The Company finalized the allocation of purchase price related to the VCG acquisition in the first quarter of fiscal 2018,
resulting in an immaterial adjustment to certain working capital and intangible asset amounts.
On January 3, 2017, the Company acquired A. + E. Ungricht GmbH + Co KG ("Ungricht") for €24.0 million ($25,185) (net of
cash acquired). Ungricht is a leading European provider of pre-press services and gravure printing forms, located in Germany,
and is included in the Company's SGK Brand Solutions segment. Annual sales for this business were approximately $35,000 prior
to the acquisition. The Company finalized the allocation of purchase price related to the Ungricht acquisition in the first quarter
of fiscal 2018, resulting in an immaterial adjustment to certain working capital and intangible asset amounts.
On November 30, 2016, the Company acquired Guidance Automation Limited ("Guidance") for £8.0 million ($9,974) (net of cash
acquired). Guidance provides technological solutions for autonomous warehouse vehicles and is included in the Company's
Industrial Technologies segment. The Company finalized the allocation of purchase price related to the Guidance acquisition in
the fourth quarter of fiscal 2017, resulting in an immaterial adjustment to certain working capital and intangible asset accounts.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
21.
GOODWILL AND OTHER INTANGIBLE ASSETS:
Changes to goodwill during the years ended September 30, 2019 and 2018, follow.
Goodwill
Accumulated impairment losses
Balance at September 30, 2017
Additions during period
Translation and other adjustments
Goodwill
Accumulated impairment losses
Balance at September 30, 2018
Additions during period
Divestiture during period
Translation and other adjustments
Goodwill
Accumulated impairment losses
Goodwill write-down
Balance at September 30, 2019
$
$
SGK Brand Solutions Memorialization
347,507
$
(5,000)
342,507
491,895
(5,752)
486,143
$
$
Industrial
Technologies
Consolidated
$
69,144
—
69,144
22,877
5
92,026
—
92,026
—
—
(660)
91,366
—
— $
$
91,366
908,546
(10,752)
897,794
60,679
(9,579)
959,646
(10,752)
948,894
5,098
(14,970)
(14,643)
935,131
(10,752)
(77,572)
846,807
8,743
(9,568)
491,070
(5,752)
485,318
1,506
—
(13,548)
479,028
(5,752)
(77,572) $
$
395,704
29,059
(16)
376,550
(5,000)
371,550
3,592
(14,970)
(435)
364,737
(5,000)
— $
$
359,737
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of
fiscal 2019. As a result of this review, the Company determined that the estimated fair value of all reporting units exceeded carrying
value. Due to challenging market conditions affecting the Graphics Imaging reporting unit within the SGK Brand Solutions
segment and the estimated fair value of this reporting unit exceeding its carrying value by approximately 10%, the Company
provided additional disclosure in its Form 10-Q for the second and third quarters of fiscal 2019 indicating that further deterioration
of conditions could result in a future goodwill write-down for this reporting unit.
In consideration of continued challenging market conditions affecting the SGK Brand Solutions segment throughout the remainder
of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the segment during the fourth
quarter. This review identified certain opportunities to improve the segment’s profitability and reduce its operating cost structure
and, as a result, the Company revised its estimates of future earnings and cash flows for the Graphics Imaging reporting unit. In
response to these revised projections, the Company re-evaluated the goodwill for the Graphics Imaging reporting unit, as of
September 1, 2019. As a result of this interim assessment, the Company recorded a goodwill write-down of $77,572 during the
fiscal 2019 fourth quarter. Subsequent to this write-down, the fair value of the Graphics Imaging reporting unit approximates
carrying value at September 30, 2019. The fair value for this reporting unit was determined using level 3 inputs (including estimates
of revenue growth, EBITDA contribution and the discount rate) 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 Company’s control (such as discount rates) significantly change, additional goodwill write-downs may be
necessary in future periods.
In fiscal 2019, the additions to SGK Brand Solutions goodwill reflects the acquisition of Frost. The changes in Memorialization
goodwill primarily reflect small acquisitions and divestitures completed in fiscal 2019.
In fiscal 2018, the additions to SGK Brand Solutions goodwill reflects several smaller acquisitions. The additions to Memorialization
goodwill reflects the acquisitions of Star Granite and several additional smaller acquisitions. The addition to Industrial Technologies
goodwill reflects the acquisition of Compass.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
21. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued)
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of
September 30, 2019 and 2018, respectively.
September 30, 2019
Trade names
Trade names
Customer relationships
Copyrights/patents/other
September 30, 2018
Trade names
Trade names
Customer relationships
Copyrights/patents/other
* Not subject to amortization
Carrying
Amount
Accumulated
Amortization
Net
$
$
$
$
30,540
148,628
374,515
20,463
574,146
126,047
53,523
372,382
20,848
572,800
$
$
$
$
— * $
(22,653)
(137,330)
(13,513)
(173,496)
$
— * $
(5,444)
(110,760)
(12,686)
(128,890)
$
30,540
125,975
237,185
6,950
400,650
126,047
48,079
261,622
8,162
443,910
The net change in intangible assets during fiscal 2019 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.
In the fourth quarter of fiscal 2019, the Company reassessed its trade name strategy for the SGK Brand Solutions segment, in
conjunction with an overall assessment and shift of its commercial structure and strategy for this segment, and initiated a plan to
reduce its global trade names for its core brand solutions businesses. As a result of this change, the Company has begun to
discontinue the use of certain trade names within the SGK Brand Solutions segment. Accordingly, the remaining useful lives of
the impacted trade names have been reduced to three years, reflecting the Company’s brand migration plans and an estimated time
period when the discontinued trade names will be classified as defensive assets.
Amortization expense on intangible assets was $45,756, $31,562, and $23,313 in fiscal 2019, 2018 and 2017, respectively. Fiscal
year amortization expense is estimated to be approximately $71,500 in 2020, $60,100 in 2021, $46,700 in 2022, $27,800 in 2023
and $26,200 in 2024.
22.
LEGAL MATTER:
During fiscal 2017, the Company recognized loss recoveries of $11,325 related to the previously disclosed theft of funds by a
former employee initially identified in fiscal 2015.
75
SUPPLEMENTARY FINANCIAL INFORMATION
Selected Quarterly Financial Data (Unaudited):
The following table sets forth certain items included in the Company's unaudited consolidated financial statements for each quarter
of fiscal 2019 and fiscal 2018.
Quarter Ended
FISCAL YEAR 2019:
Sales
Gross profit
December 31 March 31
June 30
September 30
(Dollar amounts in thousands, except per share data)
Year Ended
September 30
$
374,177
$
391,400
$
379,294
$
392,405
$
1,537,276
126,411
136,281
137,178
142,596
542,466
Operating profit (loss)
16,166
24,264
29,691
(59,818)
10,303
Net income (loss) attributable to
Matthews shareholders
Earnings (loss) per share:
Basic
Diluted
FISCAL YEAR 2018:
Sales
Gross profit (1)
Operating profit (1)
3,097
15,417
14,629
(71,131)
(37,988)
$
$
0.10
0.10
$
0.49
0.48
$
0.47
0.46
(2.28) $
(2.28)
(1.21)
(1.21)
$
369,454
$
414,061
$
411,621
$
407,444
$
1,602,580
131,413
150,680
152,615
149,513
584,221
19,349
31,216
39,320
48,672
138,557
Net income attributable to Matthews
shareholders
35,180
18,182
24,414
29,595
107,371
Earnings per share:
Basic
Diluted
$
$
1.11
1.10
$
0.57
0.57
$
0.77
0.77
$
0.94
0.93
3.39
3.37
(1)
Amounts were revised to reflect retrospective application for adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost" on October 1, 2018. As a result, gross profit increased $714, $714, $714 and $729, respectively for each quarter
in 2018, and operating profit increased $1,425, $1,425, $1,425 and $1,448, respectively for each quarter in 2018.
76
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Description
Allowance for Doubtful Accounts:
Fiscal Year Ended:
September 30, 2019
September 30, 2018
September 30, 2017
Balance at
Beginning of
Period
Additions
Charged to
Expense
Charged to
other
Accounts (1)
(Dollar amounts in thousands)
Deductions (2)
Balance at
End of
Period
$
$
11,158
11,622
11,516
$
2,787
855
1,733
$
20
762
642
(3,119) $
(2,081)
(2,269)
10,846
11,158
11,622
(1)
(2)
Amount comprised principally of acquisitions and purchase accounting adjustments in connection with acquisitions, and amounts reclassified to other
accounts.
Amounts determined not to be collectible (including direct write-offs), net of recoveries.
Description
Balance at
Beginning
of Period
Provision
Charged
(Credited) To
Expense (1)
(Dollar amounts in thousands)
Allowance
Changes (2)
Other
Deductions (3)
Balance at
End of Period
Deferred Tax Asset Valuation Allowance:
Fiscal Year Ended:
September 30, 2019
September 30, 2018
September 30, 2017
$
$
15,188
21,917
23,463
821
2,482
(1,279)
$
— $
(8,510)
—
(657) $
(701)
(267)
15,352
15,188
21,917
(1)
(2)
(3)
Amounts relate primarily to adjustments in net operating loss carryforwards which are precluded from use.
Fiscal 2018 amounts primarily reflect the release of valuation allowances due to the termination of net operating loss carryforwards upon the liquidation of
non-U.S. holding companies as part of an entity reduction plan.
Consists principally of adjustments related to foreign exchange.
77
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and 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 (the "Exchange Act")) are designed to provide reasonable assurance that information required to be
disclosed in the Company's reports filed under the Exchange Act, such as this Annual Report on Form 10-K, are recorded, processed,
summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission ("SEC").
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 Chief Financial Officer, evaluated
the effectiveness of the Company's disclosure controls and procedures in effect as of September 30, 2019. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, 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, processed,
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 Annual Report on Form 10-K.
(b) Management's Report on Internal Control over Financial Reporting.
Management's Report on Internal Control over Financial Reporting is included in Management's Report to Shareholders in Item
8 of this Annual Report on Form 10-K.
(c) Report of Independent Registered Public Accounting Firm.
The Company's internal control over financial reporting as of September 30, 2019 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report on Form
10-K.
(d) Changes in Internal Control over Financial Reporting.
There have been no changes in the Company's internal controls over financial reporting that occurred during the fourth fiscal
quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
78
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
In addition to the information reported in Part I of this Annual Report on Form 10-K, under the caption "Officers and Executive
Management of the Registrant," the information required by this item as to the directors of the Company is hereby incorporated
by reference from the information appearing under the captions "General Information Regarding Corporate Governance – Audit
Committee," "Proposal No. 1 – Elections of Directors" and "Compliance with Section 16(a) of the Exchange Act" in the Company's
definitive proxy statement, which involves the election of the directors and is to be filed with the Securities and Exchange
Commission (the "SEC") pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30,
2019.
The Company's Code of Ethics Applicable to Executive Management is set forth in Exhibit 14.1 hereto. Any amendment to the
Company's Code of Ethics or waiver of the Company's Code of Ethics for senior financial officers, executive officers or directors
will be posted on the Company's website within four business days following the date of the amendment or waiver, and such
information will remain available on the website for at least a twelve-month period.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item as to the compensation of directors and executive management of the Company is hereby
incorporated by reference from the information appearing under the captions "Compensation of Directors" and "Executive
Compensation and Retirement Benefits" in the Company's definitive proxy statement which involves the election of directors and
is to be filed with the SEC pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30,
2019. The information contained in the "Compensation Committee Report" is specifically not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item as to the ownership by management and others of securities of the Company is hereby
incorporated by reference from the information appearing under the caption "Stock Ownership" in the Company's definitive proxy
statement, which involves the election of directors and is to be filed with the SEC pursuant to the Exchange Act, within 120 days
of the end of the Company's fiscal year ended September 30, 2019.
Equity Compensation Plans:
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. The Company
also maintains equity incentive plans (the "2012 Equity Incentive Plan" and "2007 Equity Incentive Plan") and a stock incentive
plan (the "1992 Incentive Stock Plan") that previously provided for grants of stock options, restricted shares, stock-based
performance units and certain other types of stock-based awards. Under the 2017 Equity Incentive Plan, which has a ten-year
term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000. There will be no further grants
under the 2012 Equity Incentive Plan, the 2007 Equity Incentive Plan, or the 1992 Incentive Stock Plan. At September 30, 2019,
there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan, including 262,000 restricted share
units that were granted during fiscal 2019. All plans are administered by the Compensation Committee of the Board of Directors.
With respect to outstanding 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.
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 percent 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.
79
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued
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, either cash or
shares of the Company's Class A Common Stock with a value equal to $85,000. The annual retainer fee for fiscal 2019 paid to a
non-employee Chairman of the Board is $185,000. 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 25,682 shares had been deferred under the Director Fee Plans at
September 30, 2019. 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 $125,000 for fiscal year 2019. 196,266 restricted shares
and restricted share units have been granted under the Director Fee Plans, 23,037 of which were issued under the 2019 Director
Fee Plan. 34,542 restricted shares and restricted share units are unvested at September 30, 2019.
The following table provides information about grants under the Company's equity compensation plans as of September 30, 2019:
Equity Compensation Plan
Information
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants and
rights
(a)
Weighted-
average
exercise price
of outstanding
options,
warrants
and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
25,682
None
25,682
$
$
—
None
—
3,159,776 (1)
None
3,159,776
(1) Includes the 2017 Equity Incentive Plan, which provides for the grant or award of stock options, restricted shares, stock-based performance units and certain
other typer of stock based awards, with a maximum of 1,700,000 shares available for grants and awards, as well as shares under the Employee Stock Purchase
Plan that are purchased in the open market by employees at the fair market value of the Company's stock. The Company provides a matching contribution of 10%
of such purchases subject to certain limitations under the Employee Stock Purchase Plan. As the Employee Stock Purchase Plan is an open market purchase plan,
it does not have a dilutive effect.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item as to certain relationships and transactions with management and other related parties of
the Company is hereby incorporated by reference from the information appearing under the captions "Proposal No. 1 – Election
of Directors" and "Certain Transactions" in the Company's definitive proxy statement, which involves the election of directors
and is to be filed with the SEC pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended
September 30, 2019.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item as to the fees billed and the services provided by the principal accounting firm of the
Company is hereby incorporated by reference from the information appearing under the caption "Relationship with Independent
Registered Public Accounting Firm" in the Company's definitive proxy statement, which involves the election of directors and is
to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year ended September 30,
2019.
80
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following items are included in Part II, Item 8:
Management's Report to Shareholders
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2019 and 2018
Consolidated Statements of Income for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended September 30, 2019, 2018
and 2017
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Supplementary Financial Information (unaudited)
2.
Financial Statement Schedules:
The following item is included in Part II, Item 8:
Schedule II - Valuation and Qualifying Accounts
3.
Exhibits Filed:
Exhibits Index
Pages
35
36
37
39
41
42
43
44
45
76
77
82
81
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX
The following Exhibits to this report are filed herewith or, if marked with an asterisk (*), are incorporated by reference. Exhibits
marked with an "a" represent a management contract or compensatory plan, contract or arrangement required to be filed by Item
601(b)(10)(iii) of Regulation S-K.
Exhibit No.
Description
Prior Filing or Sequential Page Numbers Herein
3.1
3.2
4.1 a
4.2
4.3
4.4
Restated Articles of Incorporation*
Exhibit Number 3.1 to the Annual Report on Form 10-
K for the year ended September 30, 1994
Restated By-laws, Amended July 20, 2017*
Exhibit Number 3.1 to the Current Report on Form 8-
K filed on July 26, 2017
Form of Revised Option Agreement of
Repurchase (effective October 1, 1993)*
Exhibit Number 4.5 to the Annual Report on Form 10-
K for the year ended September 30, 1993
Form of Share Certificate for Class A Common
Stock*
Exhibit Number 4.9 to the Annual Report on Form 10-
K for the year ended September 30, 1994
Indenture, dated as of December 6, 2017, by and
among Matthews, the Guarantors, and the Bank
of New York Mellon Trust Company, as trustee*
Exhibit Number 4.1 to the Current Report on Form 8-
K filed on December 7, 2017
5.25% Senior Notes due December 1, 2025*
Exhibit Number 4.2 to the Current Report on Form 8-
K filed on December 7, 2017
10.1
Second Amended and Restated Loan Agreement*
Exhibit Number 10.1 to the Current Report on Form 8-
K filed on April 28, 2016
10.2
10.3
10.4
10.5 a
10.6 a
10.7 a
10.8 a
First Amendment to Second Amended and
Restated Loan Agreement*
Exhibit Number 10.1 to the Current Report on Form 8-
K filed on November 22, 2017
Purchase Agreement dated December 1, 2017 by
and among Matthews International Corporation
Guarantors and J.P. Morgan Securities LLC*
Exhibit Number 10.1 to the Current Report on Form 8-
K filed on December 7, 2017
Shareholder's Agreement, dated as of March 16,
2014, by and among Matthews International
Corporation, the Shareholders named therein and
David A. Schawk, in his capacity as the Family
Representative*
Employment Agreement as of the 29th day of
July 2014, by and between Matthews
International Corporation, a Pennsylvania
corporation, and David Schawk
Exhibit Number 10.2 to the Current Report on Form 8-
K filed on March 19, 2014
Exhibit A to the Definitive Proxy Statement on
Schedule 14A filed on January 20, 2015
Form of Schawk Family Share Purchase
Agreement
Exhibit Number 10.1 to the Current Report on Form 8-
K filed on May 16, 2016
Supplemental Retirement Plan (as amended
through April 23, 2009)*
Exhibit Number 10.5 to the Annual Report on Form
10-K for the year ended September 30, 2010
Officers Retirement Restoration Plan (effective
April 23, 2009)*
Exhibit Number 10.6 to the Annual Report on Form
10-K for the year ended September 30, 2009
82
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
Exhibit No.
Description
Prior Filing or Sequential Page Numbers Herein
10.9 a
1992 Stock Incentive Plan (as amended through
April 25, 2006)*
Exhibit Number 10.1 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 2006
10.10 a
Form of Stock Option Agreement*
Exhibit Number 10.7 to the Annual Report on Form
10-K for the year ended September 30, 2008
10.11 a
Form of Restricted Stock Agreement*
Exhibit Number 10.8 to the Annual Report on Form
10-K for the year ended September 30, 2008
10.12 a
1994 Director Fee Plan (as amended through
April 22, 2010)*
Exhibit Number 10.7 to the Annual Report on Form
10-K for the year ended September 30, 2013
10.13 a
Amended and Restated 2014 Director Fee Plan*
Exhibit Number 10.1 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 2017
10.14 a
1994 Employee Stock Purchase Plan*
Exhibit Number 10.2 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1995
10.15 a
2007 Equity Incentive Plan (as amended through
September 26, 2008)*
Exhibit Number 10.11 to the Annual Report on Form
10-K for the year ended September 30, 2008
10.16 a
2012 Equity Incentive Plan*
Exhibit A to the Definitive Proxy Statement on
Schedule 14A filed on January 22, 2013
10.17 a
2015 Incentive Compensation Plan*
Exhibit A to the Definitive Proxy Statement on
Schedule 14A filed on January 19, 2016
10.18 a
2017 Equity Incentive Plan*
Exhibit Number 99.1 to the Registration Statement on
Form S-8 filed on May 3, 2019
10.19 a
Form of Restricted Stock Unit Agreement under
the 2017 Equity Incentive Plan*
Exhibit Number 99.2 to the Registration Statement on
Form S-8 filed on May 3, 2019
10.20 a
2019 Director Fee Plan*
Exhibit Number 99.3 to the Registration Statement on
Form S-8 filed on May 3, 2019
10.21 a
Form of Restricted Stock Unit Agreement under
the 2019 Director Fee Plan*
Exhibit Number 99.4 to the Registration Statement on
Form S-8 filed on May 3, 2019
10.22 a
Form of Change in Control Agreement*
Exhibit Number 10.1 to Current Report on Form 8-K
filed on October 3, 2019
14.1
21
23.1
Form of Code of Ethics Applicable to Executive
Management*
Exhibit Number 14.1 to the Annual Report on Form
10-K for the year ended September 30, 2004
Subsidiaries of the Registrant
Filed Herewith
Consent of Independent Registered Public
Accounting Firm
Filed Herewith
83
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
Exhibit No.
Description
Prior Filing or Sequential Page Numbers Herein
31.1
31.2
32.1
32.2
Certification of Principal Executive Officer for
Joseph C. Bartolacci
Filed Herewith
Certification of Principal Financial Officer for
Steven F. Nicola
Filed Herewith
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of Joseph C.
Bartolacci
Furnished Herewith
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of Steven F. Nicola
Furnished Herewith
101.INS
XBRL Instance Document- the instance
document does not appear in the Interactive Data
File because its XBRL tags are embedded within
the Inline XBRL document
Filed Herewith
101.SCH
XBRL Taxonomy Extension Schema
Filed Herewith
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase
Filed Herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed Herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed Herewith
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase
Filed Herewith
Copies of any Exhibits will be furnished to shareholders upon written request. Requests should be directed to Mr. Steven F.
Nicola, Chief Financial Officer and Secretary of the Registrant.
84
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 22, 2019.
SIGNATURES
MATTHEWS INTERNATIONAL CORPORATION
(Registrant)
By
/s/ Joseph C. Bartolacci
Joseph C. Bartolacci
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on November 22, 2019:
/s/ Joseph C. Bartolacci
Joseph C. Bartolacci
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Steven F. Nicola
Steven F. Nicola
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ John D. Turner
John D. Turner, Chairman of the Board
/s/ Morgan K. O'Brien
Morgan K. O'Brien, Director
/s/ Gregory S. Babe
Gregory S. Babe, Director
/s/ Don W. Quigley, Jr.
Don W. Quigley, Jr., Director
/s/ Katherine E. Dietze
Katherine E. Dietze, Director
/s/ David A. Schawk
David A. Schawk, Director
/s/ Terry L. Dunlap
Terry L. Dunlap, Director
/s/ Jerry R. Whitaker
Jerry R. Whitaker, Director
/s/ Alvaro Garcia-Tunon
Alvaro Garcia-Tunon, Director
85