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, 2020
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 15212-5851
(Address of principal executive offices) (Zip Code)
(412) 442-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
Trading Symbol
MATW
Name of each exchange on which registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
Yes ☒ No ☐
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
Smaller reporting company
☒
☐
☐
Accelerated filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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, 2020, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $730 million.
As of October 31, 2020, shares of common stock outstanding were: Class A Common Stock 31,791,571 shares.
Documents incorporated by reference: Specified portions of the Proxy Statement for the 2021 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, impact of pandemics or similar outbreaks, such as
coronavirus disease 2019 ("COVID-19") or other disruptions to our industries, customers or supply chains, and other factors described in Item 1A, "Risk Factors" in this Form
10-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. Matthews
posts important information on its investor relations website, available at matw.com/investors. The Company's shareholders are encouraged to review the contents of such
website. Notwithstanding the foregoing, the contents of such website are not incorporated into this Annual Report on Form 10-K.
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 and incineration equipment primarily for the cemetery and funeral home industries. Industrial
technologies include marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and
conveying consumer and industrial products.
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
2020
Years Ended September 30,
2019
(Dollar amounts in thousands)
2018
$
$
693,093 $
656,035
149,178
1,498,306 $
743,869 $
636,892
156,515
1,537,276 $
805,274
631,392
165,914
1,602,580
In fiscal 2020, approximately 69% of the Company's sales were made from North America, 26% were made from Europe, 3% were made from Asia, and 2% were made from
other regions. For further information on segments, see Note 19, "Segment Information" in Item 8 - "Financial Statements and Supplementary Data." 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 packaging solutions, brand experience services, and cylinder production and engineering expertise. The SGK Brand Solutions
segment re-organized its operations and rebranded as a global packaging and brand experience business that simplifies marketing, amplifies brands and delivers value.
Matthews has more than 100 years in the packaging business, which 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. The expertise in the rotary processing of banded materials has also allowed expansion into engineered purpose-built machines for new applications.
The SGK Brand Solutions segment helps companies to define, create, produce and transform their packaging and marketing supply chains and the brand assets that flow
through them. By simplifying marketing, the segment helps deliver greater speed through workflow efficiency, enabling clients to get new product introductions and campaigns
to market faster which can result in a competitive advantage for the brand. By amplifying brands, the segment helps brands create meaningful experiences online and offline that
enable them to stand out in the marketplace which can result in a stronger connection between consumers and the brand. The SGK Brand Solutions segment also helps clients
deliver improved marketing productivity and profitability through innovative technology solutions.
The packaging solutions part of its business integrates all packaging-related services from the beginning to end of the packaging development workflow process. Clients may
purchase stand-alone services or a combination of services that are designed to fulfill larger, more strategic objectives. These services include design and adaptive packaging
design, production art, photography, retouching, eCommerce assets, premedia, print technical services, cylinders and surfaces engineering, workflow efficiency consulting,
change management and technology workflow solutions. Largely, a print media-based business, the business leverages their 100+ years of packaging expertise to create
packaging assets required for the eCommerce channel.
The brand experience part of the business integrates all marketing-related services from the beginning to the end of the marketing development workflow process. Clients may
purchases stand-alone services or a combination of services that are designed to fulfill larger, more strategic objectives. These services include all the services that help create
brand experiences: consumer insights, brand strategy, brand identity, content marketing strategy, marketing content creation, campaign strategy and development, online and
in-store retail experiences and merchandising fabrication, creative process management and technology workflow solutions. Largely, an ideation and digital media-based
business, the business leverages its branding expertise to drive the creation of digital experiences that “stick” with consumers.
3
ITEM 1. BUSINESS, (continued)
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
marketplace covering both national and private label brands with numerous packaging and marketing requirements.
The segment is also a leading international supplier of pre-press, rotogravure and embossing tooling, with principal clients representing brand manufacturers, printers and
converters. The segment produces engineered products, which primarily represents purpose-built machines to support the automotive and energy storage industries.
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. 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's ability to offer consistent service on a global basis is a key differentiator.
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.
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 and incineration 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.
4
ITEM 1. BUSINESS, (continued)
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, interior panels, and stationery. The segment offers individually personalized caskets through its
distribution network.
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, and
adjustable beds. 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. The Memorialization
segment also develops and sells technology solutions which help funeral homes manage their businesses and serve families through these digital platforms. Solutions are
delivered as software as a service and include funeral home management systems, and web-based arrangement and presentation systems. 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.
5
ITEM 1. BUSINESS, (continued)
Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate and identify people, places, events and
accomplishments. The Company's plaques are frequently used to identify the name of a building or the names of companies or individuals located within a building. Such
products are also used to commemorate events or accomplishments, such as military service or financial donations. The principal markets for the segment's architectural
products are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies. These products are sold to and distributed through a
network of independent dealers including sign suppliers, awards and recognition companies, and trophy dealers.
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 and incineration 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, 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.
6
ITEM 1. BUSINESS, (continued)
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.
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.
HUMAN CAPITAL RESOURCES:
At October 31, 2020, the Company and its majority-owned subsidiaries employed approximately 11,000 people globally. The Company's diverse team of talented employees
possess a vast array of skills including creative design, photography, engineering, manufacturing, research and development, plant operations, production, logistics and
administrative support, such as information technology, human resources and finance. Certain of the Company's employees have highly specialized skills and subject-matter
expertise in their respective fields, which helps enable the Company to deliver industry leading products and services to its customers throughout the world.
The Company attracts and maintains talent by offering market rate competitive salaries for the locations in which it operates, and by engaging employees with rewarding
opportunities to contribute to the success of the Company. The Company is committed to supporting and developing its employees through global learning and development
programs. These programs are designed to build and strengthen employees’ skills, including leadership and professional competencies. Leadership development programs
include intensive learning programs for emerging leaders, as well as mid-level and senior leaders. The Company also strategically partners with educational institutions and
nonprofit organizations to help provide current and future workers with the knowledge and skills they need to succeed. Such efforts also include routine and consistent
compliance training, covering a wide-range of relevant subjects. The Company has consistently re-invested in necessary resources to effectively staff and efficiently support its
three business segments.
Employee health and safety in the workplace is one of the Company’s core values. Safety efforts are led by the Global Health and Safety team and supported by individuals at
the local site level. Hazards in the workplace are timely identified and management actively tracks incidents so remedial actions may be implemented to improve workplace
safety. In response to the COVID-19 pandemic, the Company has taken actions aligned with the World Health Organization and the Centers for Disease Control and Prevention
to protect its workforce so they can more safely and effectively perform their work. In so doing, the Company has prioritized the initiation of comprehensive health and safety
protocols, further ensuring strict adherence to responsive measures for mitigating the spread of COVID-19.
7
ITEM 1. BUSINESS, (continued)
The Company is committed to efforts to increase diversity and foster an inclusive work environment that supports the Company’s large global workforce. The Company has
taken actions to enhance diversity, including the formation of a Diversity and Inclusion (“D&I”) council, comprised of a diverse group of talented individuals across the
Company’s various businesses and geographic locations. The D&I council is responsible for helping to shape the Company’s D&I objectives, prioritize the Company’s actions
and programs in this important area, and support the Company’s efforts in building a more inclusive workplace. The efforts of the D&I council are further guided by the
Company’s Executive leadership team.
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 purpose built machinery projects in the SGK Brand Solutions segment, mausoleums and cremation and
incineration 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 purpose built machinery projects and mausoleums. Cremation and incineration equipment sales backlogs vary in a range
of ten to twelve months of sales. Backlogs for Industrial Technologies segment sales generally vary in a range of up to four weeks for standard products and twenty-four weeks
for custom systems. The Company's current backlog is expected to be substantially filled in fiscal 2021, absent any disruptions related to COVID-19.
REGULATORY MATTERS:
The Company’s operations are subject to various federal, state and local laws and regulations requiring strict compliance, including, but not limited to, the protection of the
environment. The Company has established numerous internal compliance programs to further ensure lawful satisfaction of the applicable regulations. In addition, the Company
is party to specific environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at operating and non-
operating sites. The Company is currently performing environmental assessments and remediation at certain sites, as applicable.
AVAILABLE INFORMATION:
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.
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.
Company-Specific Risk Factors:
Foreign Operations. The Company conducts business in more than 25 countries around the world, and in fiscal 2020 approximately 33% 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.
8
ITEM 1A. RISK FACTORS, (continued)
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.
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 SGK 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.
Pandemics or similar outbreaks may cause unfavorable economic or market conditions which could impact demand patterns and/or disrupt global supply chains and
production operations. Collectively, these outcomes could materially and adversely affect the Company’s business, results of operations and financial condition.
Pandemics or similar outbreaks, such as COVID-19, could adversely affect the economies of developed and emerging markets, potentially resulting in an economic downturn
that could affect customers’ demand for the Company’s products and services, as well as the Company's ability to access capital at acceptable interest rates. The spread of
pandemics or similar outbreaks may also disrupt the Company’s manufacturing and production operations, as well as its distribution systems, which include import and export
for delivery of the Company’s products to its customers. These factors could materially and adversely affect the Company’s business, financial condition and results of
operations.
9
ITEM 1A. RISK FACTORS, (continued)
Due to the uncertainty relating to a pandemic or similar outbreak, the Company, its customers or its suppliers may be required, or believe that it is advantageous, to take
precautionary measures intended to minimize the risk of a virus or disease spreading to employees, customers, and the communities in which they operate, and these measures
could negatively impact the Company’s business. Further, if the scope and severity of an outbreak, such as COVID-19, worsens and the Company’s contingency plans prove
ineffective, its global operations could potentially experience disruptions, such as temporary closure of facilities or delays or suspensions in product offerings and services,
which may materially and adversely affect the Company’s business, financial condition and results of operations.
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.
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, and the California Consumer
Privacy Act (the "CCPA"), which became effective in January 2020. The GDPR and the CCPA contain numerous requirements, including more robust obligations and
increased documentation requirements for data protection compliance programs by companies. Complying with the GDPR and the CCPA 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
and the CCPA, as
10
ITEM 1A. RISK FACTORS, (continued)
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.
General Risk Factors:
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, global pandemics, 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.
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.
11
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.
12
ITEM 2. PROPERTIES.
The Company's facilities provide adequate space for meeting its near-term production requirements. Significant principal properties of the Company and its majority-owned
subsidiaries as of October 31, 2020 were as follows (properties, which are unencumbered, are owned by the Company except as noted):
Location
Description of Property
SGK Brand Solutions:
Chennai, India
Cleckheaton, England
Dachnow, Poland
East Butler, PA
Goslar, Germany
Grenzach-Wyhlen, Germany
Izmir, Turkey
Manchester, England
Minneapolis, MN
Mississauga, Canada
Mönchengladbach, Germany
Novgorod, Russia
Penang, Malaysia
Vreden, Germany
Memorialization:
Pittsburgh, PA
Apopka, FL
Aurora, IN
Colorno, Italy
Dallas, TX
Dandenong, Australia
Elberton, GA
Fontana, CA
Harrisburg, PA
Hyde, England
Indianapolis, IN
Monterrey, Mexico
Richmond, IN
Searcy, AR
Stone Mountain, GA
Whittier, CA
York, PA
Industrial Technologies:
Pittsburgh, PA
Cincinnati, OH
Gothenburg, Sweden
Lima, Costa Rica
Pewaukee, WI
Wilsonville, OR
Corporate and Administrative Offices:
Pittsburgh, PA
Des Plaines, IL
(1)
These properties are leased by the Company under operating lease arrangements.
13
Operating facility
Operating facility
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Operating facility
Operating facility
Manufacturing
Manufacturing
Operating facility
Manufacturing and Operating facilities
Manufacturing / Division Offices
Manufacturing / Division Offices
Manufacturing
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Distribution Hub
Distribution Hub
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Manufacturing
Distribution Hub
Manufacturing
Manufacturing
Manufacturing / Division Offices
Manufacturing / Distribution
Manufacturing / Distribution
Manufacturing
Manufacturing
Manufacturing
General Offices
General Offices
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
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
The following information is furnished with respect to officers and executive management as of October 31, 2020:
OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
Name
Joseph C. Bartolacci
Gregory S. Babe
Davor Brkovich
Marcy L. Campbell
Brian J. Dunn
Steven D. Gackenbach
Gary R. Kohl
Robert M. Marsh
Steven F. Nicola
Brian D. Walters
Age
60
63
52
57
63
57
57
52
60
51
Positions with Registrant
President and Chief Executive Officer
Chief Technology Officer
Head of IT and Chief Information Officer
Senior Vice President, Human Resources
Executive Vice President, Strategy and Corporate Development
Group President, Memorialization
President, SGK Brand Solutions
Vice President and Treasurer
Chief Financial Officer and Secretary
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.
Davor Brkovich was appointed Head of IT and Chief Information Officer effective November 2019. Prior thereto, he had been interim Head of IT and Chief Information
Officer since February 2019 and prior thereto he served as Director, Global IT Infrastructure since January 2017, when he joined the Company. Prior to joining the Company,
he served as the Head of IT Operations at the Kraft Heinz Company since August 2015.
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.
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.
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.
Steven F. Nicola was appointed Chief Financial Officer and Secretary effective December 2003.
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, 2020, 31,831,571 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 538,736 shares remain available for repurchase as of September 30, 2020. All purchases of the Company's
common stock during fiscal 2020 were part of this repurchase program.
The following table shows the monthly fiscal 2020 stock repurchase activity:
Period
Total number of shares
purchased
Weighted-average
price paid per share
35.87
35.02
38.10
37.04
—
23.91
—
34.02
20.93
18.80
—
22.00
25.51
9,800 $
38,425
3,879
750
—
20,000
—
486
236
45,000
—
55,000
173,576 $
Total number of shares
purchased as part of a
publicly announced
plan
Maximum number of
shares that may yet be
purchased under the
plan
9,800
38,425
3,879
750
—
20,000
—
486
236
45,000
—
55,000
173,576
702,512
664,087
660,208
659,458
659,458
639,458
639,458
638,972
638,736
593,736
593,736
538,736
October 2019
November 2019
December 2019
January 2020
February 2020
March 2020
April 2020
May 2020
June 2020
July 2020
August 2020
September 2020
Total
Holders:
Based on records available to the Company, the number of record holders of the Company's common stock was 551 at October 31, 2020.
Securities Authorized for Issuance Under Equity Compensation Plans:
See Equity Compensation Plans in Item 12 "Security Ownership of Certain Beneficial Owners and Management."
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, RUSSELL 2000 VALUE INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX
This graph compares the return on Matthews’ Common Stock with that of the Standard & Poor’s 500 Index, Russell 2000 Value Index, S&P MidCap 400 Index and S&P
SmallCap 600 Index for the period from October 1, 2015 through September 30, 2020. The graph assumes that on October 1, 2015, $100 was invested in each of the
Company’s Common Stock, Standard & Poor’s 500 Index, Russell 2000 Value Index, S&P MidCap 400 Index and S&P SmallCap 600 Index. The graph measures total
stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
The Russell 2000 Value Index replaces the S&P MidCap 400 Index and S&P SmallCap 600 Index, which were used as the industry market index in the Company’s 2019
Annual Report on Form 10-K. The Company believes that the Russell 2000 Value Index, which measures the performance of those Russell 2000 companies with lower price-to-
book ratios and lower forecasted growth values, is a more appropriate industry market index because, among other reasons, it better reflects the price volatility that a share of
Matthews International Corporation Common Stock experiences.
The following graph compares the total return on the Company’s Common Stock with that of the Standard & Poor’s 500 Index, the newly selected Russell 2000 Value Index,
and each of the S&P MidCap 400 Index and S&P SmallCap 600 Index used in Matthews’ 2019 Annual Report on Form 10-K. The results are not necessarily indicative of
future performance.
* Total return assumes dividend reinvestment
17
ITEM 6. SELECTED FINANCIAL DATA.
Net sales
Operating (loss) profit
Interest expense
Net (loss) income attributable to
Matthews shareholders
(Loss) earnings per common share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Cash dividends per share
(6)
Total assets
Long-term debt, non-current
(6)
2020
(1)
2019
(2)
2017
(4)
2016
(5)
Years Ended September 30,
2018
(Amounts in thousands, except per share data)
(Unaudited)
(3)
$
1,498,306 $
1,537,276 $
1,602,580 $
1,515,608 $
1,480,464
(64,193)
34,885
10,303
40,962
138,557
121,376
127,228
37,427
26,371
24,344
$
$
$
$
(87,155) $
(37,988) $
107,371 $
74,368 $
66,749
(2.79) $
(2.79)
(1.21) $
(1.21)
3.39 $
3.37
2.31 $
2.28
31,190
31,190
31,416
31,416
31,674
31,861
32,240
32,570
2.04
2.03
32,642
32,904
0.84 $
0.80 $
0.76 $
0.68 $
0.60
2,072,633 $
807,710
2,190,603 $
898,194
2,357,744 $
929,342
2,244,649 $
881,602
2,091,041
844,807
(1)
(2)
(3)
(4)
(5)
Fiscal 2020 included net pre-tax charges of $139,092, primarily related to a goodwill write-down, a legal matter reserve, non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs, a gain
on sale of ownership interests in a subsidiary, acquisition-related costs, and strategic cost-reduction initiatives. Charges of $138,556 and $536 impacted operating profit and other deductions, respectively.
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.
(6)
Reporting periods prior to fiscal year 2020 were not revised to reflect the adoption of Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". Prior periods continue to be presented in
accordance with previous lease accounting guidance under GAAP.
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 and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment
includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying
consumer and industrial products.
The Company's primary measure of segment profitability is 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 does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the
Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational
support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are
not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling
interest to the segments.
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. 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)
2020
Years Ended September 30,
2019
(Dollar amounts in thousands)
2018
$
$
$
$
693,093 $
656,035
149,178
1,498,306 $
90,644 $
146,285
22,753
(56,602)
203,080 $
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
(1)
Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.
Comparison of Fiscal 2020 and Fiscal 2019:
Sales for the year ended September 30, 2020 were $1.50 billion, compared to $1.54 billion for the year ended September 30, 2019, representing a decrease of $39.0 million.
The decrease in fiscal 2020 sales reflected lower sales in the SGK Brand Solutions and Industrial Technologies segments, partially offset by increased sales in the
Memorialization segment. Changes in foreign currency rates were estimated to have an unfavorable impact of $6.9 million on fiscal 2020 consolidated sales compared to a year
ago. Fiscal 2020 sales were unfavorably impacted by the global outbreak of COVID-19, which has caused some commercial impact and business disruptions in certain of the
Company's segments and geographic locations. While substantially all of the Company's operations have remained open during the COVID-19 pandemic, management expects
COVID-19 to continue to impact its sales and results of operations in the short-term until the pandemic subsides (see "Forward Looking Information" below).
In the SGK Brand Solutions segment, sales for fiscal 2020 were $693.1 million, compared to $743.9 million in fiscal 2019. The decrease primarily resulted from lower brand
sales in the U.S. and the U.K., sales declines in the private label brand market, and lower sales of cylinders and surfaces products in Europe. These decreases were partially
offset by increased revenues from purpose-built machinery projects and higher sales in the Asia-Pacific region. Changes in foreign currency exchange rates had an unfavorable
impact of $5.9 million on the segment's sales compared to the prior year. Memorialization segment sales for fiscal 2020 were $656.0 million, compared to $636.9 million for
fiscal 2019. The increase in sales primarily resulted from increased unit sales of caskets due to COVID-19, improved price realization on caskets and cemetery memorial
products, and higher sales of cremation and incineration equipment. These increases were partially offset by lower unit sales of cemetery memorial products, which were
impacted by COVID-19 related stay-at-home orders that limited families' access with cemeteries to arrange for their memorials. Changes in foreign currency exchange rates had
an unfavorable impact of $615,000 on the segment's sales compared to the prior year. Industrial Technologies segment sales for fiscal 2020 were $149.2 million, compared to
$156.5 million for fiscal 2019. The decrease primarily reflected lower sales of warehouse automation systems. Orders for warehouse automation solutions remained strong, but
access to job sites to complete these projects has been restricted due to COVID-19. Changes in foreign currency exchange rates had an unfavorable impact of $356,000 on the
segment's sales compared to the prior year.
Gross profit for the year ended September 30, 2020 was $497.8 million, compared to $542.5 million for fiscal 2019. Consolidated gross profit as a percent of sales was 33.2%
and 35.3% in fiscal 2020 and fiscal 2019, respectively. The decrease in gross profit primarily reflected lower sales, unfavorable changes in product mix, ongoing price
competition in the brand market, and unfavorable changes in margins for cylinders, surfaces and engineered products. These declines were partially offset by the realization of
productivity improvements and cost-reduction initiatives. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction
initiatives totaling $12.4 million and $2.4 million in fiscal 2020 and 2019, respectively.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Selling and administrative expenses for the year ended September 30, 2020 were $400.0 million, compared to $408.8 million for fiscal 2019. Consolidated selling and
administrative expenses as a percent of sales were 26.7% for fiscal 2020, compared to 26.6% in fiscal 2019. The decrease in selling and administrative expenses reflected the
impact of lower sales in fiscal 2020, reduced travel and entertainment ("T&E") costs resulting from the COVID-19 pandemic, and benefits from ongoing cost-reduction
initiatives, partially offset by increased performance-based compensation compared to fiscal 2019. Fiscal 2020 selling and administrative expenses included a $10.6 million
charge for a legal matter involving a letter of credit for a customer in Saudi Arabia (see "Liquidity and Capital Resources" below). Fiscal 2019 selling and administrative
expenses included $7.3 million of net gains from the sale of buildings and vacant properties. Selling and administrative expenses included an $11.2 million gain and $6.5
million of losses recognized on the sales of ownership interests in Memorialization businesses completed in fiscal 2020 and 2019, respectively. Selling and administrative
expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $31.5
million in fiscal 2020, compared to $30.5 million in fiscal 2019. Intangible amortization for the year ended September 30, 2020 was $71.5 million, compared to $45.8 million
for fiscal 2019. The increase in intangible amortization primarily reflected $24.4 million of incremental amortization resulting from the fiscal 2019 reduction in useful lives for
certain trade names that are being discontinued. The Company recorded goodwill write-downs within the SGK Brand Solutions segment totaling $90.4 million and $77.6
million for the years ended September 30, 2020 and 2019, respectively. Refer to Note 21, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and
Supplementary Data" for further details.
Adjusted EBITDA for fiscal 2020 was $203.1 million, compared to $220.9 million for fiscal 2019. Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2020 was
$90.6 million, compared to $119.5 million for fiscal 2019. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, unfavorable changes in
product mix, ongoing price competition, a decline in margins for cylinders, surfaces and engineered products, and increased performance-based compensation compared to
fiscal 2019. Changes in foreign currency exchange rates had an unfavorable impact of $1.8 million on the segment's adjusted EBITDA compared to the prior year. These
decreases in segment adjusted EBITDA were partially offset by benefits from cost-reduction initiatives, and reduced T&E costs resulting from COVID-19. Memorialization
segment adjusted EBITDA for fiscal 2020 was $146.3 million, compared to $134.3 million for fiscal 2019. The increase in segment adjusted EBITDA primarily reflected the
impact of higher sales, benefits from productivity initiatives and lower T&E costs, partially offset by increased performance-based compensation compared to fiscal 2019.
Adjusted EBITDA for the Industrial Technologies segment for fiscal 2020 was $22.8 million, compared to $24.1 million in fiscal 2019. Industrial Technologies segment
adjusted EBITDA primarily reflected the impact of lower sales, partially offset by benefits from cost-reduction initiatives and reduced T&E costs.
Investment income for the fiscal year ended September 30, 2020 was $2.0 million, compared to $1.5 million for the year ended September 30, 2019. The increase primarily
reflected higher rates of return on investments (primarily marketable securities) held in trust for certain of the Company's benefit plans. Interest expense for fiscal 2020 was
$34.9 million, compared to $41.0 million in fiscal 2019. The decrease in interest expense reflected lower average interest rates and a decrease in average borrowing levels in the
current fiscal year. Other income (deductions), net for the year ended September 30, 2020 represented a decrease in pre-tax income of $9.2 million, compared to a decrease in
pre-tax income of $8.9 million in fiscal 2019. Other income (deductions), net includes banking-related fees and the impact of currency gains and losses on certain intercompany
debt and foreign denominated cash balances. Other income (deductions), net also includes the non-service components of pension and postretirement expense, which totaled
$7.8 million and $3.8 million in fiscal years 2020 and 2019, 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.
The Company's consolidated income taxes for the year ended September 30, 2020 were a benefit of $18.7 million, compared to an expense of $806,000 for fiscal 2019. The
difference between the Company's consolidated income taxes for fiscal 2020 versus fiscal 2019 primarily resulted from the fiscal 2020 consolidated loss before income taxes,
which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, which was partially non-deductible, as well as a benefit for an expected net operating loss
(“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory tax rate of 35%. The Company’s fiscal
2020 effective tax rate was negatively affected by the non-deductible portion of the goodwill write-down along with certain other non-deductible expenses. The fiscal 2020
effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the completion of a foreign tax audit, and the
tax benefit of the NOL carryback. Refer to Note 16, “Income Taxes” in Item 8 - “Financial Statements and Supplementary Data” for further details regarding income taxes.
Net losses attributable to noncontrolling interests were $497,000 in fiscal 2020, compared to $901,000 in fiscal 2019. The net losses attributable to noncontrolling interests
primarily reflected losses in less than wholly-owned businesses.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Comparison of Fiscal 2019 and Fiscal 2018:
For a comparison of the Company's results of operations for the fiscal years ended September 30, 2019 and September 30, 2018, see "Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation" of the Company's annual report on Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC
on November 22, 2019.
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.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The reconciliation of net income to adjusted EBITDA is as follows:
2020
(1)**
Net (loss) income
Income tax (benefit) provision
(Loss) income before income taxes
Net loss attributable to noncontrolling interests
Interest expense
*
Depreciation and amortization
Acquisition costs
ERP integration costs
Strategic initiatives and other charges
Legal matter reserve
Non-recurring / incremental COVID-19 costs
(6)
Goodwill write-downs
Net realized (gains) losses on divestitures and asset dispositions:
(Gain) loss on sale of ownership interests in subsidiaries
Realized loss (gain) on cost-method investments
Net gains from the sale of buildings and vacant properties
(3)**
(2)**
(8)
(5)
(9)
(4)
(7)
Joint Venture depreciation, amortization, interest expense and other charges
Stock-based compensation
Non-service pension and postretirement expense
Total Adjusted EBITDA
(11)
(10)
$
$
Years Ended September 30,
2019
(Dollar amounts in thousands)
(38,889) $
806
(38,083)
901
40,962
90,793
10,872
7,508
13,449
—
—
77,572
(87,652) $
(18,685)
(106,337)
497
34,885
119,058
3,844
2,296
33,799
10,566
4,655
90,408
(11,208)
—
—
4,732
8,096
7,789
203,080 $
6,469
4,731
(7,347)
1,514
7,729
3,802
220,872 $
2018
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
(7)
(2)
(1)
(3)
Includes certain non-recurring costs associated with recent acquisition activities.
Represents costs associated with global ERP system integration efforts.
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.
Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 9, "Long Term Debt" in Item 8 - “Financial
(4)
Statements and Supplementary Data”).
(5)
cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19.
(6)
Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and
Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 21, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data”).
Represents the (gain) loss on the sale of ownership interests in subsidiaries within the Memorialization segment.
Includes gains/losses related to cost-method investments, and related assets, within the SGK Brand Solutions and Memorialization segments.
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
Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method
(9)
Brand Solutions and Memorialization segments, respectively.
(10)
investments within the Memorialization segment.
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
(11)
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.
(8)
* Depreciation and amortization was $87.6 million, $59.7 million, and $46.3 million for the SGK Brand Solutions segment, $20.5 million, $19.7 million, and $20.0 million for the Memorialization segment,
$5.8 million, $6.2 million, and $5.8 million for the Industrial Technologies segment, and $5.2 million, $5.2 million, and $4.9 million for Corporate and Non-Operating, for the fiscal years ended September 30,
2020, 2019, and 2018, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $14.0 million, $8.9 million, and $11.0 million for the SGK Brand Solutions segment, $0.3 million, $3.1 million, and
$0.6 million for the Industrial Technologies segment, and $23.0 million, $19.9 million, and $14.0 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018,
respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $2.7 million, and $1.4 million for the Memorialization segment for the fiscal years ended September 30,
2020 and 2018, respectively.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $180.4 million for the year ended September 30, 2020, compared to $131.1 million and $147.6 million for fiscal years 2019 and
2018, respectively. Operating cash flow for fiscal 2020 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based
compensation expense, net losses related to goodwill and investments, and non-cash pension expense, and changes in working capital items. The favorable movements in
working capital in fiscal 2020 primarily reflected enhanced accounts receivable collection efforts and effective management of trade accounts payable, as the Company has
been focusing its efforts on cash management. The fiscal 2020 decrease in other assets reflects changes in operating leases assets. 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 changes in working capital items. Operating cash flow for fiscal 2018 principally
included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains related to investments, and non-cash pension
expense, and changes in working capital items. Fiscal 2018 operating cash flow also included cash contributions of $12.7 million to the Company's pension and other
postretirement plans.
Cash used in investing activities was $2.7 million for the year ended September 30, 2020, compared to $60.8 million and $162.3 million for fiscal years 2019 and 2018,
respectively. Investing activities for fiscal 2020 primarily reflected capital expenditures of $34.8 million, acquisition payments (net of cash acquired or received from sellers) of
$1.0 million, proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business, and investments and advances of $9.7 million. Investing activities for
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 sale of a controlling interest in a Memorialization business, 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, proceeds of $9.2 million from the sale of certain cost-method investments, and cash payments of $11.9 million for
purchases of investments.
Capital expenditures were $34.8 million for the year ended September 30, 2020, compared to $37.7 million and $43.2 million for fiscal years 2019 and 2018, 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 $38.6 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 2021 is currently estimated to be approximately $40 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, 2020 was $172.3 million, and principally reflected repayments, net of proceeds, on long-term debt of $126.3
million, purchases of treasury stock of $4.4 million, payment of dividends to the Company's shareholders of $26.4 million ($0.84 per share), $10.2 million of holdback and
contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million (see below). Cash used in financing activities
for the 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.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement
includes a $750.0 million senior secured revolving credit facility, which matures in March 2025, and a $35.0 million senior secured amortizing term loan, which matures in July
2021. A portion of the revolving credit facility (not to exceed $350.0 million ) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal
payments through its maturity date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros)
plus a factor ranging from 0.75% to 2.00% (1.50% at September 30, 2020) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured
indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The
Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit
facility. The Company incurred debt issuance costs of approximately $2.0 million in connection with the amended and restated agreement, which was deferred and is being
amortized over the term of the facility.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35.0 million) is available for
the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were $257.4
million and $325.6 million, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were €117.0 million
($137.2 million) and €125.0 million ($136.5 million), respectively. Outstanding borrowings on the term loan at September 30, 2020 and 2019 were $22.4 million and $53.5
million, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro
denominated borrowings) at September 30, 2020 and 2019 was 2.41% and 2.65%, 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. Unamortized costs were $2.7 million and $3.3 million at September 30,
2020 and 2019, respectively.
The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. The Securitization Facility, which
had a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its
domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-
owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may
borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations
remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an
annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at
September 30, 2020 and 2019 were $67.7 million and $94.0 million, respectively. The interest rate on borrowings under this facility at September 30, 2020 and 2019 was 0.90%
and 2.77%, 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
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
$
$
September 30, 2020
September 30, 2019
(Dollar amounts in thousands)
312,500
(7,792)
$
$
2.6
0.15 %
1.34 %
293,750
(534)
1.9
2.02 %
1.41 %
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.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The fair value of the interest rate swaps reflected an unrealized loss of $7.8 million ($5.9 million after tax) and an unrealized loss net of unrealized gains of $534,000 ($403,000
after tax) at September 30, 2020 and 2019, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming
market rates remain constant with the rates at September 30, 2020, a loss (net of tax) of approximately $2.4 million included in AOCI is expected to be recognized in earnings
over the next twelve months.
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowings
available under this facility is €35.0 million ($41.0 million). The credit facility matures in December 2020 and the Company intends to extend this facility. Outstanding
borrowings under the credit facility totaled €18.9 million ($22.2 million) and €12.8 million ($14.0 million) at September 30, 2020 and 2019, respectively. The weighted-average
interest rate on outstanding borrowings under this facility at September 30, 2020 and 2019 was 1.25%.
The Company’s German subsidiary, Matthews Europe GmbH, had €15.0 million ($16.4 million at September 30, 2019) of senior unsecured notes with European banks. The
notes matured in November 2019 at which point they were paid. The weighted-average interest rate on the notes at September 30, 2019 was 1.40%.
Finance lease liabilities included as a component of debt totaled $9.7 million and $3.6 million at September 30, 2020 and 2019, respectively. See Note 10, "Leases" in Item 8 -
“Financial Statements and Supplementary Data” for further discussion on the Company's lease obligations. Other borrowings totaled $20.7 million and $395,000 at
September 30, 2020 and 2019, respectively. The weighted-average interest rate on other borrowings was 2.10% and 2.17% at September 30, 2020 and 2019, respectively. The
Company was in compliance with all of its debt covenants as of September 30, 2020.
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $4.4 million (net of income taxes of $1.4
million) and currency gains 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 at September 30, 2020 and 2019, respectively.
In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8.6 million ($11.0 million at September 30, 2020) with
respect to a performance guarantee on an incineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an
action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by
the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on
the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as
ordered. On June 14, 2016, the U.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 continues to pursue a trial on the merits in Saudi Arabia; however, given the recent COVID-19
pandemic, the case has been further delayed. As the Company has successfully completed the project and subsequently operated the equipment, the Company remains confident
regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial.
However, the Company’s level of success in recovering funds from the customer will depend upon several 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 support of the Saudi Arabian government to enforce a potential judgment against the
customer.
During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company
was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, as of
the filing of this report, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered
collectively with the potential delay in completing the trial and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of
June 30, 2020. The funded letter of credit was previously classified within other assets on the Consolidated Balance Sheet as of September 30, 2019. The Company will
continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
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 538,736 shares remain available for repurchase as of September 30, 2020. The buy-back program is designed to
increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for
acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation.
The Company utilized certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (commonly referred to as the CARES Act) and other similar economic
relief initiatives that were enacted in response to COVID-19. Under the CARES Act, the Company elected to defer payments for certain taxes, primarily U.S. payroll taxes,
which were $8.4 million for fiscal 2020.
Consolidated working capital was $258.7 million at September 30, 2020, compared to $303.8 million at September 30, 2019. Cash and cash equivalents were $41.3 million at
September 30, 2020, compared to $35.3 million at September 30, 2019. The Company's current ratio was 1.8 and 2.1 at September 30, 2020 and 2019, respectively.
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 operating growth 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 - and acquisitions and related integration activities to achieve
synergy benefits.
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.
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 through
fiscal 2022. 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 fiscal 2020 through fiscal 2022.
On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently
recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from
spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the
Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has
experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.
Considerable judgement is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results. Management expects that
each of its business segments will experience some level of sales impacts in the short-term, potentially due to customer business disruptions, facilities shut-downs, weaker
global economic conditions, and possible customer project delays. Longer-term financial impacts will depend on global economic conditions eventually resulting from COVID-
19. Management expects each of its businesses to experience increased financial volatility in the short-term, but currently anticipates its core businesses will return to a more
normalized future state once the COVID-19 pandemic subsides.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
CRITICAL ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as
historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the
Company can be found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," 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, 2020.
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.
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 2020 (January 1, 2020) and determined
that the estimated fair values for all goodwill reporting units exceeded their carrying values. The estimated fair values for two reporting units within the SGK Brand Solutions
segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded their carrying values (expressed as a percentage of carrying value) by less than 10% as
of January 1, 2020.
In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess
fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for
its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020. As a result of this
interim assessment, the Company recorded a goodwill write-down totaling $90.4 million during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of
the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at
March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation
methodology. If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry
impacts of COVID-19) significantly change, additional goodwill write-downs may be necessary in future periods.
During the fourth quarter of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the SGK Brand Solutions segment as a result of
continued challenging market conditions affecting the segment. 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.
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, 2019 for purposes of determining fiscal 2020 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, 2020 and September 30, 2019 for the
fiscal year end valuation. The discount rate was 2.62%, 3.13% and 4.21% in fiscal 2020, 2019 and 2018, 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.
29
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, 2020, and the effect such obligations are expected to have on its liquidity and cash
flows in future periods.
Payments due in fiscal year:
Total
2021
(1)
Contractual Cash Obligations:
Revolving credit facilities
Securitization facility
Senior secured term loan
2025 Senior Notes
Finance lease obligations
Non-cancelable operating leases
Other
Total contractual cash obligations
(2)
(2)
$
$
416,793 $
67,700
22,359
383,881
10,514
77,161
27,338
1,005,746 $
2022 to 2023
(Dollar amounts in thousands)
— $
2024 to 2025
After
2025
394,627 $
—
—
31,500
869
14,221
2,168
443,385 $
—
—
—
305,131
1,753
5,224
5,606
317,714
67,700
—
31,500
4,045
31,912
5,594
140,751 $
22,166 $
—
22,359
15,750
3,847
25,804
13,970
103,896 $
(1)
The Company maintains certain debt facilities with current maturity dates in fiscal 2021 that it intends and has the ability to extend beyond fiscal 2021 totaling $32.3 million. These balances have been
classified as non-current on the Company's Consolidated Balance Sheet.
(2)
Lease obligations have not been discounted to their present value.
A significant portion of the loans included in the table above bear interest at variable rates. At September 30, 2020, the weighted-average interest rate was 2.41% on the
Company's domestic credit facility, 0.90% on the Company's Securitization Facility, 1.25% on the credit facility through the Company's European subsidiaries, and 2.10% on
other outstanding borrowings.
Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement
benefit plan are funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding
measures associated with IRS regulations. In accordance with this bill, the Company was not required to make contributions to its principal retirement plan in fiscal 2020.
However, the Company contributed 668,000 shares of its Class A Common Stock to its principal retirement plan during the fourth quarter of fiscal 2020. The shares had a
market value of approximately $15.0 million at the time of the contribution.
The Company is required to make cash contributions of approximately $4.2 million to its principal retirement plan in fiscal 2021. The Company estimates that benefit payments
to participants under its retirement plans (including its supplemental retirement plan) and postretirement benefit payments will be approximately $11.4 million and $831,000,
respectively, in fiscal 2021. The amounts are expected to increase incrementally each year thereafter, to $14.3 million and $931,000, respectively, in 2025. 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, 2020,
the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $10.5 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.
30
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
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
September 30, 2020
September 30, 2019
$
$
(Dollar amounts in thousands)
312,500
(7,792)
$
$
2.6
0.15 %
1.34 %
293,750
(534)
1.9
2.02 %
1.41 %
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, of $7.8 million ($5.9 million after-tax) at September 30, 2020 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 $49.1 million and a decrease in
reported operating income of $5.6 million for the year ended September 30, 2020.
31
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 14, "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, 2020 actuarial valuations of changes in the primary assumptions affecting the Company's retirement plans and
supplemental retirement plan.
Change in Discount Rates
+1%
-1%
Impact of Changes in Actuarial Assumptions
Change in Expected Return
Change in Market Value of Assets
+1%
-1%
(Dollar amounts in thousands)
+5%
-5%
(Decrease) increase in net benefit cost
$
(5,098) $
6,250 $
(1,638) $
1,638 $
(1,717) $
1,717
(Decrease) increase in projected benefit obligation
(40,284)
50,506
Increase (decrease) in funded status
40,284
(50,506)
—
—
—
—
—
—
8,407
(8,407)
32
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, 2020 and 2019
Consolidated Statements of Income for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Supplementary Financial Information (unaudited)
Financial Statement Schedule – Schedule II-Valuation and Qualifying
Accounts for the years ended September 30, 2020, 2019 and 2018
33
Pages
34
35
36
38
40
41
42
43
44
76
77
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, 2020. The effectiveness of the Company's internal control over financial reporting as of September 30,
2020 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.
34
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated
November 20, 2020 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 20, 2020
35
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, 2020 and 2019, 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, 2020,
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, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2020, 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, 2020, 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 20, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 3 to the consolidated financial statements, effective October 1, 2019, the Company changed its method of accounting for leases due to the adoption of
Accounting Standards Update No. 2016-02, Leases (Topic 842).
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.
36
Description of the Matter
Valuation of Graphics Imaging Reporting Unit Goodwill
As more fully described in Note 21 to the consolidated financial statements, during 2020, the Company recorded a $29.9 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 the impact of the COVID-19 pandemic
and adverse foreign currency trends, unfavorably impacted the financial results and forecasts for this reporting unit. Because of these
challenging market conditions, as of March 31, 2020, 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.
How We Addressed the
Matter in Our Audit
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 20, 2020
37
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2020 and 2019
(Dollar amounts in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful
accounts of $9,618 and $10,846, 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.
38
2020
2019
$
41,334 $
35,302
295,185
175,100
63,954
318,756
180,274
49,384
575,573
583,716
63,250
85,501
236,788
237,442
3,757
5,032
94,379
31,455
765,388
846,807
333,498
400,650
$
2,072,633 $
2,190,603
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
September 30, 2020 and 2019
(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, 4,502,420 and 4,985,508 shares, respectively, at cost
Total shareholders' equity-Matthews
Noncontrolling interests
Total shareholders' equity
$
2020
2019
26,824 $
82,921
58,058
3,612
145,453
316,868
42,503
74,558
42,545
5,997
114,276
279,879
807,710
898,194
149,848
133,762
18,600
19,963
78,911
102,482
89,263
1,461,200
37,087
1,471,367
36,334
—
135,187
859,002
(240,719)
(178,997)
610,807
626
611,433
36,334
—
137,774
972,594
(228,361)
(200,235)
718,106
1,130
719,236
Total liabilities and shareholders' equity
$
2,072,633 $
2,190,603
The accompanying notes are an integral part of these consolidated financial statements.
39
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share data)
Sales
Cost of sales
Gross profit
Selling expense
Administrative expense
Intangible amortization
Goodwill write-downs
Operating (loss) profit
Investment income
Interest expense
Other income (deductions), net
(Loss) income before income taxes
Income tax benefit (provision)
Net (loss) income
$
2020
1,498,306 $
(1,000,537)
2019
1,537,276 $
(994,810)
2018
1,602,580
(1,018,359)
497,769
542,466
584,221
(125,117)
(274,923)
(71,514)
(90,408)
(133,368)
(275,467)
(45,756)
(77,572)
(141,570)
(272,532)
(31,562)
—
(64,193)
10,303
138,557
1,962
(34,885)
(9,221)
1,494
(40,962)
(8,918)
1,570
(37,427)
(4,707)
(106,337)
(38,083)
97,993
18,685
(806)
9,118
(87,652)
(38,889)
107,111
Net loss attributable to noncontrolling interests
497
901
260
Net (loss) income attributable to Matthews shareholders
(Loss) earnings per share attributable to Matthews shareholders:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
40
$
$
$
(87,155) $
(37,988) $
107,371
(2.79) $
(1.21) $
(2.79) $
(1.21) $
3.39
3.37
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the years ended September 30, 2020, 2019 and 2018
(Dollar amounts in thousands)
Net loss
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
Pension plans and other postretirement benefits
Unrecognized (loss) gain 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 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)
The accompanying notes are an integral part of these consolidated financial statements.
41
Matthews
Year Ended September 30, 2020
Noncontrolling Interest
Total
$
(87,155) $
(497)
$
(87,652)
4,333
(11,211)
(6,130)
650
(5,480)
(12,358)
(99,513) $
(7)
—
—
—
—
(7)
(504)
$
4,326
(11,211)
(6,130)
650
(5,480)
(12,365)
(100,017)
Matthews
Year Ended September 30, 2019
Noncontrolling Interest
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)
Matthews
Year Ended September 30, 2018
Noncontrolling Interest
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
$
$
$
$
$
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2020, 2019 and 2018
(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
—
$
123,432
—
$
948,830
107,371
$
(154,115)
—
$
(164,774)
—
$
$
552
(260)
—
—
—
—
—
—
—
—
—
—
—
—
13,460
—
(8,040)
400
—
—
—
—
—
—
—
—
—
(24,637)
8,814
$
36,334
—
$
129,252
—
$
1,040,378
(37,988)
$
—
—
—
—
—
—
—
—
—
—
—
—
—
7,729
—
(154)
947
—
—
—
$
36,334
—
$
137,774
—
$
—
—
—
—
—
—
—
—
—
—
—
8,096
—
(486)
1,527
—
—
—
—
—
—
—
—
(25,620)
—
(4,176)
972,594
(87,155)
$
—
—
—
—
—
—
—
(26,437)
15,631
(22,053)
5,053
—
—
—
—
—
(8,814)
(164,298)
—
$
(33,867)
(21,254)
(8,942)
—
—
—
—
—
—
—
—
—
—
—
(21,181)
13,040
(400)
—
—
(173,315)
—
$
—
—
—
—
(26,127)
154
(947)
—
—
—
(228,361)
—
$
(200,235)
—
$
(11,211)
4,333
(5,480)
—
—
—
—
—
—
—
—
—
(4,428)
486
(1,527)
—
—
71
—
—
—
—
—
—
—
363
(901)
—
(92)
—
—
—
—
—
—
1,760
—
1,130
(497)
—
(7)
—
—
—
—
—
—
$
$
—
36,334
$
(11,724)
135,187
$
—
859,002
$
$
—
(240,719)
$
26,707
(178,997)
$
—
626
$
790,259
107,111
15,631
(21,982)
5,053
105,813
13,460
(21,181)
5,000
—
(24,637)
—
868,714
(38,889)
(33,867)
(21,346)
(8,942)
(103,044)
7,729
(26,127)
—
—
(25,620)
1,760
(4,176)
719,236
(87,652)
(11,211)
4,326
(5,480)
(100,017)
8,096
(4,428)
—
—
(26,437)
14,983
611,433
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
Net loss
Pension plans and other
postretirement benefits
Translation adjustment
Fair value of derivatives
Total comprehensive loss
Stock-based compensation
Purchase of 173,576 shares
of treasury stock
Issuance of 12,125 shares
of treasury stock
Cancellation of 23,461 shares of
treasury stock
Dividends
Pension contribution of 668,000
shares of treasury stock
Balance, September 30, 2020
The accompanying notes are an integral part of these consolidated financial statements.
42
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2020, 2019 and 2018
(Dollar amounts in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred tax benefit
Gain on sale of assets, net
(Gain) loss on sale of ownership interests in subsidiaries
Unrealized gain on investments
Losses from equity-method investments
Realized loss (gain) on cost-method investments
Goodwill write-downs
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 cost-method investments
Proceeds from sale of ownership interests in subsidiaries
Investments and advances
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Payments on long-term debt
Purchases of treasury stock
Dividends
Acquisition holdback and contingent consideration payments
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
Contribution of treasury stock to principal retirement plan
The accompanying notes are an integral part of these consolidated financial statements.
43
2020
2019
2018
$
(87,652) $
(38,889) $
107,111
119,058
8,096
(16,607)
(348)
(11,208)
(2,066)
3,498
—
90,408
46,367
16,392
4,886
9,623
180,447
(34,849)
(1,000)
624
—
42,210
(9,703)
(2,718)
1,154,809
(1,281,092)
(4,428)
(26,437)
(10,215)
(4,889)
(172,252)
555
6,032
35,302
41,334 $
35,269 $
20,734
— $
14,983
$
$
$
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)
(26,127)
(25,620)
(4,421)
(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
14,544
—
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 and incineration equipment primarily
for the cemetery and funeral home industries. Industrial technologies include marking and coding equipment and consumables, industrial automation products and order
fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
The Company has facilities in 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.
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.
44
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.
Leases:
A lease exists at contract inception if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. Control is considered to exist
when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset. If a
contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use ("ROU")
asset. As a majority of the Company’s leases do not provide an implicit interest rate within the lease, an incremental borrowing rate is used to determine the ROU asset and lease
liability which is based on information available at the commencement date. Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability
when it is reasonably certain an option will be exercised. Renewal options are most prevalent in the Company’s real estate leases. In general, the Company has not included
renewal options for leases in the ROU asset and lease liability because the likelihood of renewal is not considered to be reasonably certain. In addition, leases may include
variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense.
The Company applies the practical expedient to not separate lease components from non-lease components for all asset classes. In addition, the Company applies the practical
expedient to utilize a portfolio approach for certain equipment asset classes, primarily information technology, as the application of the lease model to the portfolio would not
differ materially from the application of the lease model to the individual leases within the portfolio.
There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. Leases not meeting the finance lease criteria are
classified as operating leases. Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. ROU assets for
operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet. For
operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance
Sheet. For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the
Consolidated Balance Sheet. Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet. Reporting periods prior to
October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as
depreciation expense and interest expense using the interest method of recognition. On the cash flow statement, payments for operating leases are classified as operating
activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating
activity.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
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.
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.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
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 for goods and services, as well as warranties. Transaction price also reflects estimates of
rebates, other sales or contract renewal incentives, 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, 2020, 2019 and 2018. 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 $22,289, $26,176 and $24,984 for the years ended September 30, 2020, 2019 and 2018,
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.
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.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides financial statement users with more decision-useful
information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date. Subsequently, the
FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2020-02, Financial Instruments—Credit Losses
(Topic 326) and Leases (Topic 842), that provide certain amendments to the new guidance. These ASUs are effective for the Company beginning in interim periods starting in
fiscal year 2021. The adoption of these ASUs are not expected to have a material impact on the Company's consolidated financial statements.
Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes. The amendments in this update remove
certain exceptions to the general principles in Topic 740 and also simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments
in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. The Company early adopted this ASU in the quarter ended March 31, 2020. The adoption of this ASU had
no significant impact on the Company's consolidated financial statements, but modifies the methodology to assess certain tax principles in Topic 740 prospectively.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement, which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits. The adoption of this ASU in the first
quarter ended December 31, 2019 had no 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. The adoption of this ASU in the first quarter
ended December 31, 2019 had no impact on the Company's consolidated financial statements.
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.
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 No. 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
48
3. ACCOUNTING PRONOUNCEMENTS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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 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
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 adopted the standard using the transition method as of October 1, 2019.
Under this approach, the Company recognized and recorded ROU assets and related lease liabilities on the Consolidated Balance Sheet of approximately $80 million with no
impact to retained earnings. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP. As part of
the adoption, the Company elected the package of practical expedients permitted under the transition guidance which includes the ability to carry forward historical lease
classification.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities, which provides new guidance intended to improve the recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB
issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), that provides guidance related to implementation issues
and corrects or improves certain aspects of the financial instruments guidance. The adoption of these ASUs in the first quarter ended December 31, 2018 had no impact on the
Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU replaces nearly all existing U.S. GAAP guidance on revenue
recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The FASB issued ASU 2015-14 in
August 2015 which resulted in a deferral of the original effective date of ASU 2014-09. During 2016 and 2017, the FASB issued six ASUs that address implementation issues
and correct or improve certain aspects of the new revenue recognition guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross
versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with
Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) and ASU 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue
Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) . These ASUs do not change the core principles in the revenue recognition guidance outlined
above. The Company adopted the provisions of these ASUs in the first fiscal quarter of 2019, using the modified retrospective method. The adoption of these ASUs did not
impact the Company's consolidated financial statements and therefore, there was no cumulative effect adjustment recognized to retained earnings on October 1, 2018.
In February 2018, the FASB issued ASU No. 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.
49
4. REVENUE RECOGNITION:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
The Company delivers a variety of products and services through its business segments. The SGK Brand Solutions segment delivers brand management, pre-media services,
printing plates and cylinders, engineered products, and imaging services for consumer goods and retail customers, merchandising display systems, and marketing and design
services primarily to the consumer goods and retail industries. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization
products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment delivers marking and
coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial
products for the warehousing and industrial industries.
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, 2020, 2019 and 2018 were as
follows:
North America
Central and South
America
Europe
Australia
Asia
Consolidated
SGK Brand Solutions:
2020
2019
2018
Memorialization:
2020
2019
2018
Industrial Technologies:
2020
2019
2018
Consolidated:
2020
2019
2018
$
$
$
$
305,527 $
320,553
351,631
611,496 $
590,575
583,942
120,682 $
127,140
130,794
6,304 $
5,853
6,171
326,776 $
362,088
389,151
— $
—
—
— $
—
—
35,557 $
37,199
36,773
25,498 $
26,966
30,154
1,037,705 $
1,038,268
1,066,367
6,304 $
5,853
6,171
387,831 $
426,253
456,078
12,097 $
11,767
12,599
8,982 $
9,118
10,677
— $
—
—
21,079 $
20,885
23,276
42,389 $
43,608
45,722
— $
—
—
2,998 $
2,409
4,966
45,387 $
46,017
50,688
693,093
743,869
805,274
656,035
636,892
631,392
149,178
156,515
165,914
1,498,306
1,537,276
1,602,580
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:
Level 2:
Level 3:
Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Unobservable inputs for the asset or liability.
50
5. FAIR VALUE MEASUREMENTS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
As of September 30, 2020 and 2019, the fair values of the Company's assets and liabilities measured on a recurring basis were categorized as follows:
Assets:
Equity and fixed income mutual funds
Life insurance policies
Total assets at fair value
Liabilities:
Derivatives
Total liabilities at fair value
(1)
Level 1
Level 2
Level 3
Total
September 30, 2020
—
—
— $
— $
— $
24,610
4,621
29,231 $
7,792 $
7,792 $
—
—
— $
— $
— $
24,610
4,621
29,231
7,792
7,792
$
$
$
(1)
Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
Assets:
(1)
Derivatives
Equity and fixed income mutual funds
Life insurance policies
Total assets at fair value
Liabilities:
Derivatives
Total liabilities at fair value
(1)
Level 1
Level 2
Level 3
Total
September 30, 2019
$
$
$
$
— $
—
—
— $
— $
— $
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.
6. INVENTORIES:
Inventories at September 30, 2020 and 2019 consisted of the following:
Raw materials
Work in process
Finished goods
2020
2019
$
$
36,157 $
70,128
68,815
175,100 $
35,616
76,297
68,361
180,274
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
7. INVESTMENTS:
At September 30, 2020 and 2019, non-current investments were as follows:
Equity and fixed income mutual funds
Life insurance policies
Equity-method investments
Other investments
2020
2019
$
$
24,610 $
4,621
446
33,573
63,250 $
22,986
4,030
39,761
18,724
85,501
Equity and fixed income mutual funds represent investments held in trust for the Company's non-qualified supplemental retirement plan and are classified as trading securities
and recorded at fair value. The market value of these investments exceeded cost by $138 and $941 at September 30, 2020 and 2019, respectively. Realized and unrealized gains
and losses are recorded in investment income. Realized gains (losses) for fiscal 2020, 2019 and 2018 were not material.
During fiscal 2019, the Company completed the sale of a 51% ownership interest in a small Memorialization business. This transaction resulted in the recognition of a $5,587
pre-tax loss which was 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 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.
During fiscal 2020, the Company made $9,482 of additional investments in its non-consolidated Memorialization subsidiary. Subsequently in fiscal 2020, the Company sold its
ownership interest in this subsidiary for $42,210 of cash and $15,000 of senior preferred shares. The senior preferred shares earn a yield based on an escalating rate ranging
from 6% to 14% and are expected to be redeemed before the end of calendar year 2022. In connection with this sale transaction, the Company recognized a pre-tax gain of
$11,208 which has been recorded as a component of administrative expenses. The senior preferred shares are included within other investments in the table above along with
ownership interests in various entities of less than 20%, which are recorded under the cost-method of accounting.
8. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related accumulated depreciation at September 30, 2020 and 2019 were as follows:
Buildings
Machinery, equipment and other
Less accumulated depreciation
Land
Construction in progress
2020
2019
$
$
113,231 $
486,282
599,513
(391,436)
208,077
16,660
12,051
236,788 $
114,276
446,356
560,632
(361,193)
199,439
17,310
20,693
237,442
Depreciation expense, including amortization of assets under finance lease, was $47,544, $45,037 and $45,412 for each of the three years ended September 30, 2020, 2019 and
2018, respectively.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9. LONG-TERM DEBT:
Long-term debt at September 30, 2020 and 2019 consisted of the following:
Revolving credit facilities
Securitization facility
Senior secured term loan
2025 Senior Notes
Notes payable to banks
Other borrowings
Finance lease obligations
Less current maturities
2020
2019
$
$
416,793 $
67,700
22,359
297,256
—
20,742
9,684
834,534
(26,824)
807,710 $
476,132
93,950
53,497
296,716
16,376
395
3,631
940,697
(42,503)
898,194
The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement
includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan, which matures in July 2021. A
portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal payments through its
maturity date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging
from 0.75% to 2.00% (1.50% at September 30, 2020) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided
by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an
annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt
issuance costs of approximately $2,000 in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the
issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were $257,439
and $325,638, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were €117.0 million ($137,188) and
€125.0 million ($136,470), respectively. Outstanding borrowings on the term loan at September 30, 2020 and 2019 were $22,359 and $53,497, 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,
2020 and 2019 was 2.41% and 2.65%, 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. Unamortized costs were $2,744 and $3,284 at September 30, 2020 and
2019, respectively.
The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. The Securitization Facility, which had
a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its
domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-
owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may
borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations
remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an
annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at
September 30, 2020 and 2019 were $67,700 and $93,950, respectively. The interest rate on borrowings under this facility at September 30, 2020 and 2019 was 0.90% and
2.77%, respectively.
53
9. LONG-TERM DEBT, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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
Weighted-average maturity period (years)
Weighted-average received rate
Weighted-average pay rate
$
$
September 30, 2020
September 30, 2019
312,500
(7,792)
$
$
2.6
0.15 %
1.34 %
293,750
(534)
1.9
2.02 %
1.41 %
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 of $7,792 ($5,884 after tax) and an unrealized loss net of unrealized gains of $534 ($403 after tax) at
September 30, 2020 and 2019, 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, 2020, a loss (net of tax) of approximately $2,389 included in AOCI is expected to be recognized in earnings over the next twelve
months.
At September 30, 2020 and 2019, 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
2020
2019
$
$
— $
—
(3,164)
(4,628)
(7,792) $
548
297
(484)
(895)
(534)
The (losses) gains recognized on derivatives was as follows:
Derivatives in Cash Flow Hedging
Relationships
Location of (Loss) Gain Recognized in
Income on Derivatives
Interest rate swaps
Interest expense
Amount of (Loss) Gain Recognized in Income on Derivatives
2018
2019
2020
$1,380
$3,181
$(861)
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9. LONG-TERM DEBT, (continued)
The Company recognized the following (losses) gains in AOCI:
Derivatives in Cash Flow Hedging
Relationships
Amount of (Loss) Gain Recognized in AOCI
on Derivatives
2019
2020
2018
Location of (Loss) Gain
Reclassified from AOCI into
Income
(Effective Portion*)
Amount of (Loss) Gain Reclassified from
AOCI into Income (Effective Portion*)
2019
2020
2018
Interest rate swaps
$(6,130)
$(6,540)
$6,095
Interest expense
$(650)
$2,402
$1,042
*
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 ($41,039). The credit facility matures in December 2020 and the Company intends to extend this facility. Outstanding borrowings
under the credit facility totaled €18.9 million ($22,166) and €12.8 million ($14,024) at September 30, 2020 and 2019, respectively. The weighted-average interest rate on
outstanding borrowings under this facility was 1.25% at September 30, 2020 and 2019.
The Company’s German subsidiary, Matthews Europe GmbH, had € 15.0 million ($16,376 at September 30, 2019) of senior unsecured notes with European banks. The notes
matured in November 2019 at which point they were paid. The weighted-average interest rate on the notes at September 30, 2019 was 1.40%.
Finance lease liabilities included as a component of debt totaled 9,684 and 3,631 at September 30, 2020 and 2019, respectively. Other borrowings totaled $20,742 and $395 at
September 30, 2020 and 2019, respectively. The weighted-average interest rate on these outstanding borrowings was 2.10% and 2.17% at September 30, 2020 and 2019,
respectively.
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $4,377 (net of income taxes of $1,420) and
currency gains 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 fiscal 2020 and 2019, respectively.
In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($11,032 at September 30, 2020) with respect
to a performance guarantee on an incineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with
the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer,
the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to
the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On
June 14, 2016, the U.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 continues to pursue a trial on the merits in Saudi Arabia; however, given the recent coronavirus disease
2019 ("COVID-19") pandemic, the case has been further delayed. As the Company has successfully completed the project and subsequently operated the equipment, the
Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts
following completion of that trial. However, the Company’s level of success in recovering funds from the customer will depend upon several 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 support of the Saudi Arabian government to
enforce a potential judgment against the customer.
During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company
was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, as of
the filing of this report, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered
collectively with the potential delay in completing the trial and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of
June 30, 2020. The funded letter of credit was previously classified within other assets on the Consolidated Balance Sheet as of September 30, 2019. The Company will
continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.
55
9. LONG-TERM DEBT, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
As of September 30, 2020 and 2019 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, 2020.
Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows:
2021
2022
2023
2024
2025
Thereafter
Finance lease obligations
$
$
(a)
(b)
55,564
68,650
979
979
395,816
302,862
824,850
9,684
834,534
(a)
The Company maintains certain debt facilities with current maturity dates in fiscal 2021 that it intends and has the ability to extend beyond fiscal 2021 totaling $ 32,255. These balances have been classified
as non-current on the Company's Consolidated Balance Sheet.
(b)
Aggregate maturities of finance lease obligations can be found in Note 10, "Leases."
10. LEASES:
The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment. Effective October 1, 2019, ROU assets and
corresponding lease liabilities are recorded on the Consolidated Balance Sheet. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous
lease accounting guidance under GAAP. The following table presents the balance sheet and lease classification for the Company's lease portfolio:
Balance Sheet Classification
Non-current assets:
Property, plant and equipment, net
Other assets
Total lease assets
Current liabilities:
Long-term debt, current maturities
Other current liabilities
Non-current liabilities:
Long-term debt
Other liabilities
Total lease liabilities
Lease Classification
September 30, 2020
$
$
$
$
9,185
72,011
81,196
3,515
23,942
6,169
49,297
82,923
Finance
Operating
Finance
Operating
Finance
Operating
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
10. LEASES, (continued)
The following table presents the components of lease cost:
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
(a)
Operating lease cost
(a)
Variable lease cost
Sublease income
Total lease cost
(a)
Annual lease cost under operating leases were $ 29,033, $38,015 and $ 38,934 in fiscal 2020, 2019 and 2018, respectively.
Supplemental information regarding the Company's leases follows:
Cash paid for finance and operating lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
ROU assets obtained in exchange for new finance lease liabilities
ROU assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term - finance leases (years)
Weighted-average remaining lease term - operating leases (years)
Weighted-discount rate - finance leases
Weighted-discount rate - operating leases
Maturities of lease obligations by fiscal year were as follows as of September 30, 2020:
Operating Leases
Finance Leases
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: Interest
Present value of lease liabilities:
$
$
25,804 $
18,973
12,939
8,706
5,515
5,224
77,161
3,922
73,239 $
57
For the Year Ended September
30, 2020
$
$
2,112
206
23,735
5,298
(732)
30,619
For the Year Ended September
30, 2020
$
$
$
$
$
207
29,309
2,064
2,613
12,442
September 30, 2020
4.39
3.52
2.89 %
2.82 %
3,847
2,877
1,168
462
407
1,753
10,514
830
9,684
11. SHAREHOLDERS' EQUITY:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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 538,736 shares remain available for repurchase as of September 30, 2020.
12. 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, 2020, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive
Plan. 565,860 restricted share units have been granted under the 2017 Equity Incentive Plan and are outstanding as of September 30, 2020. The 2017 Equity Incentive Plan is
administered by the Compensation Committee of the Board of Directors.
With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon
the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined
levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date.
Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following
voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares.
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 thirty-eight 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.
For the years ended September 30, 2020, 2019 and 2018, stock-based compensation cost totaled $8,096, $7,729 and $13,460, respectively. The years ended September 30,
2020, 2019, and 2018 included $1,564, $1,849, and $2,850 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 $1,665, $1,535 and $2,826 for the years ended September 30, 2020, 2019 and 2018, respectively.
The transactions for restricted shares and restricted share units for the year ended September 30, 2020 were as follows:
Non-vested at September 30, 2019
Granted
Vested
Expired or forfeited
Non-vested at September 30, 2020
Weighted-
average
Grant-date
Fair Value
49.61
34.97
64.08
55.65
40.88
Shares
615,635 $
303,660
(128,795)
(40,178)
750,322 $
As of September 30, 2020, the total unrecognized compensation cost related to unvested restricted stock was $9,122 which is expected to be recognized over a weighted-average
period of 1.8 years.
58
12. SHARE-BASED PAYMENTS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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"). 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 2020, either cash or shares of the Company's
Class A Common Stock with a value equal to $ 85. The annual retainer fee for fiscal 2020 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 30,764 shares and share units had been deferred under the Director Fee Plans
at September 30, 2020. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted
shares or units) with a value of $125 for fiscal year 2020. 241,378 restricted shares and restricted share units have been granted under the Director Fee Plans, 68,149 of which
were issued under the 2019 Director Fee Plan and are unvested at September 30, 2020.
13. 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
2020
2019
2018
$
(87,155) $
(37,988) $
107,371
31,190
—
31,190
31,416
—
31,416
31,674
187
31,861
Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal year ended September 30, 2018.
59
14. PENSION AND OTHER POSTRETIREMENT PLANS:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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, 2020 and 2019:
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Exchange loss (gain)
Benefit payments
Benefit obligation, end of year
Change in plan assets:
(1)
Fair value, beginning of year
Actual return
Benefit payments
Employer contributions
(1)
Fair value, end of year
(1)
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
2020
2019
Other Postretirement
2019
2020
289,957 $
8,679
7,735
23,827
799
(12,110)
318,887
155,313
8,705
(12,110)
16,226
168,134
241,553 $
7,998
9,202
43,198
(581)
(11,413)
289,957
158,662
6,852
(11,413)
1,212
155,313
(150,753)
110,971
343
(39,439) $
(134,644)
95,741
(367)
(39,270) $
(905) $
(149,848)
111,314
(39,439) $
(882) $
(133,762)
95,374
(39,270) $
20,952 $
227
501
(1,402)
—
(847)
19,431
—
—
(847)
847
—
(19,431)
676
(2,048)
(20,803) $
(831) $
(18,600)
(1,372)
(20,803) $
18,826
244
718
2,212
—
(1,048)
20,952
—
—
(1,048)
1,048
—
(20,952)
(106)
(330)
(21,388)
(989)
(19,963)
(436)
(21,388)
110,971 $
343
111,314 $
95,741 $
(367)
95,374 $
676 $
(2,048)
(1,372) $
(106)
(330)
(436)
$
$
$
$
$
$
(1)
The fair value of plan assets and funded status do not include the value of investments held in trust for the Company's non-qualified supplemental retirement plan. These investments totaled $24,610 and
$22,986 as of September 30, 2020 and 2019, respectively. Refer to Note 7, "Investments" for further details.
60
14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
Based upon actuarial valuations performed as of September 30, 2020 and 2019, the accumulated benefit obligation for the Company's defined benefit pension plans was
$295,674 and $270,140 at September 30, 2020 and 2019, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $318,887 and
$289,957 at September 30, 2020 and 2019, 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
2020
Pension
2019
2018
2020
Other Postretirement
2019
2018
$
$
8,679 $
7,735
(10,214)
(186)
9,767
15,781 $
7,998 $
9,202
(10,304)
(186)
4,245
10,955 $
8,159 $
8,210
(10,136)
(138)
7,018
13,113 $
227 $
501
—
(464)
—
264 $
244 $
718
—
(195)
(59)
708 $
335
631
—
(195)
—
771
*
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 funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding
measures associated with IRS regulations. In accordance with this bill, the Company was not required to make contributions to its principal retirement plan in fiscal 2020.
However, the Company contributed 668,000 shares of its Class A Common Stock to its principal retirement plan during the fourth quarter of fiscal 2020. The shares had a
market value of approximately $14,983 at the time of the contribution. The Company is required to make contributions of approximately $4,191 to its principal retirement plan
in fiscal 2021.
Contributions made in fiscal 2020 are as follows:
Contributions
Principal retirement plan *
Supplemental retirement plan
Other retirement plans
Other postretirement plan
* Amount represents contribution of Matthews Class A Common Stock (see above).
Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2021 include:
Net actuarial loss
Prior service cost
$
$
Pension
Other Postretirement
14,983 $
821
422
—
Other
Postretirement
Benefits
Pension
Benefits
12,076 $
(68)
—
—
—
847
—
(364)
61
14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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 2020, 2019 and 2018. The weighted-average assumptions for those plans were:
Discount rate
Return on plan assets
Compensation increase
2020
2.62 %
6.75 %
3.50 %
Pension
2019
3.13 %
6.75 %
3.50 %
2018
2020
Other Postretirement
2019
2018
4.21 %
6.75 %
3.50 %
2.63 %
—
—
3.10 %
—
—
4.19 %
—
—
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 2020, 2019 and
2018, 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, 2020 and 2019 and weighted-average target allocation were as follows:
Asset Category
Equity securities
Fixed income, cash and cash equivalents
Other investments
*
Target allocation relates to the Company's primary defined benefit pension plan as of September 30, 2020.
Plan Assets at
2020
2019
Target
Allocation
*
$
$
118,677 $
34,184
15,273
168,134 $
105,297
39,156
10,860
155,313
65 %
25 %
10 %
100 %
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 2020 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, "Fair Value Measurements" 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.
62
14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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.
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, 2020 and 2019 were as follows:
(1)
Asset Category
Equity securities - stocks
Equity securities - mutual funds
Fixed income securities
Cash and cash equivalents
Other investments
Total
(1)
Includes $14,936 of of Matthews Class A Common Stock in Level 1.
Asset Category
Equity securities - stocks
Equity securities - mutual funds
Fixed income securities
Cash and cash equivalents
Other investments
Total
September 30, 2020
Level 1
Level 2
Level 3
Total
37,089 $
81,588
11,738
2,360
—
132,775 $
— $
—
20,086
—
—
20,086 $
— $
—
—
—
15,273
15,273 $
37,089
81,588
31,824
2,360
15,273
168,134
September 30, 2019
Level 1
Level 2
Level 3
Total
54,985 $
50,312
15,829
4,359
—
125,485 $
— $
—
18,968
—
—
18,968 $
— $
—
—
—
10,860
10,860 $
54,985
50,312
34,797
4,359
10,860
155,313
$
$
$
$
Changes in the fair value of Level 3 assets at September 30, 2020 and 2019 are summarized as follows:
Asset Category
Fair Value,
Beginning of Period
Acquisitions
Dispositions
Realized Gains
Unrealized Gains
(Losses)
Fair Value, End
of Period
Other investments:
Fiscal Year Ended:
September 30, 2020
September 30, 2019
$
10,860 $
10,115
10,835 $
4,162
(6,326) $
(2,786)
220 $
685
(316) $
(1,316)
15,273
10,860
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Benefit payments expected to be paid are as follows:
Years ending September 30:
2021
2022
2023
2024
2025
2026-2030
Pension Benefits
Other Postretirement
Benefits
$
$
11,363 $
12,302
12,630
14,138
14,252
78,163
142,848 $
831
858
887
910
931
4,557
8,974
For measurement purposes, a rate of increase of 7.0% in the per capita cost of health care benefits was assumed for 2021; 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, 2020 by $50 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the year then ended by $3. 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, 2020 by $46 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $3.
The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $8,692, $8,176, and
$8,685 for the fiscal years ended September 30, 2020, 2019 and 2018, respectively.
64
15. ACCUMULATED OTHER COMPREHENSIVE INCOME:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
The changes in AOCI by component, net of tax, for the years ended September 30, 2020, 2019, and 2018 were as follows:
Postretirement
Benefit Plans
Currency
Translation
Adjustment
Derivatives
Total
Attributable to Matthews:
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
OCI before reclassification
Amounts reclassified from AOCI
Net current-period OCI
Balance, September 30, 2020
Attributable to noncontrolling interest:
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
OCI before reclassification
Net current-period OCI
Balance, September 30, 2020
$
$
$
$
$
$
(43,623)
10,584
5,047
15,631
(9,884)
(37,876)
(36,784)
2,917
(33,867)
(71,743)
(18,094)
6,883
(11,211)
(82,954)
(a)
(c)
(a)
(a)
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
(112,907)
(22,053)
—
(22,053)
—
(134,960)
(21,254)
—
(21,254)
(156,214)
4,333
—
4,333
(151,881)
396
71
71
467
(92)
(92)
375
(7)
(7)
368
$
$
$
$
$
$
2,415
6,095
(1,042)
5,053
1,070
8,538
(6,540)
(2,402)
(8,942)
(404)
(6,130)
650
(5,480)
(5,884)
(b)
(c)
(b)
(b)
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
(154,115)
(5,374)
4,005
(1,369)
(8,814)
(164,298)
(64,578)
515
(64,063)
(228,361)
(19,891)
7,533
(12,358)
(240,719)
396
71
71
467
(92)
(92)
375
(7)
(7)
368
(a)
(b)
(c)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 14).
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).
Accumulated other comprehensive loss at September 30, 2020 and 2019 consisted of the following:
Cumulative foreign currency translation
Fair value of derivatives, net of tax of $1,908 and $131, respectively
Minimum pension liabilities, net of tax of $26,988 and $23,195, respectively
2020
2019
$
$
(151,881) $
(5,884)
(82,954)
(240,719) $
(156,214)
(404)
(71,743)
(228,361)
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15. ACCUMULATED OTHER COMPREHENSIVE INCOME, (continued)
Reclassifications out of AOCI for the years ended September 30, 2020, 2019 and 2018 were as follows:
Details about AOCI Components
September 30, 2020
September 30, 2019
September 30, 2018
Affected line item in the Statement of
Income
Postretirement benefit plans
Prior service (cost) credit
Actuarial losses
(a)
(a)
Derivatives
Interest rate swap contracts
$
$
$
$
650 $
(9,767)
(9,117)
2,234
(6,883) $
(861) $
(861)
211
(650) $
381 $
(4,245)
(3,864)
947
(2,917) $
3,181 $
3,181
(779)
2,402 $
333
(7,018)
(6,685)
1,638
(5,047) Net income
Income before income tax
Income taxes
(b)
Interest expense
Income before income tax
Income taxes
1,380
1,380
(338)
1,042 Net income
(b)
(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 14.
For pre-tax items, positive amounts represent income and negative amounts represent expense.
16. INCOME TAXES:
The income tax (benefit) provision consisted of the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
2020
2019
2018
$
$
(12,354) $
(1,030)
11,306
(2,078)
4,710
2,880
(24,197)
(16,607)
(18,685) $
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)
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 fiscal 2019 and fiscal 2020. 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.
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 has calculated that no provision for GILTI tax expense was
required in fiscal 2019 or fiscal 2020.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
16. INCOME TAXES, (continued)
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
Tax rate differential on net operating loss carryback
Other
Effective tax rate
2020
2019
2018
21.0 %
(1.9)%
3.4 %
(1.4)%
— %
1.8 %
— %
— %
— %
(9.4)%
4.2 %
(0.1)%
17.6 %
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)%
The Company's consolidated income taxes for the year ended September 30, 2020 were a benefit of $18,685, compared to an expense of $806 for fiscal 2019, and a benefit of
$9,118 for fiscal 2018. The difference between the Company's consolidated income taxes for fiscal 2020 versus fiscal 2019 primarily resulted from the fiscal 2020 consolidated
loss before income taxes, which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, which was partially non-deductible, as well as a benefit for an
expected net operating loss (“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory tax rate of
35%. The Company’s fiscal 2020 effective tax rate was negatively affected by the non-deductible portion of the goodwill write-down along with certain other non-deductible
expenses. The fiscal 2020 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the completion of a
foreign tax audit, and the tax benefit of the NOL carryback. 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, as well as a goodwill impairment in fiscal 2019 that was not tax deductible. The fiscal 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 loss before income taxes for the year ended September 30, 2020 and income before income taxes for the years ended September 30,
2019 and 2018 of approximately $68,343, $11,042 and $56,424, 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, 2020, undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $383,423.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
16. INCOME TAXES, (continued)
The components of deferred tax assets and liabilities at September 30, 2020 and 2019 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
Total deferred tax liabilities
Net deferred tax liability
$
2020
2019
39,705 $
12,258
5,308
34,146
4,062
8,376
103,855
(22,527)
81,328
(27,671)
389
(123,259)
(5,941)
(156,482)
37,587
10,400
3,204
21,896
4,778
5,381
83,246
(15,352)
67,894
(24,792)
(565)
(138,952)
(1,035)
(165,344)
$
(75,154) $
(97,450)
At September 30, 2020, the Company had foreign net operating loss carryforwards of $101,994 and foreign capital loss carryforwards of $20,119. The Company has recorded
deferred tax assets of $2,189 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 2021. Certain of the foreign net operating losses begin to expire in 2021 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 $22,527 at September 30, 2020.
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
2020
2019
2018
$
$
15,526 $
500
(2,727)
939
(3,755)
10,483 $
14,827 $
—
—
1,420
(721)
15,526 $
7,968
7,886
—
882
(1,909)
14,827
The Company had unrecognized tax benefits of $7,066 at September 30, 2020, which would impact the annual effective tax rate. It is reasonably possible that the amount of
unrecognized tax benefits could decrease by approximately $7,803 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 $2,172 and
$2,880 at September 30, 2020 and 2019, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.
68
16. INCOME TAXES, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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, 2020, the tax years that remain subject to examination by major jurisdiction generally are:
2017 and forward
United States - Federal
2016 and forward
United States - State
2016 and forward
Canada
2019 and forward
Germany
2019 and forward
United Kingdom
2015 and forward
Australia
2016 and forward
Singapore
17. COMMITMENTS AND CONTINGENT LIABILITIES:
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 2021 and 2025. 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, 2020 was $6,723.
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
2020
2019
2018
$
$
24,055 $
5,976
(14,803)
15,228
8,363
15,512
(2,384)
9,648
31,139
46,367 $
8,779 $
830
10,317
19,926
3,715
(8,832)
(5,416)
(21,875)
(32,408)
(12,482) $
(790)
(2,869)
(16,293)
(19,952)
2,516
(10,940)
(9,973)
28,415
10,018
(9,934)
69
19. SEGMENT INFORMATION:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists
of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and
marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and
other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies
segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and
conveying consumer and industrial products.
The Company's primary measure of segment profitability is 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 does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the
Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational
support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are
not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling
interest to the segments. The 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).
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
19. SEGMENT INFORMATION, (continued)
Information about the Company's segments follows:
Sales to external customers:
2020
2019
2018
Intersegment sales:
2020
2019
2018
Depreciation and amortization:
2020
2019
2018
Adjusted EBITDA:
2020
2019
2018
Total assets:
2020
2019
2018
Capital expenditures:
2020
2019
2018
SGK Brand
Solutions
Memorialization
Industrial
Technologies
Corporate and Non-
Operating
Consolidated
$
693,093 $
743,869
805,274
656,035 $
636,892
631,392
149,178 $
156,515
165,914
— $
—
—
1,498,306
1,537,276
1,602,580
29
703
310
87,597
59,684
46,300
90,644
119,493
150,233
1,014,097
1,106,276
1,285,053
20,250
22,310
22,133
4
25
2
20,527
19,731
20,005
146,285
134,286
145,487
779,886
830,377
814,800
11,282
9,352
15,513
71
281
48
9
5,771
6,195
5,796
22,753
24,082
25,864
192,948
191,533
196,855
1,598
2,382
2,577
—
—
—
5,163
5,183
4,873
(56,602)
(56,989)
(66,470)
85,702
62,417
61,036
1,719
3,644
2,977
314
776
321
119,058
90,793
76,974
203,080
220,872
255,114
2,072,633
2,190,603
2,357,744
34,849
37,688
43,200
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
(1)**
(4)
(3)**
(2)**
Acquisition costs
ERP integration costs
Strategic initiatives and other charges
Legal matter reserve
Non-recurring / incremental COVID-19 costs
(6)
Goodwill write-downs
Net realized gains (losses) on divestitures and asset dispositions:
Gain (loss) on sale of ownership interests in subsidiaries
Realized (loss) gain on cost-method investments
Net gains from the sale of buildings and vacant properties
(5)
(7)
(8)
(9)
(10)
Joint Venture depreciation, amortization, interest expense and other charges
Stock-based compensation
Non-service pension and postretirement expense
*
Depreciation and amortization
Interest expense
Net loss attributable to noncontrolling interests
(Loss) income before income taxes
Income tax benefit (provision)
Net (loss) income
(11)
2020
2019
2018
203,080 $
220,872 $
255,114
(3,844) $
(2,296)
(33,799)
(10,566)
(4,655)
(90,408)
11,208
—
—
(4,732)
(8,096)
(7,789)
(119,058)
(34,885)
(497)
(106,337)
18,685
(87,652) $
(10,872) $
(7,508)
(13,449)
—
—
(77,572)
(6,469)
(4,731)
7,347
(1,514)
(7,729)
(3,802)
(90,793)
(40,962)
(901)
(38,083)
(806)
(38,889) $
(10,918)
(10,864)
(5,266)
—
—
—
—
3,771
—
—
(13,460)
(5,723)
(76,974)
(37,427)
(260)
97,993
9,118
107,111
$
$
$
(4)
(1)
(2)
(7)
(3)
Includes certain non-recurring costs associated with recent acquisition activities.
Represents costs associated with global ERP system integration efforts.
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.
Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 9, "Long Term Debt").
Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and
(5)
cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19.
(6)
Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 21, "Goodwill and Other Intangible Assets").
Represents the gain (loss) on the sale of ownership interests in subsidiaries within the Memorialization segment.
Includes gains/losses related to cost-method investments, and related assets, within the SGK Brand Solutions and Memorialization segments.
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
Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method
(9)
Memorialization segments, respectively.
(10)
investments within the Memorialization segment.
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
(11)
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.
(8)
* Depreciation and amortization was $ 87,597, $59,684, and $ 46,300 for the SGK Brand Solutions segment, $ 20,527, $19,731, and $ 20,005 for the Memorialization segment, $5,771, $6,195, and $ 5,796 for the
Industrial Technologies segment, and $5,163, $5,183, and $ 4,873 for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 13,990, $8,903, and $ 11,044 for the SGK Brand Solutions segment, $ 268, $3,073, and $ 613 for the Industrial
Technologies segment, and $22,985, $19,853, and $ 13,961 for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018, respectively. Acquisition costs, ERP integration
costs, and strategic initiatives and other charges were $2,696, and $ 1,430 for the Memorialization segment for the fiscal years ended September 30, 2020, and 2018, respectively.
72
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:
2020
$
2019
2018
Long-lived assets:
2020
2019
2018
1,037,705 $
1,038,268
1,066,367
957,393
1,047,505
1,182,250
6,304 $
5,853
6,171
387,831 $
426,253
456,078
14,063
15,585
16,535
286,990
342,802
365,455
21,079 $
20,885
23,276
21,746
21,278
23,037
45,387 $
46,017
50,688
55,482
57,729
58,302
1,498,306
1,537,276
1,602,580
1,335,674
1,484,899
1,645,579
20. ACQUISITIONS AND DIVESTITURES:
Fiscal 2020:
During the fourth quarter of fiscal 2020, the Company completed a small acquisition in the Memorialization segment for a purchase price of $1,000 (net of cash acquired and
holdback amounts, subject to working capital adjustments). The preliminary purchase price allocation is not finalized as of September 30, 2020 and is subject to changes as the
Company obtains additional information related to fixed assets and other assets, and liabilities.
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). 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). The Company finalized the purchase price allocations related to these acquisitions in the first quarter of fiscal 2020, resulting in an immaterial adjustment to certain
working capital accounts.
During fiscal 2019, the Company completed the sale of a 51% ownership interest in a small Memorialization business. Net proceeds from this sale totaled approximately $8,254,
and the transaction resulted in the recognition of a $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. 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.
73
20. ACQUISITIONS AND DIVESTITURES, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
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.
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 these acquisitions during fiscal 2019 and 2018 resulting in immaterial adjustments to certain working capital accounts.
21. GOODWILL AND OTHER INTANGIBLE ASSETS:
Changes to goodwill during the years ended September 30, 2020 and 2019, follow.
SGK Brand Solutions
Memorialization
Industrial Technologies
Consolidated
Net goodwill at September 30, 2018
Additions during period
Divestiture during period
Translation and other adjustments
Goodwill write-down
Net goodwill at September 30, 2019
Translation and other adjustments
Goodwill write-down
Net goodwill at September 30, 2020
$
$
485,318 $
1,506
—
(13,548)
(77,572)
395,704
6,441
(90,408)
311,737 $
371,550 $
3,592
(14,970)
(435)
—
359,737
1,945
—
361,682 $
92,026 $
—
—
(660)
—
91,366
603
—
91,969 $
948,894
5,098
(14,970)
(14,643)
(77,572)
846,807
8,989
(90,408)
765,388
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.
The net goodwill balances at September 30, 2020 and 2019 included $178,732 and $88,324 of accumulated impairment losses, respectively. Accumulated impairment losses at
September 30, 2020 were $173,732 and $5,000 for the SGK Brand Solutions and Memorialization segments, respectively. Accumulated impairment losses at September 30,
2019 were $83,324 and $5,000 for the SGK Brand Solutions and Memorialization segments, respectively.
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2020 (January 1, 2020) and determined
that the estimated fair values for all goodwill reporting units exceeded their carrying values. The estimated fair values for two reporting units within the SGK Brand Solutions
segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded their carrying values (expressed as a percentage of carrying value) by less than 10% as
of January 1, 2020.
On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently
recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from
spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the
Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has
experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.
In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess
fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for
its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March
74
21. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
31, 2020. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $90,408 during the fiscal 2020 second quarter. Subsequent to this write-
down, the fair values of the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated
their carrying values at March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA
contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. If current
projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry impacts of COVID-19)
significantly change, additional goodwill write-downs may be necessary in future periods.
During the fourth quarter of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the SGK Brand Solutions segment as a result of
continued challenging market conditions affecting the segment. 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.
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of September 30, 2020 and 2019, respectively.
September 30, 2020
Indefinite-lived trade names
Definite-lived trade names
Customer relationships
Copyrights/patents/other
September 30, 2019
Indefinite-lived trade names
Definite-lived trade names
Customer relationships
Copyrights/patents/other
Carrying
Amount
Accumulated
Amortization
Net
$
$
$
$
30,540
148,867
379,246
20,704
579,357
30,540
148,628
374,515
20,463
574,146
$
$
$
$
—
(64,462)
(166,892)
(14,505)
(245,859)
—
(22,653)
(137,330)
(13,513)
(173,496)
$
$
$
$
30,540
84,405
212,354
6,199
333,498
30,540
125,975
237,185
6,950
400,650
The net change in intangible assets during fiscal 2020 included a small acquisition, the impact of foreign currency fluctuations during the period, and additional amortization.
During 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 reflect 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 $71,514, $45,756, and $31,562 in fiscal 2020, 2019 and 2018, respectively. Fiscal year amortization expense is estimated to be
approximately $60,448 in 2021, $47,046 in 2022, $28,165 in 2023, $26,458 in 2024 and $24,472 in 2025.
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 2020 and fiscal 2019.
Quarter Ended
December 31
March 31
June 30
(Dollar amounts in thousands, except per share data)
September 30
Year Ended
September 30
Fiscal Year 2020
Sales
Gross profit
$
364,944 $
374,800 $
359,422 $
399,140 $
1,498,306
115,727
124,764
120,953
136,325
497,769
Operating (loss) profit
(4,943)
(85,097)
Net (loss) income attributable to Matthews shareholders
(10,466)
(86,364)
5,246
2,269
20,601
7,406
(Loss) earnings per share:
Basic
Diluted
Fiscal Year 2019:
Sales
Gross profit
Operating profit (loss)
Net income (loss) attributable to Matthews shareholders
Earnings (loss) per share:
Basic
Diluted
$
$
$
(64,193)
(87,155)
(2.79)
(2.79)
(0.34) $
(0.34)
(2.77) $
(2.77)
0.07 $
0.07
0.24 $
0.24
374,177 $
391,400 $
379,294 $
392,405 $
1,537,276
126,411
136,281
137,178
142,596
542,466
16,166
3,097
24,264
15,417
29,691
14,629
(59,818)
(71,131)
0.10 $
0.10
0.49 $
0.48
0.47 $
0.46
(2.28) $
(2.28)
10,303
(37,988)
(1.21)
(1.21)
76
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Description
Allowance for Doubtful Accounts:
Fiscal Year Ended:
September 30, 2020
September 30, 2019
September 30, 2018
Balance at
Beginning of Period
Charged to
Expense
Charged to other
Accounts
(1)
Deductions
(2)
Balance at End of
Period
(Dollar amounts in thousands)
Additions
$
10,846 $
11,158
11,622
1,736 $
2,787
855
$
15
20
762
(2,979) $
(3,119)
(2,081)
9,618
10,846
11,158
(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
Deferred Tax Asset Valuation Allowance:
Fiscal Year Ended:
September 30, 2020
September 30, 2019
September 30, 2018
Balance at
Beginning of
Period
Provision Charged
(Credited) To
Expense
(1)
Allowance Changes
(2)
Other Additions
(3)
(Deductions)
Balance at End of
Period
(Dollar amounts in thousands)
$
15,352 $
15,188
21,917
6,982 $
821
2,482
— $
—
(8,510)
$
193
(657)
(701)
22,527
15,352
15,188
(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, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2020, the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information is accumulated and
communicated to management, including the Chief Executive Officer and Chief Financial Officer, and that such information is recorded, 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, 2020 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, 2020 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 "Delinquent Section 16(a) Reports" 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, 2020.
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, 2020. The
information contained in the "Compensation Committee Report" is specifically not incorporated herein by reference.
79
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, 2020.
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, 2020, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan. 565,860 restricted share units have been
granted under the 2017 Equity Incentive Plan and are outstanding as of September 30, 2020. 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 thirty-eight 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.
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").
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 2020, 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 2020 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 30,764 shares and share units had been deferred under the Director Fee Plans
at September 30, 2020. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted
shares or units) with a value of $125,000 for fiscal year 2020. 241,378 restricted shares and restricted share units have been granted under the Director Fee Plans, 68,149 of
which were issued under the 2019 Director Fee Plan and are unvested at September 30, 2020.
80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued
The following table provides information about grants under the Company's equity compensation plans as of September 30, 2020:
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
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)
30,764
None
30,764
$
$
—
None
—
(1)
3,263,225
None
3,263,225
(1)
Includes (1) the 2017 Equity Incentive Plan, which provides for the grant or award of stock options, restricted shares, stock-based performance units and certain other types of stock based awards; (2) the
2019 Director Fee Plan, which provides for the grant, award or deferral of stock options, restricted shares, stock-based performance units and certain other types of stock based awards and compensation; and
(3) the shares purchased under the Employee Stock Purchase Plan which 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,
2020.
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, 2020.
81
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, 2020 and 2019
Consolidated Statements of Income for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018
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
82
Pages
34
35
36
38
40
41
42
43
44
76
77
83
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
4.5
4.6
10.1
10.2
10.3 a
10.4 a
10.5 a
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
Registration Rights Agreement
Exhibit Number 10.1 to the Current Report on Form 8-K filed on
September 25, 2020
Description of Securities
Filed Herewith
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*
Exhibit Number 10.2 to the Current Report on Form 8-K filed on March
19, 2014
Employment Agreement as of the 29th day of July 2014, by and
between Matthews International Corporation, a Pennsylvania
corporation, and David Schawk
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
10.6 a
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
83
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
Exhibit No.
Description
Prior Filing or Sequential Page Numbers Herein
10.7 a
10.8 a
10.9 a
10.10 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
Form of Stock Option Agreement*
Form of Restricted Stock Agreement*
Exhibit Number 10.7 to the Annual Report on Form 10-K for the year
ended September 30, 2008
Exhibit Number 10.8 to the Annual Report on Form 10-K for the year
ended September 30, 2008
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
10.11 a
Amended and Restated 2014 Director Fee Plan*
10.12 a
1994 Employee Stock Purchase Plan*
Exhibit Number 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2017
Exhibit Number 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995
10.13 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
10.14 a
2012 Equity Incentive Plan*
10.15 a
2015 Incentive Compensation Plan*
10.16 a
2017 Equity Incentive Plan*
Exhibit A to the Definitive Proxy Statement on Schedule 14A filed on
January 22, 2013
Exhibit A to the Definitive Proxy Statement on Schedule 14A filed on
January 19, 2016
Exhibit Number 99.1 to the Registration Statement on Form S-8 filed on
May 3, 2019
10.17 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
10.18 a
2019 Director Fee Plan*
Exhibit Number 99.3 to the Registration Statement on Form S-8 filed on
May 3, 2019
10.19 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
10.20 a
Form of Change in Control Agreement*
Exhibit Number 10.1 to Current Report on Form 8-K filed on October 3,
2019
10.21
Third Amended and Restated Loan Agreement*
Exhibit Number 10.1 to the Current Report on Form 8-K filed on March
30, 2020
14.1
21
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
84
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
Exhibit No.
Description
Prior Filing or Sequential Page Numbers Herein
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104.
Consent of Independent Registered Public Accounting Firm
Filed Herewith
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
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
Furnished Herewith
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
XBRL Taxonomy Extension Schema
Filed Herewith
XBRL Taxonomy Extension Calculation Linkbase
Filed Herewith
XBRL Taxonomy Extension Definition Linkbase
Filed Herewith
XBRL Taxonomy Extension Label Linkbase
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XBRL Taxonomy Extension Presentation Linkbase
Filed Herewith
Cover Page Interactive Data File (Embedded within the Inline XBRL
document and included in Exhibit 101)
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.
85
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 20, 2020.
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 20, 2020:
/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/ Alvaro Garcia-Tunon
Alvaro Garcia-Tunon, Director
/s/ Gregory S. Babe
Gregory S. Babe, Director
/s/ Katherine E. Dietze
Katherine E. Dietze, Director
/s/ Terry L. Dunlap
Terry L. Dunlap, Director
/s/ Lillian D. Etzkorn
Lillian D. Etzkorn, Director
/s/ Morgan K. O'Brien
Morgan K. O'Brien, Director
/s/ Don W. Quigley, Jr.
Don W. Quigley, Jr., Director
/s/ David A. Schawk
David A. Schawk, Director
/s/ Jerry R. Whitaker
Jerry R. Whitaker, Director
86
EXHIBIT 4.6
DESCRIPTION OF THE SECURITIES
OF MATTHEWS INTERNATIONAL CORPORATION
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Matthews International Corporation (the “Company,” “we” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended: our Class A Common Stock (our “common stock”)
The following description of our capital stock, including our common stock, is not complete and is qualified in its entirety by reference to, the Company's Restated
Articles of Incorporation (the “Company Articles”) and the Company’s Restated By-Laws (the “Company Bylaws”), each of which is filed with or incorporated by reference as
an exhibit to our Annual Report on Form 10-K. For additional information, please read the Company Articles, Company Bylaws, and the applicable provisions of the
Pennsylvania Business Corporation Law (the “PBCL”).
General
Under the Company Articles, the Company is authorized to issue 100,000,000 shares of common stock, $1.00 par value per share, and 10,000 shares of preferred
stock, $100.00 par value per share. 70,000,000 shares of the Company’s common stock are designated as Class A Common Stock and 30,000,000 shares of the Company’s
common stock are designated as Class B Common Stock.
As of October 31, 2020, there are approximately 31,339,703 shares of Class A Common Stock issued and outstanding, no shares of Class B Common Stock issued and
outstanding (and were previously converted into shares of Class A Common Stock upon such date that the Class B Common Stock represented fewer than 5% of the
outstanding shares of our common stock), and no shares of preferred stock issued and outstanding.
The Company's Class A Common Stock
Voting Rights
Each share of the Company's common stock is entitled to one vote on all matters requiring a vote of shareholders. Shareholders do not have cumulative voting rights in
elections of directors. The Company's board of directors (the “Company Board”) has fixed the number of directors constituting the full Company Board at ten, divided into three
classes. The terms of office of the three classes of directors end in successive years. A director nominee will be elected to the Company Board at a meeting of shareholders if the
votes cast "for" such nominee exceed the votes cast "against" such nominee (excluding abstentions), unless the number of nominees exceeds the number of directors to be
elected, in which case the nominees receiving the highest number of votes up to the number of directors to be elected will be elected. However, in the event a nominee does not
receive a majority of votes cast, such director is required under our Corporate Governance Guidelines to conditionally resign from the Board. Acceptance of such resignation is
at the discretion of the Company Board.
Dividend Rights
Subject to the rights and preferences of the holders of any outstanding shares of preferred stock, each share of the Company's common stock is entitled to receive any
dividends, in cash, securities or property, as the Company Board may declare. Pennsylvania law prohibits the payment of dividends and the repurchase of capital stock if the
Company is insolvent or if the Company would become insolvent after the dividend or repurchase (unless, in the case of a repurchase, the purchase price is deferred such that
the Company will not become insolvent when it is paid).
Liquidation and Other Rights
In the event of the liquidation, dissolution or winding up, either voluntarily or involuntarily, of the Company, subject to the rights and preferences of the holders of any
outstanding shares of preferred stock, holders of common stock will be entitled to share pro rata in all of the Company's remaining assets available for distribution.
1
EXHIBIT 4.6
Miscellaneous
The holders of the Company's common stock do not have preemptive rights or conversion rights, and there are no redemption or sinking fund provisions applicable to
the Company's common stock. Holders of fully paid shares of the Company's common stock are not subject to any liability for further calls or assessments.
Description of Preferred Stock
Under Pennsylvania law and the Company Articles, the Company Board is authorized to issue shares of preferred stock from time to time in one or more series without
shareholder approval. Subject to limitations prescribed by Pennsylvania law, the Company Articles and the Company Bylaws, the Company Board is able to determine the
number of shares constituting each series of preferred stock and the designation, preferences, qualifications, limitations, restrictions, and special or relative rights or privileges of
that series.
Holders of the Company preferred stock will have no voting rights for the election of directors and have no other voting rights except as the Company Board may
determine pursuant to its authority under the Company Articles with respect to any particular series of the Company preferred stock and except as provided by law.
The particular terms of any series of the Company preferred stock will be set by the Company Board for that series of preferred stock. Those terms may include:
• the distinctive serial designation of such series;
• the annual dividend rate for such series, if any, and the date or dates from which dividends shall commence to accrue; • the redemption price or prices, if any, for shares
of such series and the terms and conditions on which such shares may be redeemed;
• the provisions for a sinking, purchase or similar fund, if any, for the redemption or purchase of shares of such series;
• the preferential amount or amounts payable upon shares of such series in the event of the Company's voluntary or involuntary liquidation;
• the voting rights, if any, of shares of such series;
• the terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of the Company's securities into which such shares
may be converted;
• the relative seniority, parity or junior rank of such series with respect to other series of preferred stock then or thereafter to be issued; and
• any other specific terms, preferences, rights, privileges, limitations or restrictions of such series.
While the terms summarized above may generally apply to any shares of preferred stock that the Company may offer, the Company Board will include the specific
terms of each series of preferred stock in a statement with respect to shares that will be filed with the Pennsylvania Department of State and the Commission.
Anti-Takeover Effect of the Company's Governing Documents and Pennsylvania Business Corporation Law
The Company Articles and the Company Bylaws contain a number of provisions relating to corporate governance and to the rights of the Company shareholders.
Certain of these provisions may have a potential "anti-takeover" effect by delaying, deferring or preventing a change of control of the Company. In addition, certain provisions
of Pennsylvania law may have a similar effect.
Required Vote for Transactions Involving Interested Shareholders
In addition to any other affirmative vote required by law, the Company Articles or otherwise, certain business combination transactions require the affirmative vote of
(x) the holders of at least 80% of the outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company, voting together as a
single class, and (y) the holders of at least a majority of the outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company,
voting together as a single class, which are not beneficially owned by any person which is at such time (i) the beneficial owner, directly or indirectly of more than 15% of the
outstanding shares of the Company capital stock entitled to vote in an annual election of directors of
2
EXHIBIT 4.6
the Company, (ii) an affiliate of the Company and at any time within the two-year period immediately prior to such time was the beneficial owner, directly or indirectly, of more
than 15% of the outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company, or (iii) an assignee of or has otherwise
succeeded to the beneficial ownership of any outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company which were at
any time within the two-year period immediately prior to such time beneficially owned by an interested shareholder (within the meaning of clauses (i) through (iii) hereof) (such
person described in clauses (i) through (iii) is referred to in this prospectus as an interested shareholder), if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering with the meaning of the Securities Act. Such approval shall be required with respect to any of the following
business combination transactions:
•
•
•
•
•
•
Any merger, consolidation or share exchange of the Company or any subsidiary of the Company with (a) any interested shareholder or with (b) any other person
(whether or not itself an interested shareholder) which is, or after such merger, consolidation or share exchange would be, an affiliate or associate of an interested
shareholder or which does not include in its articles of in Company the substance of the terms of the Company Articles, in each case without regard to which person is
surviving person;
Any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a class of transactions) to with or for the benefit of any
interested shareholder or any affiliate or associate of any interested shareholder involving any assets, securities or commitments of the Company or any subsidiary of the
Company having an aggregate fair market value, or involving aggregate commitments, equal to 5% or more of the consolidated total assets of the Company and its
subsidiaries;
The issuance or transfer by the Company or any subsidiary of the Company (in one transaction or a class of transactions) of any securities of the Company or any
subsidiary of the Company to any interested shareholder or any affiliate or associate of any interested shareholder in exchange for cash, securities or other consideration
(or a combination thereof) having an aggregate fair market value equal to 5% or more of the consolidated total assets of the Company and its subsidiaries;
The adoption of any plan or proposal for the liquidation or dissolution of the company proposed by or on behalf of any interested shareholder or any affiliate or associate
of any interested shareholder;
Any reclassification of securities (including any reverse stock split), or recapitalization of the company, or any merger or consolidation of the Company with any of its
subsidiaries or any other transaction (whether or not with or otherwise involving an interested shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the company or any subsidiary of the
Company which is directly or indirectly beneficially owned by any interested shareholder or any affiliate or associate of any interested shareholder; or
Any other transaction or series of transactions similar in purpose or effect to, or any agreement, contract or other arrangement providing for, any one or more of the
transactions specified in the (1) through (5) above.
The affirmative vote of holders of the Company’s voting capital stock with respect to a business combination is not required if such business combination is approved by a
majority of the directors of the Company who are not interested shareholders or an affiliate, associate or representative of an interested shareholder and either (A) was a director
of the Company immediately prior to the time the interested shareholder became an interested shareholder or (B) was a successor to a director described in clause (A) and is
recommended or elected to succeed a disinterested director by a majority of the directors describe in clause (A) (we refer in this prospectus to each such director described in
clauses (A) and (B) as a disinterested director).
Required Vote for Amendment of the Company Articles and the Company Bylaws
Subject to the voting rights given to any particular series of preferred stock by the Company Board, if any, pursuant to the Company Articles, and except as may be
specifically provided to the contrary in any other provision in the Company Articles with respect to amendment or repeal of such provision, the Company Articles cannot be
amended and no provision may be repealed by the Company shareholders without the affirmative vote of the holders of not less than 80% of the voting power of the then
outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company, voting together as a single class, and the holders of at least a
3
EXHIBIT 4.6
majority of the voting power of the then outstanding shares of the Company capital stock entitled to vote in an annual election of directors of the Company which are not
beneficially owned by any interested shareholder, voting together as a single class, unless such action has been previously approved by the affirmative vote of a majority of the
disinterested directors then in office, in which event (unless otherwise expressly provided in the Company Articles) the Company Articles may be amended and any provision
repealed by such shareholder approval as may be specified by law.
The Company Board may make, amend and repeal the Company Bylaws with respect to those matters which are not, by statute, reserved exclusively to the Company
shareholders, subject to the power of the Company shareholders to change such action. No bylaw may be made, amended or repealed by the Company shareholders unless such
action is approved by the affirmative vote of the holders of not less than majority of the voting power of the then outstanding shares of the Company capital stock at a duly
organized meetings of the Company shareholders or as otherwise may be specified by law.
Preferred Stock
The purpose of authorizing the Company Board to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder
vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the Company's outstanding
voting stock. The existence of the authorized but undesignated preferred stock may have a depressive effect on the market price of the Company's common stock.
Anti-Takeover Law Provisions under the Pennsylvania Business Corporation Law
The Company is subject to certain provisions of Chapter 25 of the Pennsylvania Business Corporation Law, which may have the effect of discouraging or rendering
more difficult a hostile takeover attempt against the Company, including Section 2524, Section 2538, Subchapter 25E and Subchapter 25F of the PBCL.
Under Section 2524 of the PBCL, shareholders of the Company cannot act by partial written consent except if permitted under the Company Articles. The Company
Articles do not permit shareholder action by partial written consent.
Section 2538 of the PBCL requires enhanced shareholder approval for certain transactions between the Company and an "interested shareholder" (defined as a
shareholder who is a party to the transaction or is treated differently from other shareholders). Section 2538 applies if an interested shareholder (together with his, her or its
affiliates) is to (i) be a party to a merger or consolidation, a share exchange or certain sales of assets involving the Company or one of the Company's subsidiaries; (ii) receive a
disproportionate amount of any securities of any corporation which survives or results from a division; (iii) be treated differently from others holding shares of the same class in
a voluntary dissolution of such corporation; or (iv) have his or her percentage of voting or economic share interest in such corporation materially increased relative to
substantially all other shareholders in a reclassification. Under these circumstances, the proposed transaction must be approved by the affirmative vote of the holders of shares
representing at least a majority of the votes that all disinterested shareholders are entitled to cast with respect to such transaction. However, this special voting requirement will
not apply where the proposed transaction has been approved in a prescribed manner by the members of the Company Board independent from the interested shareholder or if
certain other conditions, including the amount of consideration to be paid to certain shareholders, are satisfied or the interested shareholder owns 80% or more of the Company.
This voting requirement is in addition to any other voting requirement under the PBCL, the Company Articles or the Company Bylaws.
Under Subchapter 25E of the PBCL, if any person or group acting in concert acquires voting power over shares representing 20% or more of the votes which all of the
Company's shareholders would be entitled to cast in an election of directors, any other shareholder may demand that such person or group purchase such shareholder's shares at
a price determined in an appraisal proceeding.
Under Subchapter 25F of the PBCL, the Company may not engage in a merger, consolidation, share exchange, division, asset sale, disposition (in one transaction or a
series of transactions) or a variety of other business combination transactions with a person who becomes the beneficial owner of shares representing 20% or
4
EXHIBIT 4.6
more of the voting power in an election of the Company's directors unless: (1) the business combination or the acquisition of the 20% interest is approved by the Company
Board prior to the date the 20% interest is acquired; (2) the person beneficially owns at least 80% of the Company's outstanding shares and the business combination (a) is
approved by a majority vote of the disinterested shareholders and (b) satisfies certain minimum price and other conditions prescribed in Subchapter 25F; (3) the business
combination is approved by a majority vote of the disinterested shareholders at a meeting called no earlier than five years after the date the 20% interest is acquired; or (4) the
business combination (a) is approved by shareholder vote at a meeting called no earlier than five years after the date the 20% interest is acquired and (b) satisfies certain
minimum price and other conditions prescribed in Subchapter 25F.
The Company has opted out of Subchapter 25G of the PBCL (which would have required a shareholder vote to accord voting rights to control shares acquired by a
20% shareholder in a control-share acquisition) and Subchapter 25H of the PBCL (which would have required a person or group to disgorge to the Company any profits
received from a sale of the Company's equity securities under certain circumstances).
Advance Notice Requirements
The Company Bylaws require the Company shareholders to provide advance notice if they wish to submit a proposal or nominate candidates for director at the
Company's annual meeting of shareholders. These procedures provide that notice of shareholder proposals and shareholder nominations for the election of directors at the
Company's annual meeting must be in writing and received by the Company's secretary at its principal executive offices at least 75, but not more than 120, days prior to the
anniversary of the date of the prior year's annual meeting of shareholders, provided that with respect to shareholder proposals, in the event the date of the annual meeting is more
than 30 days before or more than 60 days after the first anniversary of the preceding year’s annual meeting, a notice by the shareholder to be timely must be delivered at least
75, but not more than 120, days prior to such annual meeting or the 10th day following the date on which public announcement of the date of such meeting is first made.
Shareholder nominations for election of director must be in writing in accordance with Section 6.1 of the Company Articles, and must include (1) the name and address of the
shareholder who intends to make the nomination and of the person(s) to be nominated; (2) a representation that the shareholder is a holder of record of common stock of the
Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; (3) a description of all
arrangements or understandings between the shareholder and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination or nominations
are to be made by the shareholder; (4) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission, had the nominee been nominated by the Company Board; and (5) the consent of each nominee to serve as a director of the
Company if so elected.
The Company Bylaws do not require the Company to include in its proxy materials for an annual meeting of shareholders any nominations of persons to serve on the
Company Board made by the Company shareholders. The Corporate Governance Committee of the Company Board and the Company Board will consider any candidate for
nominee as a director that is properly submitted by a shareholder in accordance with the Company’s Articles of Incorporation and Bylaws and does not maintain a policy with
regard to such nominations distinct from such requirements.
Special Meetings of Shareholders
The Company Bylaws provide that a special meeting of shareholders may be called by the Company Board or chief executive officer. Only Company shareholders
who hold of record at last 20% of the shares entitled be voted upon any proposal to be considered at such meeting have a right to call a special meeting under the Company
Bylaws.
Special Treatment for Specified Groups of Nonconsenting Shareholders
Additionally, in connection with a plan of merger, plan of interest exchange, plan of conversion, plan of division or plan of domestication, Section 329 and Section
1906 of the PBCL permits holders of shares of a class or series to be separated into one or more groups, if approved by a majority of the votes cast by any class or series of
5
EXHIBIT 4.6
shares any of the shares of which are so classified into groups, to provide mandatory special treatment for the specified groups. Such classification is subject to additional
specific requirements as set forth in Section 329 and Section 1906 of the PBCL. In the way of example, under these provisions of the PBCL, if the requirements are met, shares
of common stock held only by designated shareholders of record, and no other shares of common stock, could be cashed out at a price determined by the company, subject to
applicable dissenters' rights.
Exercise of Director Powers Generally
Section 1715 of the PBCL also provides that the directors of a corporation are not required to regard the interests of the shareholders as being dominant or controlling
in making decisions concerning takeovers or any other matters. The directors may consider, to the extent they deem appropriate, among other things, (1) the effects of any
proposed action upon any or all groups affected by the action, including, among others, shareholders, employees, creditors, customers and suppliers, (2) the short-term and long-
term interests of the corporation, (3) the resources, intent and conduct of any person or group seeking to acquire control of the corporation and (4) all other pertinent factors. The
PBCL expressly provides that directors do not violate their fiduciary duties solely by relying on "poison pills" or the anti-takeover provisions of the PBCL. The Company does
not currently have a "poison pill."
Limitations on Liability, Indemnification of Officers and Directors, and Insurance
The PBCL permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a
representative of the corporation, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the action or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. In an action by or in the right of the corporation, indemnification
will not be made in respect of any claim, issue, or matter as to which the person has been adjudged to be liable to the corporation unless the applicable court otherwise
determines.
Unless ordered by a court, the determination of whether indemnification is proper in a specific case will be determined by (1) the board of directors by a majority vote
of a quorum consisting of directors who were not parties to the action or proceeding; (2) if such a quorum is not obtainable or if obtainable and a majority vote of a quorum of
disinterested directors so directs, by independent legal counsel in a written opinion; or (3) by the shareholders.
To the extent that a representative of a business corporation has been successful on the merits or otherwise in defense of a third-party action, derivative action, or
corporate action, he or she must be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such individual in connection therewith.
Pennsylvania law permits a corporation to purchase and maintain insurance for a director or officer against any liability asserted against such individual, and incurred
in his or her capacity as a director or officer or arising out of his or her position, whether or not the corporation would have the power to indemnify such individual against such
liability under Pennsylvania law.
The Company Articles provide that a director shall, to the maximum extent permitted by Pennsylvania law, have no personal liability for monetary damages for any
action taken, or any failure to take any action, as a director unless such director has breached or failed to perform the duties of his or her office under Chapter 17, Subchapter B
of the PBCL (or any successor statute relating to directors' standard of care and justifiable reliance), and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. The Company Articles provide for indemnification for current and former directors and officers serving at the request of the corporation to the
fullest extent permitted by Pennsylvania law. The Company Articles and Company Bylaws also permit the advancement of expenses and expressly authorize the Company to
carry directors' and officers' insurance to protect itself and its directors and officers against certain liabilities. The Company Bylaws also provide for indemnification of
employees and agents of the Company under certain circumstances.
6
EXHIBIT 4.6
The limitation of liability and indemnification provisions in the Company Articles and the Company Bylaws may discourage shareholders from bringing a lawsuit
against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against the Company's directors
and officers, even though such an action, if successful, might otherwise benefit the Company and its shareholders. However, these provisions do not limit or eliminate the
Company's rights, or those of any shareholder, to seek nonmonetary relief such as injunction or rescission in the event of a breach of a director's duty of care. The provisions do
not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, the
Company pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material
litigation or proceeding against any of the Company directors or officers for which indemnification is sought.
Authorized but Unissued Shares
Subject to applicable law and stock exchange rules, the Company's authorized but unissued shares of common stock and preferred stock are available for future
issuance without your approval. The Company may use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund
acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise.
7
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
(as of October 31, 2020)
Name
IDL Worldwide, Inc.
The SLN Group, Inc.
Therm-Tec, Inc.
Frost Converting Systems, Inc.
Equator Design, Inc.
Kenuohua Matthews Electronic (Beijing) Company, Ltd.
Kenuohua Matthews Marking Products (Tianjin) Co., Ltd.
Matthews Canada Ltd.
Matthews Industries, Inc.
Matthews Bronze Pty. Ltd.
C. Morello (Australia) Pty Ltd.
Matthews International S.p.A.
Caggiati Espana S.A.
Matthews International Sarl
Gem Matthews International s.r.l.
Rottenecker-Caggiati GmbH
Tyche SpA
Matthews Resources, Inc.
Matthews Marking Systems Sweden AB
Matthews Kodiersysteme GmbH
Innovative Branding Technology Solutions, LLC
The York Group, Inc.
York Agency, Inc.
Milso Industries Corporation
New Liberty Casket Company LLC
York Casket Development Company, Inc.
Matthews Aurora, LLC
Aurora Casket Company, LLC
Aurora Casket de Mexico S. de R.L. de C.V.
Aurora St. Laurent, Inc.
Matthews Gibraltar Mausoleum & Construction Company
SGK LLC
Schawk Japan Ltd.
Schawk Thailand Ltd.
Schawk Worldwide Holdings, Inc.
Schawk Holdings Inc.
Miramar Equipment, Inc.
Schawk USA Inc.
Kedzie Aircraft, LLC
Schawk LLC
Schawk de Mexico SRL de CV
EXHIBIT 21
Percentage Ownership
100
100
100
80
100
60
100
100
100
100
100
100
100
100
95
82
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Name
Schawk Servicios Administrativos, S. de R.L. de CV
Schawk Latin America Holdings, LLC
Schawk do Brasil Gestao de Marcas Ltda.
Schawk Panama Services, S de RL
Schawk Digital Solutions, Inc.
Seven Worldwide (UK) Limited
MATW North America Holding LLC
MATW UK Holding LLP
Schawk Wace Group
Matthews International Corporation Costa Rica S.R.L.
Matthews Holding Germany LLP & Co. KG
Matthews Singapore Holding Pte. Ltd.
The InTouch Group Limited
Guidance Automation Limited
GJ Creative Limited
Absolute 2 Design Limited
Equator (GJ) Limited
Equator (SA) Limited
Equator SA Limited
Equator Design Agency Australia PTY LIMITED
MATW Holding LLC
Matthews Corporation Holding Company (UK) Limited
Furnace Construction Cremators Limited
Matthews Environmental Solutions Limited
Schawk Canada Inc.
Protopak Innovations, Inc.
Schawk Germany GmbH
Desgrippes Gobe Group (Yuan Hosea)
Schawk UK Ltd.
M3dia Limited
Matthews Brands Solutions (UK) Limited
PM Colour Limited
InTouch Reprographic Limited
M3dia Projects Limited
VCG (Holdings) Limited
VCG Colourlink Limited
VCG Connect Limited
VCG Catapult Ltd.
VCG Kestrel Limited
VCG Oasis Ltd.
Schawk UK Corporate Packaging
Schawk UK Holdings Ltd.
Schawk Luxembourg SARL
Brandimage Degrippes and LAGA SAS
Brandimage Belgique Holding SA
Percentage Ownership
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
Name
Percentage
Ownership
Brandimage Desgrippes and LAGA SA
Brandmark International Holding B.V.
Anthem NL BV
Matthews International Malaysia Sdn. Bhd.
Schawk Spain S.L.
Schawk Poland Sp z.o.o.
Schawk Belgium BVBA
Schawk Asia Pacific Pte Ltd.
Schawk India Pvt Ltd.
Schawk Holdings Australia Pty Ltd.
Anthem! Design Pty. Limited
Marque Brand Consultants Pty Ltd.
Schawk Australia Pty. Limited
Schawk Hong Kong Ltd.
Desgripes Gobe Group (HK) Ltd.
Desgrippes (Shanghai) Brand Consulting Co Ltd.
Schawk Anthem Shenzhen Co Ltd.
Schawk Imaging (Shanghai) Co.
MATW Netherlands Holding B.V.
Matthews Brand Solutions, S. de R.L. de CV
Saueressig Baski Oncesi Hazirlik Sistemier Sanaji ve Tricarct Amonin Sirketi
Matthews International Brasil Servicos de Marketing e Branding Ltda.
Matthews Europe GmbH
5flow GmbH
PT. Saueressig Engraving Indonesia
S+T Reprotechnick GmbH
Reproservice Eurodigital GmbH
Repro Busek Druckvorstufentechnick GmbH
Repro Busek Druckvorstufentechnick GmbH & Co. KG
Rudolf Reproflex GmbH
IDL Crack Europe GmbH
Klischeewerkstatt Scholler GmbH
Tact Group Ltd.
Shenzen Jun Ye Design & Production Ltd.
Reproflex Vietnam Limited Company
TWL Nyomdaipari es Kereskedeimi Koriatolt Felelossegu Tarsasag
Matthews International GmbH
Matthews Verwaltungs GmbH
Ungricht GmbH + Co KG
Saueressig Polska Sp. z.o.o.
Saueressig 000
Wetzel GmbH
Saueressig Polska Sp. z.o.o.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
67
100
100
33
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-231192, 333-194456, 333-190366, 333-157132, 333-131496, 333-83731, 033-
57793, 033-57795, and 033-57797) of our reports dated November 20, 2020, with respect to the consolidated financial statements and schedule of Matthews International
Corporation and Subsidiaries and the effectiveness of internal control over financial reporting of Matthews International Corporation and Subsidiaries included in this Annual
Report (Form 10-K) of Matthews International Corporation and Subsidiaries for the year ended September 30, 2020.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 20, 2020
CERTIFICATION
PRINCIPAL EXECUTIVE OFFICER
EXHIBIT 31.1
I, Joseph C. Bartolacci, certify that:
1. I have reviewed this annual report on Form 10-K of Matthews International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 20, 2020
/s/Joseph C. Bartolacci
-------------------------
Joseph C. Bartolacci
President and Chief Executive Officer
CERTIFICATION
PRINCIPAL FINANCIAL OFFICER
EXHIBIT 31.2
I, Steven F. Nicola, certify that:
1. I have reviewed this annual report on Form 10-K of Matthews International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 20, 2020
/s/Steven F. Nicola
-------------------------
Steven F. Nicola
Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
In connection with the Annual Report of Matthews International Corporation (the "Company") on Form 10-K for the period ended September 30, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph C. Bartolacci, President and Chief Executive Officer, certify, to the best of my knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Joseph C. Bartolacci
-------------------------------------
Joseph C. Bartolacci,
President and Chief Executive Officer
November 20, 2020
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement required by Section 906, has been provided to Matthews International Corporation and will be retained by Matthews
International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
In connection with the Annual Report of Matthews International Corporation (the "Company") on Form 10-K for the period ended September 30, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Steven F. Nicola, Chief Financial Officer, certify, to the best of my knowledge, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Steven F. Nicola
-------------------------------------
Steven F. Nicola,
Chief Financial Officer
November 20, 2020
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement required by Section 906, has been provided to Matthews International Corporation and will be retained by Matthews
International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.