MATTHEWS INTERNATIONAL CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued product identification sales. 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 $824,000 on the segment's sales compared to the prior year. Gross profit for the nine months ended June 30, 2020 was $361.4 million, compared to $399.9 million for the same period a year ago. Consolidated gross profit as a percent of sales was 32.9% and 34.9% for the first nine months of 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 within the SGK Brand Solutions segment. 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 totaling $6.6 million and $1.5 million for the nine months ended June 30, 2020 and 2019, respectively. Selling and administrative expenses for the nine months ended June 30, 2020 were $302.2 million, compared to $302.6 million for the first nine months of fiscal 2019. Consolidated selling and administrative expenses, as a percent of sales, were 27.5% for the nine months ended June 30, 2020, compared to 26.4% for the same period last year. Selling and administrative expenses included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $25.6 million in fiscal 2020, compared to $16.3 million in fiscal 2019. Fiscal 2020 selling and administrative expenses also included a $10.6 million charge for a legal matter involving a letter of credit for a customer in Saudi Arabia (see "Liquidity and Capital Resources" below). These increases in selling and administrative expenses were partially offset by the impact of lower sales in fiscal 2020, reduced travel and entertainment costs resulting from the COVID-19 pandemic, and benefits from ongoing cost-reduction initiatives. Selling and administrative expenses also included an $11.2 million gain and a $4.5 million loss recognized on the sales of ownership interests in a Memorialization business completed in fiscal 2020 and 2019, respectively. Intangible amortization for the nine months ended June 30, 2020 was $53.6 million, compared to $27.2 million for the nine months ended June 30, 2019. The increase in intangible amortization primarily reflected $25.0 million of incremental amortization resulting from the fiscal 2019 reduction in useful lives for certain trade names that are being discontinued. During the second quarter of fiscal 2020, the Company recorded a goodwill write-down totaling $90.4 million related to its two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) . Refer to Note 16, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements" for further details. Adjusted EBITDA was $139.0 million for the nine months ended June 30, 2020 and $161.6 million for the nine months ended June 30, 2019. Adjusted EBITDA for the SGK Brand Solutions segment was $61.8 million for the first nine months of fiscal 2020 compared to $86.6 million for the same period a year ago. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, unfavorable changes in product mix, ongoing price competition, and a decline in margins for cylinders, surfaces and engineered products. Changes in foreign currency exchange rates had an unfavorable impact of $1.5 million on the segment's adjusted EBITDA compared to the prior year. These decreases were partially offset by the impact of sales growth in the Asia-Pacific region and benefits from cost-reduction initiatives. Memorialization segment adjusted EBITDA was $103.0 million for the first nine months of fiscal 2020 compared to $101.4 million for the first nine months of fiscal 2019. The increase in segment adjusted EBITDA reflected the impact of higher sales and benefits from productivity initiatives, partially offset by lower margins on sales of cremation and incineration products. Adjusted EBITDA for the Industrial Technologies segment for the nine months ended June 30, 2020 was $15.2 million, compared to $15.7 million for the same period a year ago. Industrial Technologies segment adjusted EBITDA reflected the impact of lower sales of warehouse automation systems and decreased applied technologies sales, partially offset by the impact of higher product identification sales. Investment income was $1.4 million for both the nine months ended June 30, 2020 and the nine months ended June 30, 2019. Investment income for both periods primarily reflected changes in the value of investments (primarily marketable securities) held in trust for certain of the Company's benefit plans. Interest expense for the first nine months of fiscal 2020 was $26.9 million, compared to $31.1 million for the same period last year. 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 nine months ended June 30, 2020 represented a decrease in pre-tax income of $7.4 million, compared to a decrease in pre-tax income of $3.4 million for the same period last year. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $6.7 million and $2.9 million for the nine months ended June 30, 2020 and 2019, respectively. Refer to Note 11, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" for further details. Other income (deductions), net also includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the nine months ended June 30, 2020 were a benefit of $22.7 million, compared to an expense of $4.4 million for the first nine months of fiscal 2019. The differences between the Company’s consolidated income taxes for the first nine months of fiscal 2020 versus the same period for fiscal 2019 primarily resulted from the fiscal 2020 consolidated loss before income taxes, which reflected the goodwill write-down recorded during the second quarter of fiscal 2020 which was partially non-deductible, as well as a benefit for an expected net operating loss (“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory rate of 35%. The Company’s fiscal 2020 nine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, the goodwill write-down, the expected NOL carryback, and discrete tax benefits recognized during the current year. The Company’s fiscal 2019 nine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to tax planning completed during the second quarter of fiscal 2019 that resulted in a discrete tax benefit. Net losses attributable to noncontrolling interests were $491,000 for the nine months ended June 30, 2020, compared to net losses of $541,000 for the same period a year ago. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses. NON-GAAP FINANCIAL MEASURES: Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense. Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures. The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business. Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations. This measure may be useful to an investor in evaluating operating performance. It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance. Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. The Company's definition of adjusted EBITDA may not be comparable to similarly titled measures used by other companies. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The reconciliation of net income to adjusted EBITDA is as follows: Three Months Ended June 30, Nine Months Ended June 30, 2020 2019 2020 2019 (Dollar amounts in thousands) Net income (loss) $ 1,849 $ 14,424 $ (95,052) $ 32,602 Income tax (benefit) provision (6,209) 3,989 (22,672) 4,429 (Loss) income before income taxes (4,360) 18,413 (117,724) 37,031 Net losses attributable to noncontrolling interests 420 205 491 541 Interest expense 8,082 10,508 26,935 31,068 Depreciation and amortization * 30,168 20,483 88,418 60,759 Acquisition costs (1)** 304 2,980 2,912 8,386 ERP integration costs (2)** 745 2,355 2,160 6,337 Strategic initiatives and other charges (3)** 5,570 1,037 25,040 3,149 (Gain) loss on sale of ownership interests in a subsidiary (4) (11,208) — (11,208) 4,465 Legal matter reserve (5) 10,566 — 10,566 — Non-recurring / incremental COVID-19 costs (6) 1,871 — 2,534 — Goodwill write-down (7) — — 90,408 — Joint Venture depreciation, amortization, interest expense and other charges (8) 2,473 866 4,732 866 Stock-based compensation 2,539 1,156 7,078 6,169 Non-service pension and postretirement expense (9) 2,227 951 6,682 2,852 Total Adjusted EBITDA $ 49,397 $ 58,954 $ 139,024 $ 161,623 (1) Includes certain non-recurring costs associated with recent acquisition activities. (2) Represents costs associated with global ERP system integration efforts. (3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels. (4) Represents a (gain) loss on the sale of ownership interests in a subsidiary within the Memorialization segment. (5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 7, "Debt" in Item 1 - "Financial Statements"). (6) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19. (7) Represents the goodwill write-down for two reporting units within the SGK Brand Solutions segment (see Note 16, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements"). (8) Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment. (9) Non-service pension and postretirement expense includes interest cost, expected return on plan assets and amortization of actuarial gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans. * Depreciation and amortization was $21.8 million and $12.8 million for the SGK Brand Solutions segment, $5.5 million and $4.8 million for the Memorialization segment, $1.5 million and $1.5 million for the Industrial Technologies segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended June 30, 2020 and 2019, respectively. Depreciation and amortization was $65.3 million and $37.4 million for the SGK Brand Solutions segment, $15.0 million and $14.9 million for the Memorialization segment, $4.3 million and $4.6 million for the Industrial Technologies segment, and $3.8 million and $3.9 million for Corporate and Non-Operating, for the nine months ended June 30, 2020 and 2019, respectively. ** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.8 million and $449,000 for the SGK Brand Solutions segment and $4.1 million and $5.9 million for Corporate and Non-Operating, for the three months ended June 30, 2020 and 2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $697,000 for the Memorialization segment for the three months ended June 30, 2020. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $9.1 million and $3.9 million for the SGK Brand Solutions segment and $19.0 million and $14.0 million for Corporate and Non-Operating, for the nine months ended June 30, 2020 and 2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.8 million for the Memorialization segment and $268,000 for the Industrial Technologies segment, for the nine months ended June 30, 2020. 30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued LIQUIDITY AND CAPITAL RESOURCES: Net cash provided by operating activities was $123.6 million for the first nine months of fiscal 2020, compared to $89.4 million for the first nine months of fiscal 2019. Operating cash flow for both periods principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net (gains) losses related to investments, non-cash pension expense, other non-cash adjustments, and changes in working capital items. Net changes in working capital items contributed $41.7 million to operating cash flow in fiscal 2020, reflecting decreases in accounts receivable and changes in other accounts. Net changes in working capital items reduced operating cash flow by $14.5 million in fiscal 2019, reflecting decreases in accounts receivable and accrued compensation, increases in inventory, and changes in other accounts (including increased amounts recognized in excess of billings for certain customer projects). The favorable movements in working capital in fiscal 2020 primarily reflected enhanced accounts receivable collection efforts as the Company has been focusing its efforts on cash management. Cash provided by investing activities was $7.4 million for the nine months ended June 30, 2020, compared to cash used in investing activities of $66.8 million for the nine months ended June 30, 2019. Investing activities for the first nine months of fiscal 2020 primarily reflected capital expenditures of $25.5 million, proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business, and investments and advances of $9.7 million. Investing activities for the first nine months of fiscal 2019 primarily reflected capital expenditures of $32.0 million, acquisition payments (net of cash acquired or received from sellers) totaling $11.5 million, proceeds of $8.3 million from the sale of a controlling interest in a Memorialization business, and additional investments made in non-consolidated subsidiaries of $33.1 million. Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $41.9 million for the last three fiscal years. Capital spending for fiscal 2020 is currently estimated to be in the range of $35 million to $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 nine months ended June 30, 2020 was $123.1 million, primarily reflecting repayments, net of proceeds, on long-term debt of $92.1 million, treasury stock purchases of $2.4 million, dividends of $19.8 million to the Company's shareholders, $4.7 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million (see below). Cash used in financing activities for the nine months ended June 30, 2019 was $30.2 million, primarily reflecting proceeds, net of repayments, on long-term debt of $16.4 million, treasury stock purchases of $21.8 million, dividends of $19.3 million to the Company's shareholders and $3.4 million of holdback and contingent consideration payments related to fiscal 2018 acquisitions. The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement includes a $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 June 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 June 30, 2020 and September 30, 2019 were $275.0 million and $325.6 million, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2020 and September 30, 2019 were €125.0 million ($140.4 million) and €125.0 million ($136.5 million), respectively. Outstanding borrowings on the term loan at June 30, 2020 and September 30, 2019 were $28.6 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 June 30, 2020 and 2019 was 2.44% and 2.75%, respectively. 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company has $300.0 million of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $2.9 million and $3.3 million at June 30, 2020 and September 30, 2019, respectively. The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial 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 June 30, 2020 and September 30, 2019 were $85.3 million and $94.0 million, respectively. At June 30, 2020 and 2019, the interest rate on borrowings under this facility was 0.91% and 3.15%, respectively. The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges ( dollar amounts in thousands ): June 30, 2020 September 30, 2019 Pay fixed swaps - notional amount $ 343,750 $ 293,750 Net unrealized loss $ (6,269) $ (534) Weighted-average maturity period (years) 2.6 1.9 Weighted-average received rate 0.16 % 2.02 % Weighted-average pay rate 1.33 % 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, net of unrealized gains, of $6.3 million ($4.7 million after tax) at June 30, 2020 and an unrealized loss, net of unrealized gains, of $534,000 ($403,000 after tax) at September 30, 2019. The net unrealized loss is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at June 30, 2020, a loss (net of tax) of approximately $2.2 million included in AOCI is expected to be recognized in earnings over the next twelve months. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €35.0 million ($39.3 million). The credit facility matures in December 2020 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €12.1 million ($13.6 million) and €12.8 million ($14.0 million) at June 30, 2020 and September 30, 2019, respectively. The weighted-average interest rate on outstanding borrowings under this facility at June 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 June 30, 2019 was 1.40%. Finance lease liabilities included as a component of debt totaled $10.2 million and $3.6 million at June 30, 2020 and September 30, 2019, respectively. See Note 8, "Leases" in Item 1 - "Financial Statements" for further discussion on the Company's lease obligations. Other debt totaled $10.7 million and $395,000 at June 30, 2020 and September 30, 2019, respectively. The weighted-average interest rate on other debt was 2.14% and 5.81% at June 30, 2020 and June 30, 2019, 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued respectively. The Company was in compliance with all of its debt covenants as of June 30, 2020.The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $374,000 (net of income taxes of $121,000) and $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 June 30, 2020 and September 30, 2019, respectively. In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8.6 million ($10.6 million at June 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 trial is now not likely to conclude until calendar year 2021. 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 will not be able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered collectively with the extended delay in the trial date 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. 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 638,736 shares remain available for repurchase as of June 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 is currently evaluating the Coronavirus Aid, Relief, and Economic Security Act (commonly referred to as the CARES Act) and other similar economic relief initiatives that have been enacted in response to COVID-19. The Company expects to utilize certain provisions allowing for the deferral of payments for certain taxes, primarily U.S. payroll taxes, which are estimated to be approximately $9.0 million for fiscal 2020. Consolidated working capital of the Company was $264.6 million at June 30, 2020, compared to $303.8 million at September 30, 2019. Cash and cash equivalents were $42.9 million at June 30, 2020, compared to $35.3 million at September 30, 2019. The Company's current ratio was 1.9 and 2.1 at June 30, 2020 and September 30, 2019, respectively. ENVIRONMENTAL MATTERS: The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations. As such, the Company has developed environmental, health, and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials. 33 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company is party to various environmental matters. These include obligations to investigate and mitigate the effects on the environment of non-operating former manufacturing sites acquired through corporate acquisitions and the disposal of certain materials at non-owned waste management facilities. The Company is currently performing environmental assessments and remediation at these sites, as appropriate. ACQUISITIONS AND DIVESTITURES: Refer to Note 15, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures. FORWARD-LOOKING INFORMATION: The Company's current strategy to attain annual growth in earnings per share primarily consists of the following: internal growth (which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products), acquisitions and integration activities to achieve synergy benefits and share repurchases. The significant factors (excluding acquisitions) influencing sales growth in the SGK Brand Solutions segment are global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation. Due to the global footprint of this segment, currency fluctuations can also be a significant factor. For the Memorialization segment, North America death rates, the cremation trend, and price realization impact sales growth for the Company's bronze and granite memorials, caskets and cremation and incineration-related products. For the Industrial Technologies segment, sales growth drivers include economic/industrial market conditions, new product development, and the e-commerce trend. 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 in fiscal 2020 through fiscal 2022. On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19. Considerable judgement is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results. Management expects that each of its business segments will experience some level of unfavorable sales impacts in the short-term, primarily due to customer business disruptions, facilities shut-downs, weaker global economic conditions, and potential customer project delays. Longer-term financial impacts will depend on global economic conditions eventually resulting from COVID-19. Management expects each of its businesses to experience increased financial volatility in the short-term, but currently anticipates its core businesses will return to a more normalized future state once the COVID-19 pandemic subsides. 34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued CRITICAL ACCOUNTING POLICIES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition. The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 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 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. LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS: The following table summarizes the Company's contractual obligations at June 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 2020 Remainder 2021 (1) to 2022 2023 to 2024 After 2024 Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facilities $ 428,988 $ — $ 13,617 $ — $ 415,371 Securitization Facility 85,270 — 85,270 — — Senior secured term loan 28,563 — 28,563 — — 2025 Senior Notes 383,746 — 31,500 31,500 320,746 Finance lease obligations (2) 11,113 957 6,529 1,527 2,100 Non-cancelable operating leases (2) 78,980 6,738 42,029 20,065 10,148 Other 19,381 1,072 7,780 2,867 7,662 Total contractual cash obligations $ 1,036,041 $ 8,767 $ 215,288 $ 55,959 $ 756,027 (1) The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $13.6 million. These balances have been classified as non-current on the Company's Consolidated Balance Sheet. (2) Lease obligations have not been discounted to their present value. 35 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued A significant portion of the loans included in the table above bear interest at variable rates. At June 30, 2020, the weighted-average interest rate was 2.44% on the Company's domestic credit facility, 0.91% on the Company's Securitization Facility and 1.25% on the credit facility through the Company's European subsidiaries. Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations. In accordance with this bill, the Company is no longer required to make contributions for fiscal 2020 to its principal retirement plan. The Company currently expects to make a contribution of approximately $15.0 million to its principal retirement plan during the fourth quarter of fiscal 2020, which may consist of cash and/or shares of Matthews Class A Common Stock. The Company is also currently evaluating potential additional cash and/or stock contributions to its principal retirement plan during fiscal 2020. During the nine months ended June 30, 2020 contributions of $589,000 and $726,000 were made under the supplemental retirement plan and postretirement plan, respectively. The Company currently anticipates contributing an additional $293,000 and $263,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2020. Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of June 30, 2020, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $11.8 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company’s market risk during the three and nine months ended June 30, 2020. For additional information see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019.