What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-11-20 compared with 2019-11-22 · 196 added, 78 removed, 140 unchanged (66% of the section changed)

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.

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The reconciliation of net income to adjusted EBITDA is as follows:

Years Ended September 30,

2020 2019 2018

(Dollar amounts in thousands)

Net (loss) income $ (87,652) $ (38,889) $ 107,111

Income tax (benefit) provision (18,685) 806 (9,118)

(Loss) income before income taxes (106,337) (38,083) 97,993

Net loss attributable to noncontrolling interests 497 901 260

Interest expense 34,885 40,962 37,427

Depreciation and amortization *

119,058 90,793 76,974

Acquisition costs (1)**

3,844 10,872 10,918

ERP integration costs (2)**

2,296 7,508 10,864

Strategic initiatives and other charges (3)**

33,799 13,449 5,266

Legal matter reserve (4)

Non-recurring / incremental COVID-19 costs (5)

Goodwill write-downs (6)

90,408 77,572 —

Net realized (gains) losses on divestitures and asset dispositions:

(Gain) loss on sale of ownership interests in subsidiaries (7)

(11,208) 6,469 —

Realized loss (gain) on cost-method investments (8)

— 4,731 (3,771)

Net gains from the sale of buildings and vacant properties (9)

Joint Venture depreciation, amortization, interest expense and other charges (10)

4,732 1,514 —

Stock-based compensation 8,096 7,729 13,460

Non-service pension and postretirement expense (11)

7,789 3,802 5,723

Total Adjusted EBITDA $ 203,080 $ 220,872 $ 255,114

(1) Includes certain non-recurring costs associated with recent acquisition activities.

(2) Represents costs associated with global ERP system integration efforts.

(3) Includes certain non-recurring costs primarily associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels.

(4) Represents 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 Statements and Supplementary Data”).

(5) 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.

(6) 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”).

(7) Represents the (gain) loss on the sale of ownership interests in subsidiaries within the Memorialization segment.

(8) Includes gains/losses related to cost-method investments, and related assets, within the SGK Brand Solutions and Memorialization segments.

(9) Includes significant building and vacant property transactions resulting in a gain of $8.7 million within the Industrial Technologies segment and losses of $0.9 million and $0.4 million within the SGK Brand Solutions and Memorialization segments, respectively.

(10) 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.

(11) 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 $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.

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 2019 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, net gains from the sale of buildings and other property, and non-cash pension expense, and an increase in working capital items.

Fiscal 2019 operating cash flow also included cash contributions of $2.3 million to the Company's pension and other postretirement plans.

The fiscal 2019 decline primarily reflected the impact of lower adjusted EBITDA for fiscal 2019, compared to fiscal 2018.

Operating cash flow for fiscal 2018 principally included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, and non-cash pension expense, and an increase in working capital items, primarily reflecting a decrease in accrued compensation amounts.

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 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.

Operating cash flow for fiscal 2017 principally included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, and non-cash pension expense, and a decrease in working capital items, partially offset by cash contributions of $8.7 million to the Company's pension and other postretirement plans.

Fiscal 2017 operating cash flow also included cash proceeds from loss recoveries of $10.0 million.

Cash used in investing activities was $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 2019 primarily reflected capital expenditures of $37.7 million , acquisition payments (net of cash acquired or received from sellers) of $11.5 million , proceeds of $13.3 million from the sale of assets, proceeds of $8.3 million from the divestiture of a controlling interest in a small pet cremation business (see "Acquisitions and Divestitures" below), and additional investments made in non-consolidated subsidiaries of $33.1 million .

Investing activities for fiscal 2018 primarily reflected capital expenditures of $43.2 million , acquisition payments (net of cash acquired or received from sellers) of $121.1 million (see "Acquisitions and Divestitures" below), proceeds of $9.2 million from the sale of certain cost-method investments, and cash payments of $11.9 million for purchases of investments.

Investing activities for fiscal 2017 primarily reflected capital expenditures of $44.9 million and acquisition payments (net of cash acquired or received from sellers) of $98.2 million (see "Acquisitions and Divestitures" below).

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.

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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.

Cash used in financing activities for the year ended September 30, 2017 was $7.2 million , and reflected proceeds, net of repayments on long-term debt of $28.6 million , purchases of treasury stock of $14.0 million , and payment of dividends to the Company's shareholders of $21.8 million ($0.68 per share).

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900.0 million senior secured revolving credit facility and a $250.0 million senior secured amortizing term loan.

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 principal payments of 5.0% of the outstanding principal in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments.

Pursuant to the terms of the domestic credit facility agreement, principal payments may be made on the term loan prior to the scheduled due date.

The balance of the revolving credit facility and the term loan are due on the maturity date of April 26, 2021.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

commitment fee ranging from 0.15% to 0.25% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility.

The 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.

2 unchanged sentences

dollar denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were $257.4 million and $325.6 million, respectively.

During fiscal 2019, the Company borrowed €125.0 million on the revolving credit facility.

Proceeds from the Euro denominated borrowings were used to make a principal payment of $140.0 million on the outstanding balance of the term loan.

Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2019 were €125.0 million ( $136.5 million ).

There were no Euro denominated borrowings on the revolving credit facility at September 30, 2018 .

Outstanding 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.

4 unchanged sentences

The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes.

The Company incurred direct financing fees and costs in connection with 2025 Senior Notes of $4.1 million , which are being deferred and amortized over the term of the 2025 Senior Notes.

The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures on April 11, 2020, and the Company intends to extend this facility.

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.

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The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:

September 30, 2019

September 30, 2018

(Dollars in thousands)

September 30, 2020 September 30, 2019

( Dollar amounts in thousands )

Pay fixed swaps - notional amount $ 312,500 $ 293,750

Net unrealized (loss) gain

Net unrealized loss $ (7,792) $ (534)

Weighted-average maturity period (years) 2.6 1.9

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Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss, net of unrealized gains, of $534,000 ( $403,000 after tax) and an unrealized gain of $11.3 million ( $8.5 million after tax) at September 30, 2019 and 2018 , respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").

Assuming market rates remain constant with the rates at September 30, 2019 , a gain (net of tax) of approximately $48,000 included in AOCI is expected to be recognized in earnings over the next twelve months.

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.

1 unchanged sentence

The credit facility matures in December 2020 and the Company intends to extend this facility.

Outstanding borrowings under this facility totaled

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

€12.8 million ( $14.0 million ) and €2.8 million ( $3.2 million ) at September 30, 2019 and 2018 , respectively.

The weighted-average interest rate on outstanding borrowings under this facility at September 30, 2019 and 2018 was 1.25% and 1.75% respectively.

The Company’s German subsidiary, Matthews Europe GmbH & Co.

KG, has €15.0 million ( $16.4 million ) of senior unsecured notes with European banks.

The notes are guaranteed by Matthews and mature in November 2019.

A portion of the notes ( €5.0 million ) have a fixed interest rate of 1.40% , and the remainder bear interest at Euro LIBOR plus 1.40% .

The weighted-average interest rate on the notes at September 30, 2019 and 2018 was 1.40% .

Other debt, including capital leases totaled $395,000 and $5.4 million at September 30, 2019 and 2018 , respectively.

The weighted-average interest rate on these outstanding borrowings was 2.17% and 2.21% at September 30, 2019 and 2018 , respectively.

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 $3.3 million (net of income taxes of $1.1 million ), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for the fiscal year 2019 .

The Company did not have any net investments hedges in the prior year.

In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8.6 million ( $10.5 million at September 30, 2019 ) with respect to a performance guarantee on an environmental solutions project in Saudi Arabia.

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.

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Court as ordered.

On June 14, 2016, the U.K Court ruled completely in favor of Matthews following a trial on the merits.

On June 14, 2016, the U.K.

Court ruled completely in favor of Matthews following a trial on the merits.

However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia.

The Company is currently pursuing a trial on the merits in Saudi Arabia which may not finally be resolved until calendar year 2020.

It is necessary to obtain an equivalent favorable ruling in the courts of Saudi Arabia to effectively enforce judgment and commence collection efforts.

The Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial.

However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the U.K.

Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations.

The Company’s level of success in recovering funds from the customer will depend upon a number of factors including, a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of cooperation from the Saudi Arabian government to enforce a potential judgment against the creditor.

The Company has determined that resolution of this matter may take an extended period of time and therefore has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of September 30, 2019 and 2018.

The Company 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company has a stock repurchase program.

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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 2.1 at September 30, 2019 and 2018 .

ENVIRONMENTAL MATTERS:

The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment.

The Company is party to various environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at various operating and non-operating sites.

The Company is currently performing environmental assessments and remediation at certain sites, as appropriate.

Refer to Note 17, "Environmental Matters" in Item 8 - "Financial Statements and Supplementary Data," for further details.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company's current ratio was 1.8 and 2.1 at September 30, 2020 and 2019, respectively.

ACQUISITIONS AND DIVESTITURES:

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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 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.

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For the Industrial Technologies segment, sales growth drivers include economic/industrial market conditions, new product development, and the e-commerce trend.

At present, the Company is currently targeting revenue growth in fiscal 2020 in its Industrial Technologies and Memorialization segments, with relatively stable year-over-year revenues for the SGK Brand Solutions segment.

During fiscal 2019, the Company initiated a strategic evaluation to improve profitability and reduce the Company's cost structure.

These actions leveraged the benefit of the Company's new global ERP platform, primarily targeted at the SGK Brand Solutions segment, both operational and commercial structure, and the Company's shared financial services and other administrative functions.

This evaluation identified opportunities for significant cost structure improvements, which the Company expects to achieve over the next two fiscal years.

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 the next three years.

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

CRITICAL ACCOUNTING POLICIES:

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No such charges were recognized during the years presented.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Goodwill and Indefinite-Lived Intangibles:

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In order to further validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization is performed using a reasonable control premium.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2019.

As a result of this review, the Company determined that the estimated fair value of all reporting units exceeded carrying value.

Due to challenging market conditions affecting the Graphics Imaging reporting unit within the SGK Brand Solutions segment and the estimated fair value of this reporting unit exceeding its carrying value by approximately 10%, the Company provided additional disclosure in its Form 10-Q for the second and third quarters of fiscal 2019 indicating that further deterioration of conditions could result in a future goodwill write-down for this reporting unit.

In consideration of continued challenging market conditions affecting the SGK Brand Solutions segment throughout the remainder of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the segment during the fourth quarter.

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

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.

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As a result of this interim assessment, the Company recorded a goodwill write-down of $77.6 million during the fiscal 2019 fourth quarter.

Subsequent to this write-down, the fair value of the Graphics Imaging reporting unit approximates carrying value at September 30, 2019.

If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates) significantly change, additional goodwill write-downs may be necessary in future periods.

Pension and Postretirement Benefits:

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Payments due in fiscal year:

Total 2021 (1)

2022 to 2023 2024 to 2025 After

Contractual Cash Obligations:

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2025 Senior Notes 383,881 15,750 31,500 31,500 305,131

Notes payable to banks

Short-term borrowings

Capital lease obligations

Finance lease obligations (2)

10,514 3,847 4,045 869 1,753

Non-cancelable operating leases (2)

77,161 25,804 31,912 14,221 5,224

Other 27,338 13,970 5,594 2,168 5,606

Total contractual cash obligations $ 1,005,746 $ 103,896 $ 140,751 $ 443,385 $ 317,714

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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, 2019 , the weighted-average interest rate was 2.65% on the Company's domestic credit facility, 2.77% on the Company's Securitization Facility, 1.25% on the credit facility through the Company's European subsidiaries, 1.40% on notes issued by the Company's wholly-owned subsidiary, Matthews Europe GmbH & Co.

KG, and 2.17% on other outstanding debt.

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.

regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2019 .

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 $10.7 million and $1.0 million , respectively, in fiscal 2020 .

The amounts are expected to increase incrementally each year thereafter, to $14.0 million and $1.1 million , respectively, in 2024 .

The Company 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis