What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-11-20 compared with 2019-11-22 · 566 added, 370 removed, 956 unchanged (49% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Description Pages

Management's Report to Shareholders 34

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 20, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 3 to the consolidated financial statements, effective October 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842).

Basis for Opinion

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Valuation of Graphics Imaging Reporting Unit Goodwill

Description of the Matter

As more fully described in Note 21 to the consolidated financial statements, during 2019 the Company recorded a $77.6 million goodwill impairment charge attributable to its Graphics Imaging (Graphics) reporting unit within the Company’s SGK Brand Solutions segment.

The continuation of challenging market conditions affecting Graphics, combined with adverse foreign currency trends, unfavorably impacted the financial results and forecasts for this reporting unit.

Because of these challenging market conditions, as of September 1, 2019, the Company evaluated the goodwill attributable to this reporting unit, determining that the reporting unit’s carrying value exceeded its estimated fair value and, therefore, goodwill was impaired.

Description of the Matter As more fully described in Note 21 to the consolidated financial statements, during 2020, the Company recorded a $29.9 million goodwill impairment charge attributable to its Graphics Imaging (Graphics) reporting unit within the Company’s SGK Brand Solutions segment.

The continuation of challenging market conditions affecting Graphics, combined with the impact of the COVID-19 pandemic and adverse foreign currency trends, unfavorably impacted the financial results and forecasts for this reporting unit.

Because of these challenging market conditions, as of March 31, 2020, the Company evaluated the goodwill attributable to this reporting unit, determining that the reporting unit’s carrying value exceeded its estimated fair value and, therefore, goodwill was impaired.

Significant assumptions used in the Company’s fair value estimate included revenue growth, operating profit margin, market participant assumptions, and the discount rate.

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In particular, the fair value estimates are sensitive to the significant assumptions named above, which are affected by expected future market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process.

These controls include management’s assessment of indicators of impairment, management's review of the assumptions utilized to develop the estimate, and management’s verification of the completeness and accuracy of the underlying data utilized to project future operating results for the reporting unit.

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(Dollar amounts in thousands, except per share data)

ASSETS 2020 2019

Current assets:

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accounts of $ 9,618 and $ 10,846 , respectively

295,185 318,756

Inventories 175,100 180,274

Other current assets 63,954 49,384

Total current assets 575,573 583,716

Investments 63,250 85,501

Property, plant and equipment, net 236,788 237,442

Deferred income taxes 3,757 5,032

Other assets 94,379 31,455

Goodwill 765,388 846,807

Other intangible assets, net 333,498 400,650

Total assets $ 2,072,633 $ 2,190,603

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

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36,333,992 shares issued

36,334 36,334

Preferred stock, $ 100 par value, authorized 10,000 shares, none issued

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Treasury stock, 4,502,420 and 4,985,508 shares, respectively, at cost

( 178,997 ) ( 200,235 )

Total shareholders' equity-Matthews 610,807 718,106

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(Dollar amounts in thousands, except per share data)

2020 2019 2018

Sales $ 1,498,306 $ 1,537,276 $ 1,602,580

Cost of sales ( 1,000,537 ) ( 994,810 ) ( 1,018,359 )

Gross profit 497,769 542,466 584,221

Selling expense ( 125,117 ) ( 133,368 ) ( 141,570 )

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Intangible amortization ( 71,514 ) ( 45,756 ) ( 31,562 )

Goodwill write-down

Operating profit

Goodwill write-downs ( 90,408 ) ( 77,572 ) —

Operating (loss) profit ( 64,193 ) 10,303 138,557

Investment income 1,962 1,494 1,570

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

Income tax (provision) benefit

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

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

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(Loss) earnings per share attributable to Matthews shareholders:

Basic $ ( 2.79 ) $ ( 1.21 ) $ 3.39

Diluted $ ( 2.79 ) $ ( 1.21 ) $ 3.37

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

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Year Ended September 30, 2020

Noncontrolling Interest

Other comprehensive loss, net of tax:

Matthews Noncontrolling Interest Total

Net loss $ ( 87,155 ) $ ( 497 ) $ ( 87,652 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 4,333 ( 7 ) 4,326

Pension plans and other postretirement benefits ( 11,211 ) — ( 11,211 )

Unrecognized loss on derivatives:

Unrecognized (loss) gain on derivatives:

Net change from periodic revaluation ( 6,130 ) — ( 6,130 )

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Year Ended September 30, 2019

Noncontrolling Interest

Net income (loss)

Other comprehensive (loss) income, net of tax:

Matthews Noncontrolling Interest Total

Net loss $ ( 37,988 ) $ ( 901 ) $ ( 38,889 )

Other comprehensive loss, net of tax:

Foreign currency translation adjustment ( 21,254 ) ( 92 ) ( 21,346 )

Pension plans and other postretirement benefits ( 33,867 ) — ( 33,867 )

Unrecognized gain (loss) on derivatives:

Unrecognized loss on derivatives:

Net change from periodic revaluation ( 6,540 ) — ( 6,540 )

Net amount reclassified to earnings ( 2,402 ) — ( 2,402 )

Net change in unrecognized gain (loss) on

Other comprehensive (loss) income, net of tax

Comprehensive income (loss)

Net change in unrecognized loss on derivatives ( 8,942 ) — ( 8,942 )

Other comprehensive loss, net of tax ( 64,063 ) ( 92 ) ( 64,155 )

Comprehensive loss $ ( 102,051 ) $ ( 993 ) $ ( 103,044 )

Year Ended September 30, 2018

Noncontrolling Interest

Matthews Noncontrolling Interest Total

Net income (loss) $ 107,371 $ ( 260 ) $ 107,111

Other comprehensive income, net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment ( 22,053 ) 71 ( 21,982 )

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Net amount reclassified to earnings ( 1,042 ) — ( 1,042 )

Net change in unrecognized gain (loss) on

Other comprehensive income, net of tax

Net change in unrecognized gain (loss) on derivatives 5,053 — 5,053

Other comprehensive (loss) income, net of tax ( 1,369 ) 71 ( 1,298 )

Comprehensive income (loss) $ 106,002 $ ( 189 ) $ 105,813

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(Dollar amounts in thousands, except per share data)

Stock Additional

Capital Retained

Earnings Accumulated Other

Comprehensive

(Loss) Income

(net of tax) Treasury

Interests Total

Balance, September 30, 2017 $ 36,334 $ 123,432 $ 948,830 $ ( 154,115 ) $ ( 164,774 ) $ 552 $ 790,259

Net income — — 107,371 — — ( 260 ) 107,111

Pension plans and other

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of treasury stock

— — — — ( 21,181 ) — ( 21,181 )

Issuance of 326,827 shares

of treasury stock

— ( 8,040 ) — — 13,040 — 5,000

Cancellation of 6,756 shares of

treasury stock

Transactions with

noncontrolling interests

— 400 — — ( 400 ) — —

Dividends — — ( 24,637 ) — — — ( 24,637 )

Reclassification of accumulated

other comprehensive (loss)

income ("AOCI") tax effects — — 8,814 ( 8,814 ) — — —

Balance, September 30, 2018 $ 36,334 $ 129,252 $ 1,040,378 $ ( 164,298 ) $ ( 173,315 ) $ 363 $ 868,714

Net loss — — ( 37,988 ) — — ( 901 ) ( 38,889 )

Pension plans and other

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Fair value of derivatives — — — ( 8,942 ) — — ( 8,942 )

Total comprehensive income

Total comprehensive loss ( 103,044 )

Stock-based compensation — 7,729 — — — — 7,729

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of treasury stock

— — — — ( 26,127 ) — ( 26,127 )

Issuance of 3,782 shares

of treasury stock

— ( 154 ) — — 154 — —

Cancellation of 20,114 shares of

treasury stock

Reclassification of accumulated

other comprehensive (loss)

income ("AOCI") tax effects

— 947 — — ( 947 ) — —

Dividends — — ( 25,620 ) — — — ( 25,620 )

Acquisition — — — — — 1,760 1,760

Cumulative tax adjustment for

intra-entity transfers — — ( 4,176 ) — — — ( 4,176 )

Balance, September 30, 2019 $ 36,334 $ 137,774 $ 972,594 $ ( 228,361 ) $ ( 200,235 ) $ 1,130 $ 719,236

Net loss — — ( 87,155 ) — — ( 497 ) ( 87,652 )

Pension plans and other

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of treasury stock

— — — — ( 4,428 ) — ( 4,428 )

Issuance of 12,125 shares

of treasury stock

— ( 486 ) — — 486 — —

Cancellation of 23,461 shares of

treasury stock

Cumulative tax adjustment for

intra-entity transfers

— 1,527 — — ( 1,527 ) — —

Dividends — — ( 26,437 ) — — — ( 26,437 )

Pension contribution of 668,000

shares of treasury stock

— ( 11,724 ) — — 26,707 — 14,983

Balance, September 30, 2020 $ 36,334 $ 135,187 $ 859,002 $ ( 240,719 ) $ ( 178,997 ) $ 626 $ 611,433

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(Dollar amounts in thousands)

2020 2019 2018

Cash flows from operating activities:

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

Adjustments to reconcile net income to net cash

Adjustments to reconcile net (loss) income to net cash

provided by operating activities:

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

Deferred tax (benefit) provision

Deferred tax benefit ( 16,607 ) ( 6,783 ) ( 23,125 )

Gain on sale of assets, net ( 348 ) ( 8,567 ) ( 2,190 )

Loss on divestitures

Unrealized gain on investments in mutual funds

(Gain) loss on sale of ownership interests in subsidiaries ( 11,208 ) 6,469 —

Unrealized gain on investments ( 2,066 ) ( 305 ) ( 1,304 )

Losses from equity-method investments 3,498 2,050 —

Realized loss (gain) on cost-method investments — 4,731 ( 3,771 )

Goodwill write-down

Goodwill write-downs 90,408 77,572 —

Changes in working capital items 46,367 ( 12,482 ) ( 9,934 )

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Proceeds from sale of assets 624 13,253 4,705

Proceeds from sale of investments

Proceeds from divestiture

Purchases of investments

Proceeds from sale of cost-method investments — — 9,158

Proceeds from sale of ownership interests in subsidiaries 42,210 8,254 —

Investments and advances ( 9,703 ) ( 33,074 ) ( 11,934 )

Net cash used in investing activities ( 2,718 ) ( 60,759 ) ( 162,336 )

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Payments on long-term debt ( 1,281,092 ) ( 519,731 ) ( 651,166 )

Acquisition holdback and contingent consideration payments

Purchases of treasury stock ( 4,428 ) ( 26,127 ) ( 21,181 )

Proceeds from the exercise of stock options

Dividends ( 26,437 ) ( 25,620 ) ( 24,637 )

Acquisition holdback and contingent consideration payments ( 10,215 ) ( 4,421 ) —

Other financing activities ( 4,889 ) ( 2,836 ) ( 6,303 )

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Cash paid during the year for:

Interest $ 35,269 $ 41,453 $ 37,232

Income taxes 20,734 15,467 11,014

Non-cash investing and financing activities:

Acquisition of long-term asset under financing arrangement $ — $ — $ 14,544

Contribution of treasury stock to principal retirement plan 14,983 — —

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

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Brand solutions consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.

Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment primarily for the cemetery and funeral home industries.

Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries.

Industrial technologies include marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

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Actual results could differ from those estimates.

Reclassifications:

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

These reclassifications are not material to the prior year presentation.

Cash and Cash Equivalents:

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No such charges were recognized during the years presented.

A lease exists at contract inception if the contract conveys the right to control an identified asset for a period of time in exchange for consideration.

Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset.

If a contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use ("ROU") asset.

As a majority of the Company’s leases do not provide an implicit interest rate within the lease, an incremental borrowing rate is used to determine the ROU asset and lease liability which is based on information available at the commencement date.

Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain an option will be exercised.

Renewal options are most prevalent in the Company’s real estate leases.

In general, the Company has not included renewal options for leases in the ROU asset and lease liability because the likelihood of renewal is not considered to be reasonably certain.

In addition, leases may include variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense.

The Company applies the practical expedient to not separate lease components from non-lease components for all asset classes.

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

There are two types of leases, operating leases and finance leases.

Lease classification is determined at lease commencement.

Leases not meeting the finance lease criteria are classified as operating leases.

Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet.

ROU assets for operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet.

For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance Sheet.

For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the Consolidated Balance Sheet.

Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet.

Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition.

On the cash flow statement, payments for operating leases are classified as operating activities.

Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Goodwill and Other Intangible Assets:

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The cash flows from derivative activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Foreign Currency:

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Comprehensive income (loss) consists of net income adjusted for changes, net of any related income tax effect, in cumulative foreign currency translation, the fair value of derivatives, unrealized investment gains and losses and remeasurement of pension and other postretirement liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Treasury Stock:

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In limited instances revenue is recognized over time as critical milestones are met and as services are provided.

Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the stand alone selling price, estimates of rebates and other sales or contract renewal incentives, and cash discounts and sales returns ("Variable Consideration").

Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the stand alone selling price for goods and services, as well as warranties.

Transaction price also reflects estimates of rebates, other sales or contract renewal incentives, cash discounts and sales returns ("Variable Consideration").

Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied.

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Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period.

A binomial lattice model is utilized to determine the fair value of awards that have vesting conditions based on market targets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Income Taxes:

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Diluted earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

ACCOUNTING PRONOUNCEMENTS:

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The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326) , which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date.

Subsequently, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No.

2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) , that provide certain amendments to the new guidance.

These ASUs are effective for the Company beginning in interim periods starting in fiscal year 2021.

The adoption of these ASUs are not expected to have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes.

The amendments in this update remove certain exceptions to the general principles in Topic 740 and also simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company early adopted this ASU in the quarter ended March 31, 2020.

The adoption of this ASU had no significant impact on the Company's consolidated financial statements, but modifies the methodology to assess certain tax principles in Topic 740 prospectively.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits.

This ASU is effective for the Company beginning in interim periods starting in fiscal year 2020.

The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging (Topic 815) , which provides new guidance intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.

This ASU is effective for the Company beginning in fiscal year 2020.

The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No.

The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) , which provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities.

This ASU requires lessees to recognize assets and liabilities that arise from financing and operating leases on the Consolidated Balance Sheet.

Subsequently, the FASB issued several ASUs that address implementation issues and correct or improve certain aspects of the new lease guidance, including ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842 , ASU 2018-10, Codification Improvements to Topic 842, Leases , ASU 2018-11, Leases (Topic 842):

Targeted Improvements, ASU 2018-20, Leases (Topic 842):

Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842):

Codification Improvements .

These ASUs do not change the core principles in the lease guidance outlined above.

2018-11 provides an additional transition method to adopt ASU No.

Under the new transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company has elected to use this transition method at the adoption date of October 1, 2019.

2016-02 and the related ASUs referenced above are effective for the Company beginning in interim periods starting in fiscal year 2020.

The Company expects the estimated right-of-use asset and related lease liability recognized

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

ACCOUNTING PRONOUNCEMENTS, (continued)

on the Consolidated Balance Sheet to approximate $ 85 million .

The Company does not expect the adoption to have a material impact to its Consolidated Statement of Cash Flows or Consolidated Statement of Income.

The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No.

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The Company adopted this standard on October 1, 2018 applying the presentation requirements retrospectively.

For the year ended September 30, 2018, the Company reclassified net benefit costs of $ 2,871 , $ 907 and $ 1,945 , from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net.

For the year ended September 30, 2017, the Company reclassified net benefit costs of $ 4,401 , $ 1,391 and $ 2,981 , from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment , which provides new guidance intended to simplify the subsequent measurement of goodwill and removing Step 2 from the goodwill impairment process.

The Company early adopted this ASU in the first quarter ended December 31, 2017.

The adoption of this ASU had no impact on the Company's consolidated financial statements, but modifies the methodology to assess and measure goodwill impairment prospectively.

In January 2017, the FASB issued ASU No.

2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business , which provides new guidance intended to make the definition of a business more operable and allow for more consistency in application.

The adoption of this ASU in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) , which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.

In October 2016, the FASB issued ASU No.

2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) , which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

ACCOUNTING PRONOUNCEMENTS, (continued)

than inventory, when the transfer occurs.

The Company adopted ASU 2016-16 on October 1, 2018 using the modified retrospective method which resulted in a decrease to retained earnings and other assets of $ 4,176 .

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The adoption of this ASU in the first quarter ended December 31, 2018 did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02 , Leases (Topic 842) , which provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities.

This ASU requires lessees to recognize assets and liabilities that arise from financing and operating leases on the Consolidated Balance Sheet.

Targeted Improvements, ASU 2018-20, Leases (Topic 842):

Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842):

Codification Improvements .

These ASUs do not change the core principles in the lease guidance outlined above.

2018-11 provides an additional transition method to adopt ASU No.

Under the transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the standard using the transition method as of October 1, 2019.

Under this approach, the Company recognized and recorded ROU assets and related lease liabilities on the Consolidated Balance Sheet of approximately $ 80 million with no impact to retained earnings.

Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP.

As part of the adoption, the Company elected the package of practical expedients permitted under the transition guidance which includes the ability to carry forward historical lease classification.

In January 2016, the FASB issued ASU No.

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The adoption of these ASUs in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements.

In July 2015, the FASB issued ASU No.

2015-11, Simplifying the Measurement of Inventory , which provides new guidance to simplify the measurement of inventory valuation at the lower of cost or net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The adoption of this ASU in the first quarter ended December 31, 2017 had no impact on the Company's consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

ACCOUNTING PRONOUNCEMENTS, (continued)

In May 2014, the FASB issued ASU No.

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The adoption of these ASUs did not impact the Company's consolidated financial statements and therefore, there was no cumulative effect adjustment recognized to retained earnings on October 1, 2018.

Refer to Note 4, “Revenue Recognition,” for a further discussion.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) , which provides new guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S.

In February 2018, the FASB issued ASU No.

2018-02 , Income Statement - Reporting Comprehensive Income (Topic 220) , which provides new guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S.

Tax Cuts and Jobs Act.

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The adoption of this ASU resulted in a decrease to AOCI and corresponding increase to retained earnings of $ 8,814 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

REVENUE RECOGNITION:

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The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, engineered products, and imaging services for consumer goods and retail customers, merchandising display systems, and marketing and design services primarily to the consumer goods and retail industries.

The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets and cremation equipment primarily for the cemetery and funeral home industries.

The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries.

The Industrial Technologies segment delivers marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products for the warehousing and industrial industries.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

REVENUE RECOGNITION, (continued)

The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Disaggregated sales by segment and region for the years ended September 30, 2020, 2019 and 2018 were as follows:

North America

Central and South America

North America Central and South America Europe Australia Asia Consolidated

SGK Brand Solutions:

2020 $ 305,527 $ 6,304 $ 326,776 $ 12,097 $ 42,389 $ 693,093

2019 320,553 5,853 362,088 11,767 43,608 743,869

2018 351,631 6,171 389,151 12,599 45,722 805,274

Memorialization:

2020 $ 611,496 $ — $ 35,557 $ 8,982 $ — $ 656,035

2019 590,575 — 37,199 9,118 — 636,892

2018 583,942 — 36,773 10,677 — 631,392

Industrial Technologies:

2020 $ 120,682 $ — $ 25,498 $ — $ 2,998 $ 149,178

2019 127,140 — 26,966 — 2,409 156,515

2018 130,794 — 30,154 — 4,966 165,914

Consolidated:

2020 $ 1,037,705 $ 6,304 $ 387,831 $ 21,079 $ 45,387 $ 1,498,306

2019 1,038,268 5,853 426,253 20,885 46,017 1,537,276

2018 1,066,367 6,171 456,078 23,276 50,688 1,602,580

FAIR VALUE MEASUREMENTS:

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September 30, 2020

Derivatives (1)

Level 1 Level 2 Level 3 Total

Equity and fixed income mutual funds — 24,610 — 24,610

2 unchanged sentences

Derivatives (1)

$ — $ 7,792 $ — $ 7,792

Total liabilities at fair value $ — $ 7,792 $ — $ 7,792

1 unchanged sentence

September 30, 2019

Level 1 Level 2 Level 3 Total

Derivatives (1)

$ — $ 845 $ — $ 845

Equity and fixed income mutual funds — 22,986 — 22,986

2 unchanged sentences

Derivatives (1)

$ — $ 1,379 $ — $ 1,379

Total liabilities at fair value $ — $ 1,379 $ — $ 1,379

4 unchanged sentences

Finished goods 68,815 68,361

$ 175,100 $ 180,274

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

Equity and fixed income mutual funds are classified as trading securities and recorded at fair value.

The market value of these investments exceeded cost by $ 941 and $ 838 at September 30, 2019 and 2018 , respectively.

Realized and unrealized gains and losses are recorded in investment income.

Realized gains (losses) for fiscal 2019 , 2018 and 2017 were not material.

Cost-method investments include ownership interests in various entities of less than 20 % .

At September 30, 2020 and 2019, non-current investments were as follows:

2 unchanged sentences

Equity-method investments 446 39,761

Cost-method investments

Other investments 33,573 18,724

$ 63,250 $ 85,501

Equity and fixed income mutual funds represent investments held in trust for the Company's non-qualified supplemental retirement plan and are classified as trading securities and recorded at fair value.

The market value of these investments exceeded cost by $ 138 and $ 941 at September 30, 2020 and 2019, respectively.

Realized and unrealized gains and losses are recorded in investment income.

Realized gains (losses) for fiscal 2020, 2019 and 2018 were not material.

During fiscal 2019, the Company completed the sale of a 51 % ownership interest in a small Memorialization business.

This transaction resulted in the recognition of a $ 5,587 pre-tax loss which was included as a component of administrative expenses for the year ended September 30, 2019.

Immediately following the transaction, the Company retained a non-controlling interest in this business, which was accounted for as an equity-method investment.

The Company made additional capital contributions to this non-consolidated subsidiary totaling $ 29,148 during fiscal 2019 and continued to account for this non-controlling interest as an equity method investment.

Changes in cost-method investments during fiscal 2019 resulted from additional purchases of investments in the SGK Brand Solutions segment, partially offset by losses from certain investments in the SGK Brand Solutions and Memorialization segments.

During fiscal 2018 , the Company purchased an $ 11,747 ownership interest in a company in the SGK Brand Solutions segment, which was recorded as a cost-method investment.

In fiscal 2018, the Company also sold certain of its cost-method investments for net proceeds totaling $ 9,159 .

In connection with these dispositions, the Company recognized $ 3,771 of pre-tax gains within other income (deductions), net.

During fiscal 2020, the Company made $ 9,482 of additional investments in its non-consolidated Memorialization subsidiary.

Subsequently in fiscal 2020, the Company sold its ownership interest in this subsidiary for $ 42,210 of cash and $ 15,000 of senior preferred shares.

The senior preferred shares earn a yield based on an escalating rate ranging from 6 % to 14 % and are expected to be redeemed before the end of calendar year 2022.

In connection with this sale transaction, the Company recognized a pre-tax gain of $ 11,208 which has been recorded as a component of administrative expenses.

The senior preferred shares are included within other investments in the table above along with ownership interests in various entities of less than 20%, which are recorded under the cost-method of accounting.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment and the related accumulated depreciation at September 30, 2020 and 2019 were as follows:

Buildings $ 113,231 $ 114,276

Machinery, equipment and other 486,282 446,356

599,513 560,632

Less accumulated depreciation ( 391,436 ) ( 361,193 )

208,077 199,439

Land 16,660 17,310

Construction in progress 12,051 20,693

Depreciation expense, including amortization of assets under capital lease, was $ 45,037 , $ 45,412 and $ 44,668 for each of the three years ended September 30, 2019 , 2018 and 2017 , respectively.

$ 236,788 $ 237,442

Depreciation expense, including amortization of assets under finance lease, was $ 47,544 , $ 45,037 and $ 45,412 for each of the three years ended September 30, 2020, 2019 and 2018, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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Notes payable to banks — 16,376

Short-term borrowings

Capital lease obligations

Other borrowings 20,742 395

Finance lease obligations 9,684 3,631

834,534 940,697

Less current maturities ( 26,824 ) ( 42,503 )

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $ 900,000 senior secured revolving credit facility and a $ 250,000 senior secured amortizing term loan.

$ 807,710 $ 898,194

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020.

The amended and restated loan agreement includes a $ 750,000 senior secured revolving credit facility, which matures in March 2025, and a $ 35,000 senior secured amortizing term loan, which matures in July 2021.

A portion of the revolving credit facility (not to exceed $ 350,000 ) can be drawn in foreign currencies.

The term loan requires scheduled 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.

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The Company is required to pay an annual commitment fee ranging from 0.15 % to 0.30 % (based on the Company's leverage ratio) of the unused portion of the revolving credit facility.

The Company incurred debt issuance costs of approximately $ 2,000 in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios.

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dollar denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were $ 257,439 and $ 325,638 , respectively.

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

Proceeds from the Euro denominated borrowing were used to make a principal payment of $ 140,000 on the outstanding balance of the term loan.

Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2019 were € 125.0 million ( $ 136,470 ).

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

Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were € 117.0 million ($ 137,188 ) and € 125.0 million ($ 136,470 ), respectively.

Outstanding borrowings on the term loan at September 30, 2020 and 2019 were $ 22,359 and $ 53,497 , respectively.

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

The Company incurred direct financing fees and costs in connection with 2025 Senior Notes of $ 4,127 , which are being deferred and amortized over the term of the 2025 Senior Notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

LONG-TERM DEBT, (continued)

The Company has a $ 115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures on April 11, 2020, and the Company intends to extend this facility.

The Company incurred direct financing fees and costs in connection with 2025 Senior Notes.

Unamortized costs were $ 2,744 and $ 3,284 at September 30, 2020 and 2019, respectively.

The Company has a $ 115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions.

The Securitization Facility, which had a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022.

Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company.

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The interest rate on borrowings under this facility at September 30, 2020 and 2019 was 0.90 % and 2.77 %, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

LONG-TERM DEBT, (continued)

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

September 30, 2020 September 30, 2019

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 ( $ 403 after tax) and an unrealized gain of $ 11,309 ( $ 8,538 after tax) at September 30, 2019 and 2018 , respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").

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

The fair value of the interest rate swaps reflected an unrealized loss of $ 7,792 ($ 5,884 after tax) and an unrealized loss net of unrealized gains of $ 534 ($ 403 after tax) at September 30, 2020 and 2019, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").

Assuming market rates remain constant with the rates at September 30, 2020, a loss (net of tax) of approximately $ 2,389 included in AOCI is expected to be recognized in earnings over the next twelve months.

At September 30, 2020 and 2019, the interest rate swap contracts were reflected on a gross-basis in the consolidated balance sheets as follows:

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Long-term assets:

Other assets — 297

Current liabilities:

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Total derivatives $ ( 7,792 ) $ ( 534 )

The (losses) gains recognized on derivatives was as follows:

Derivatives in Cash Flow Hedging Relationships Location of (Loss) Gain Recognized in Income on Derivatives Amount of (Loss) Gain Recognized in Income on Derivatives

2020 2019 2018

Interest rate swaps Interest expense $( 861 ) $ 3,181 $ 1,380

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1 unchanged sentence

LONG-TERM DEBT, (continued)

The gains recognized on derivatives was as follows:

Derivatives in Cash Flow Hedging Relationships

Location of Gain Recognized in Income on Derivatives

Amount of Gain Recognized in Income on Derivatives

Interest rate swaps

Interest expense

The Company recognized the following gains (losses) in AOCI:

Derivatives in Cash Flow Hedging Relationships

Amount of (Loss) Gain Recognized in AOCI on Derivatives

Location of Gain Reclassified from AOCI into Income

Amount of Gain Reclassified from AOCI into Income (Effective Portion*)

The Company recognized the following (losses) gains in AOCI:

Derivatives in Cash Flow Hedging Relationships Amount of (Loss) Gain Recognized in AOCI on Derivatives Location of (Loss) Gain Reclassified from AOCI into Income Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion*)

2020 2019 2018 (Effective Portion*) 2020 2019 2018

Interest rate swaps

Interest expense

Interest rate swaps $( 6,130 ) $( 6,540 ) $ 6,095 Interest expense $( 650 ) $ 2,402 $ 1,042

* There is no ineffective portion or amount excluded from effectiveness testing.

2 unchanged sentences

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

Outstanding borrowings under this facility were € 12.8 million ( $ 14,024 ) and € 2.8 million ( $ 3,211 ) at September 30, 2019 and 2018 , respectively.

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

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

KG, has € 15.0 million ( $ 16,376 ) of senior unsecured notes with European banks.

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

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

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

Other debt totaled $ 395 and $ 5,399 at September 30, 2019 and 2018 , respectively.

Outstanding borrowings under the credit facility totaled € 18.9 million ($ 22,166 ) and € 12.8 million ($ 14,024 ) at September 30, 2020 and 2019, respectively.

The weighted-average interest rate on outstanding borrowings under this facility was 1.25 % at September 30, 2020 and 2019.

The Company’s German subsidiary, Matthews Europe GmbH, had € 15.0 million ($ 16,376 at September 30, 2019) of senior unsecured notes with European banks.

The notes matured in November 2019 at which point they were paid.

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

Finance lease liabilities included as a component of debt totaled 9,684 and 3,631 at September 30, 2020 and 2019, respectively.

Other borrowings totaled $ 20,742 and $ 395 at September 30, 2020 and 2019, respectively.

The weighted-average interest rate on these outstanding borrowings was 2.10 % and 2.17 % at September 30, 2020 and 2019, respectively.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations.

Currency losses of $ 3,320 (net of income taxes of $ 1,077 ), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for the fiscal year 2019 .

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

In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £ 8,570,000 ( $ 10,541 at September 30, 2019 ) with respect to a performance guarantee on an environmental solutions project in Saudi Arabia.

Currency losses of $ 4,377 (net of income taxes of $ 1,420 ) and currency gains of $ 3,320 (net of income taxes of $ 1,077 ), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for fiscal 2020 and 2019, respectively.

In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £ 8,570,000 ($ 11,032 at September 30, 2020) with respect to a performance guarantee on an incineration equipment project in Saudi Arabia.

Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K.

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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

The Company continues to pursue a trial on the merits in Saudi Arabia;

however, given the recent coronavirus disease 2019 ("COVID-19") pandemic, the case has been further delayed.

As the Company has successfully completed the project and subsequently operated the equipment, the Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial.

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

During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic.

As a result, the Company was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage.

Consequently, as of the filing of this report, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts.

Therefore, when considered collectively with the potential delay in completing the trial and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of June 30, 2020.

The funded letter of credit was previously classified within other assets on the Consolidated Balance Sheet as of September 30, 2019.

The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1 unchanged sentence

LONG-TERM DEBT, (continued)

has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of September 30, 2019 and 2018.

The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

As of September 30, 2020 and 2019 the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets.

The Company was in compliance with all of its debt covenants as of September 30, 2020.

Aggregate maturities of long-term debt, including short-term borrowings and capital leases, is as follows:

* The Company maintains certain debt facilities with current maturity dates in fiscal 2020 that it intends and has the ability to extend beyond fiscal 2020 totaling $ 107,974 .

Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows:

2021 $ 55,564 (a)

Thereafter 302,862

Finance lease obligations 9,684 (b)

(a) The Company maintains certain debt facilities with current maturity dates in fiscal 2021 that it intends and has the ability to extend beyond fiscal 2021 totaling $ 32,255 .

These balances have been classified as non-current on the Company's Consolidated Balance Sheet.

(b) Aggregate maturities of finance lease obligations can be found in Note 10, "Leases."

The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment.

Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet.

Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP.

The following table presents the balance sheet and lease classification for the Company's lease portfolio:

Balance Sheet Classification Lease Classification September 30, 2020

Non-current assets:

Property, plant and equipment, net Finance $ 9,185

Other assets Operating 72,011

Total lease assets $ 81,196

Current liabilities:

Long-term debt, current maturities Finance $ 3,515

Other current liabilities Operating 23,942

Non-current liabilities:

Long-term debt Finance 6,169

Other liabilities Operating 49,297

Total lease liabilities $ 82,923

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

LEASES, (continued)

The following table presents the components of lease cost:

For the Year Ended September 30, 2020

Finance lease cost:

Amortization of ROU assets $ 2,112

Interest on lease liabilities 206

Operating lease cost (a)

Variable lease cost (a)

Sublease income ( 732 )

Total lease cost $ 30,619

(a) Annual lease cost under operating leases were $ 29,033 , $ 38,015 and $ 38,934 in fiscal 2020, 2019 and 2018, respectively.

Supplemental information regarding the Company's leases follows:

For the Year Ended September 30, 2020

Cash paid for finance and operating lease liabilities:

Operating cash flows from finance leases $ 207

Operating cash flows from operating leases $ 29,309

Financing cash flows from finance leases $ 2,064

ROU assets obtained in exchange for new finance lease liabilities $ 2,613

ROU assets obtained in exchange for new operating lease liabilities $ 12,442

September 30, 2020

Weighted-average remaining lease term - finance leases (years) 4.39

Weighted-average remaining lease term - operating leases (years) 3.52

Weighted-discount rate - finance leases 2.89 %

Weighted-discount rate - operating leases 2.82 %

Maturities of lease obligations by fiscal year were as follows as of September 30, 2020:

Operating Leases Finance Leases

2021 $ 25,804 $ 3,847

2022 18,973 2,877

2023 12,939 1,168

2024 8,706 462

2025 5,515 407

Thereafter 5,224 1,753

Total future minimum lease payments 77,161 10,514

Interest 3,922 830

Present value of lease liabilities:

$ 73,239 $ 9,684

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SHAREHOLDERS' EQUITY:

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Under the 2017 Equity Incentive Plan, which has a ten -year term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000 .

At September 30, 2019 , there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan, including 262,000 restricted share units that were granted during fiscal 2019 .

At September 30, 2020, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan.

565,860 restricted share units have been granted under the 2017 Equity Incentive Plan and are outstanding as of September 30, 2020.

The 2017 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors.

With respect to outstanding restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.

With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.

Additionally, restricted shares cannot vest until the first anniversary of the grant date.

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The number of units that vest depend on certain time and performance thresholds.

Approximately forty percent of the shares vest based on time, while the remaining vest based on pre-defined performance thresholds.

Approximately thirty-eight percent of the shares vest based on time, while the remaining vest based on pre-defined performance thresholds.

The Company issues common stock from treasury shares once vested.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SHARE-BASED PAYMENTS, (continued)

For the years ended September 30, 2020, 2019 and 2018, stock-based compensation cost totaled $ 8,096 , $ 7,729 and $ 13,460 , respectively.

1 unchanged sentence

The associated future income tax benefit recognized was $ 1,665 , $ 1,535 and $ 2,826 for the years ended September 30, 2020, 2019 and 2018, respectively.

The transactions for restricted stock for the year ended September 30, 2019 were as follows:

The transactions for restricted shares and restricted share units for the year ended September 30, 2020 were as follows:

Shares Weighted-

Non-vested at September 30, 2019 615,635 $ 49.61

Granted 303,660 34.97

Vested ( 128,795 ) 64.08

Expired or forfeited ( 40,178 ) 55.65

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As of September 30, 2020, the total unrecognized compensation cost related to unvested restricted stock was $ 9,122 which is expected to be recognized over a weighted-average period of 1.8 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands, except per share data)

SHARE-BASED PAYMENTS, (continued)

The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans").

The 2019 Director Fee Plan was approved by the Company’s shareholders at the 2019 Annual Meeting of Shareholders on February 21, 2019.

There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan.

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The value of deferred shares is recorded in other liabilities.

A total of 25,682 shares had been deferred under the Director Fee Plans at September 30, 2019 .

A total of 30,764 shares and share units had been deferred under the Director Fee Plans at September 30, 2020.

Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $ 125 for fiscal year 2020.

196,266 restricted shares and restricted share units have been granted under the Director Fee Plans, 23,037 of which were issued under the 2019 Director Fee Plan.

34,542 restricted shares and restricted share units are unvested at September 30, 2019 .

241,378 restricted shares and restricted share units have been granted under the Director Fee Plans, 68,149 of which were issued under the 2019 Director Fee Plan and are unvested at September 30, 2020.

EARNINGS PER SHARE:

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

2020 2019 2018

Net (loss) income available to Matthews shareholders $ ( 87,155 ) $ ( 37,988 ) $ 107,371

Weighted-average shares outstanding (in thousands):

Basic shares 31,190 31,416 31,674

Effect of dilutive securities — — 187

Diluted shares 31,190 31,416 31,861

Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal years ended September 30, 2019 , 2018 , and 2017 .

Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal year ended September 30, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 2020 and 2019:

Other Postretirement

Pension Other Postretirement

2020 2019 2020 2019

Change in benefit obligation:

Benefit obligation, beginning of year $ 289,957 $ 241,553 $ 20,952 $ 18,826

Service cost 8,679 7,998 227 244

Interest cost 7,735 9,202 501 718

Actuarial loss (gain) 23,827 43,198 ( 1,402 ) 2,212

Exchange gain

Exchange loss (gain) 799 ( 581 ) — —

Benefit payments ( 12,110 ) ( 11,413 ) ( 847 ) ( 1,048 )

2 unchanged sentences

Fair value, beginning of year (1)

155,313 158,662 — —

Actual return 8,705 6,852 — —

2 unchanged sentences

Fair value, end of year (1)

168,134 155,313 — —

Funded status (1)

( 150,753 ) ( 134,644 ) ( 19,431 ) ( 20,952 )

Unrecognized actuarial loss (gain) 110,971 95,741 676 ( 106 )

11 unchanged sentences

Net amount recognized $ 111,314 $ 95,374 $ ( 1,372 ) $ ( 436 )

(1) Pension benefit payments in fiscal 2018 included approximately $ 6,800 of lump sum distributions that were made to certain terminated vested employees as settlements of the employees' pension obligations.

These distributions did not meet the threshold to qualify as settlements under U.S.

GAAP and therefore, no unamortized actuarial losses were recognized in the Statements of Income upon completion of the lump sum distributions.

(1) The fair value of plan assets and funded status do not include the value of investments held in trust for the Company's non-qualified supplemental retirement plan.

These investments totaled $ 24,610 and $ 22,986 as of September 30, 2020 and 2019, respectively.

Refer to Note 7, "Investments" for further details.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3 unchanged sentences

Net periodic pension and other postretirement benefit cost for the plans included the following:

Other Postretirement

Pension Other Postretirement

2020 2019 2018 2020 2019 2018

Service cost $ 8,679 $ 7,998 $ 8,159 $ 227 $ 244 $ 335

Interest cost * 7,735 9,202 8,210 501 718 631

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Matthews has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are made from the Company's operating cash.

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 $ 14,983 at the time of the contribution.

The Company is required to make contributions of approximately $ 4,191 to its principal retirement plan in fiscal 2021.

Contributions made in fiscal 2020 are as follows:

Contributions

Other Postretirement

Contributions Pension Other Postretirement

Principal retirement plan * $ 14,983 $ —

Supplemental retirement plan 821 —

1 unchanged sentence

Other Postretirement

2020 2019 2018 2020 2019 2018

Discount rate 2.62 % 3.13 % 4.21 % 2.63 % 3.10 % 4.19 %

10 unchanged sentences

The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2020 and 2019 and weighted-average target allocation were as follows:

Plan Assets at

Asset Category

Plan Assets at Target

Asset Category 2020 2019 Allocation *

Equity securities $ 118,677 $ 105,297 65 %

1 unchanged sentence

Other investments 15,273 10,860 10 %

$ 168,134 $ 155,313 100 %

* Target allocation relates to the Company's primary defined benefit pension plan as of September 30, 2020.

1 unchanged sentence

The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices.

The Company categorizes plan assets within a three level fair value hierarchy (see Note 5 for a further discussion of the fair value hierarchy).

The Company categorizes plan assets within a three level fair value hierarchy (see Note 5, "Fair Value Measurements" for a further discussion of the fair value hierarchy).

The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value hierarchy in which each type of pension plan asset is classified as follows.

Equity securities consist of direct investments in the stocks of publicly traded companies.

Such investments are valued based on the closing price reported in an active market on which the individual securities are traded.

As such, the direct investments are classified as Level 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1 unchanged sentence

PENSION AND OTHER POSTRETIREMENT PLANS, (continued)

Equity securities consist of direct investments in the stocks of publicly traded companies.

Such investments are valued based on the closing price reported in an active market on which the individual securities are traded.

As such, the direct investments are classified as Level 1.

Mutual funds are valued at the closing price of shares held by the Plan at year end.

13 unchanged sentences

September 30, 2020

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Equity securities - stocks (1)

$ 37,089 $ — $ — $ 37,089

Equity securities - mutual funds 81,588 — — 81,588

2 unchanged sentences

Other investments — — 15,273 15,273

Total $ 132,775 $ 20,086 $ 15,273 $ 168,134

(1) Includes $ 14,936 of of Matthews Class A Common Stock in Level 1.

September 30, 2019

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Equity securities - stocks $ 54,985 $ — $ — $ 54,985

3 unchanged sentences

Other investments — — 10,860 10,860

Total $ 125,485 $ 18,968 $ 10,860 $ 155,313

Changes in the fair value of Level 3 assets at September 30, 2020 and 2019 are summarized as follows:

Asset Category

Fair Value, Beginning of Period

Realized Gains

Unrealized Gains (Losses)

Fair Value, End of Period

Asset Category Fair Value, Beginning of Period Acquisitions Dispositions Realized Gains Unrealized Gains (Losses) Fair Value, End of Period

Other investments:

7 unchanged sentences

Years ending September 30:

Pension Benefits

What changed 10-K

Item 8. Financial Statements and Supplementary Data