MATTHEWS INTERNATIONAL CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Description Pages Management's Report to Shareholders 34 Report of Independent Registered Public Accounting Firm 35 Report of Independent Registered Public Accounting Firm 36 Financial Statements: Consolidated Balance Sheets as of September 30, 2020 and 2019 38 Consolidated Statements of Income for the years ended September 30, 2020, 2019 and 2018 40 Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018 41 Consolidated Statements of Shareholders' Equity for the years ended September 30, 2020, 2019 and 2018 42 Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018 43 Notes to Consolidated Financial Statements 44 Supplementary Financial Information (unaudited) 76 Financial Statement Schedule – Schedule II-Valuation and Qualifying Accounts for the years ended September 30, 2020, 2019 and 2018 77 33 MANAGEMENT'S REPORT TO SHAREHOLDERS To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Management's Report on Financial Statements The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the "Company") were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial statements. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a-15f. In order to evaluate the effectiveness of internal control over financial reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Internal controls over financial reporting is a process under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the Company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting based on criteria in Internal Control – Integrated Framework (2013) issued by the COSO, and has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2020. The effectiveness of the Company's internal control over financial reporting as of September 30, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein. Management's Certifications The certifications of the Company's Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in this Annual Report on Form 10-K. 34 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Opinion on Internal Control over Financial Reporting We have audited Matthews International Corporation and Subsidiaries’ internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Matthews International Corporation and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated November 20, 2020 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania November 20, 2020 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Matthews International Corporation and Subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 20, 2020 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 3 to the consolidated financial statements, effective October 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 36 Valuation of Graphics Imaging Reporting Unit Goodwill 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. Auditing the goodwill impairment charge was complex, as it included estimating the fair value of the reporting unit. In particular, the fair value estimates are sensitive to the significant assumptions named above, which are affected by expected future market or economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process. These controls include management’s assessment of indicators of impairment, management's review of the assumptions utilized to develop the estimate, and management’s verification of the completeness and accuracy of the underlying data utilized to project future operating results for the reporting unit. To test the fair value of the reporting unit, our audit procedures included, among others, involving our valuation specialists to assist in assessing the valuation methodologies utilized by the Company and its valuation expert and testing the significant assumptions and underlying data used by the Company. We compared the significant assumptions used by management to current industry and economic trends, changes in the Company’s business model, and other relevant factors. We also assessed the historical accuracy of management’s estimates. We performed sensitivity analyses of significant assumptions to evaluate the sensitivity of the fair value of the reporting unit resulting from changes in key assumptions. We reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company and assessed the resulting control premium. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Pittsburgh, Pennsylvania November 20, 2020 37 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2020 and 2019 (Dollar amounts in thousands, except per share data) ASSETS 2020 2019 Current assets: Cash and cash equivalents $ 41,334 $ 35,302 Accounts receivable, net of allowance for doubtful 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. 38 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, continued September 30, 2020 and 2019 (Dollar amounts in thousands, except per share data) LIABILITIES AND SHAREHOLDERS' EQUITY 2020 2019 Current liabilities: Long-term debt, current maturities $ 26,824 $ 42,503 Trade accounts payable 82,921 74,558 Accrued compensation 58,058 42,545 Accrued income taxes 3,612 5,997 Other current liabilities 145,453 114,276 Total current liabilities 316,868 279,879 Long-term debt 807,710 898,194 Accrued pension 149,848 133,762 Postretirement benefits 18,600 19,963 Deferred income taxes 78,911 102,482 Other liabilities 89,263 37,087 Total liabilities 1,461,200 1,471,367 Shareholders' equity-Matthews: Class A common stock, $ 1.00 par value; authorized 70,000,000 shares; 36,333,992 shares issued 36,334 36,334 Preferred stock, $ 100 par value, authorized 10,000 shares, none issued — — Additional paid-in capital 135,187 137,774 Retained earnings 859,002 972,594 Accumulated other comprehensive loss ( 240,719 ) ( 228,361 ) 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 Noncontrolling interests 626 1,130 Total shareholders' equity 611,433 719,236 Total liabilities and shareholders' equity $ 2,072,633 $ 2,190,603 The accompanying notes are an integral part of these consolidated financial statements. 39 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the years ended September 30, 2020, 2019 and 2018 (Dollar amounts in thousands, except per share data) 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 ) Administrative expense ( 274,923 ) ( 275,467 ) ( 272,532 ) Intangible amortization ( 71,514 ) ( 45,756 ) ( 31,562 ) Goodwill write-downs ( 90,408 ) ( 77,572 ) — Operating (loss) profit ( 64,193 ) 10,303 138,557 Investment income 1,962 1,494 1,570 Interest expense ( 34,885 ) ( 40,962 ) ( 37,427 ) Other income (deductions), net ( 9,221 ) ( 8,918 ) ( 4,707 ) (Loss) income before income taxes ( 106,337 ) ( 38,083 ) 97,993 Income tax benefit (provision) 18,685 ( 806 ) 9,118 Net (loss) income ( 87,652 ) ( 38,889 ) 107,111 Net loss attributable to noncontrolling interests 497 901 260 Net (loss) income attributable to Matthews shareholders $ ( 87,155 ) $ ( 37,988 ) $ 107,371 (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. 40 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the years ended September 30, 2020, 2019 and 2018 (Dollar amounts in thousands) Year Ended September 30, 2020 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) gain on derivatives: Net change from periodic revaluation ( 6,130 ) — ( 6,130 ) Net amount reclassified to earnings 650 — 650 Net change in unrecognized loss on derivatives ( 5,480 ) — ( 5,480 ) Other comprehensive loss, net of tax ( 12,358 ) ( 7 ) ( 12,365 ) Comprehensive loss $ ( 99,513 ) $ ( 504 ) $ ( 100,017 ) Year Ended September 30, 2019 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 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 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 Matthews Noncontrolling Interest Total Net income (loss) $ 107,371 $ ( 260 ) $ 107,111 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment ( 22,053 ) 71 ( 21,982 ) Pension plans and other postretirement benefits 15,631 — 15,631 Unrecognized gain (loss) on derivatives: Net change from periodic revaluation 6,095 — 6,095 Net amount reclassified to earnings ( 1,042 ) — ( 1,042 ) 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 The accompanying notes are an integral part of these consolidated financial statements. 41 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended September 30, 2020, 2019 and 2018 (Dollar amounts in thousands, except per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income (net of tax) Treasury Stock Non- controlling Interests Total 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 postretirement benefits — — — 15,631 — — 15,631 Translation adjustment — — — ( 22,053 ) — 71 ( 21,982 ) Fair value of derivatives — — — 5,053 — — 5,053 Total comprehensive income 105,813 Stock-based compensation — 13,460 — — — — 13,460 Purchase of 393,864 shares 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 — 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 postretirement benefits — — — ( 33,867 ) — — ( 33,867 ) Translation adjustment — — — ( 21,254 ) — ( 92 ) ( 21,346 ) Fair value of derivatives — — — ( 8,942 ) — — ( 8,942 ) Total comprehensive loss ( 103,044 ) Stock-based compensation — 7,729 — — — — 7,729 Purchase of 709,970 shares 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 — 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 postretirement benefits — — — ( 11,211 ) — — ( 11,211 ) Translation adjustment — — — 4,333 — ( 7 ) 4,326 Fair value of derivatives — — — ( 5,480 ) — — ( 5,480 ) Total comprehensive loss ( 100,017 ) Stock-based compensation — 8,096 — — — — 8,096 Purchase of 173,576 shares 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 — 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 The accompanying notes are an integral part of these consolidated financial statements. 42 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 2020, 2019 and 2018 (Dollar amounts in thousands) 2020 2019 2018 Cash flows from operating activities: Net (loss) income $ ( 87,652 ) $ ( 38,889 ) $ 107,111 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 119,058 90,793 76,974 Stock-based compensation expense 8,096 7,729 13,460 Deferred tax benefit ( 16,607 ) ( 6,783 ) ( 23,125 ) Gain on sale of assets, net ( 348 ) ( 8,567 ) ( 2,190 ) (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-downs 90,408 77,572 — Changes in working capital items 46,367 ( 12,482 ) ( 9,934 ) Decrease (increase) in other assets 16,392 4,677 ( 9,872 ) Increase in other liabilities 4,886 7,540 5,406 Other operating activities, net 9,623 ( 3,452 ) ( 5,181 ) Net cash provided by operating activities 180,447 131,083 147,574 Cash flows from investing activities: Capital expenditures ( 34,849 ) ( 37,688 ) ( 43,200 ) Acquisitions, net of cash acquired ( 1,000 ) ( 11,504 ) ( 121,065 ) Proceeds from sale of assets 624 13,253 4,705 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 ) Cash flows from financing activities: Proceeds from long-term debt 1,154,809 503,693 704,188 Payments on long-term debt ( 1,281,092 ) ( 519,731 ) ( 651,166 ) Purchases of treasury stock ( 4,428 ) ( 26,127 ) ( 21,181 ) 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 ) Net cash (used in) provided by financing activities ( 172,252 ) ( 75,042 ) 901 Effect of exchange rate changes on cash 555 ( 1,552 ) ( 2,082 ) Net change in cash and cash equivalents 6,032 ( 6,270 ) ( 15,943 ) Cash and cash equivalents at beginning of year 35,302 41,572 57,515 Cash and cash equivalents at end of year $ 41,334 $ 35,302 $ 41,572 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. 43 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) 1. NATURE OF OPERATIONS: Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of brand solutions, memorialization products and industrial technologies. Brand solutions consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial technologies include marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The Company has facilities in the North America, Europe, Asia, Australia, and Central and South America. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost-method investments. All intercompany accounts and transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. Trade Receivables and Allowance for Doubtful Accounts: Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days past due. The allowance for doubtful accounts is based on an evaluation of specific customer accounts for which available facts and circumstances indicate collectability may be uncertain. Inventories: Inventories are stated at the lower of cost or net realizable value with cost generally determined under the average cost method. Inventory costs include material, labor, and applicable manufacturing overhead (including depreciation) and other direct costs. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Property, Plant and Equipment: Property, plant and equipment are carried at cost. Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment. Gains or losses from the disposition of assets are reflected in operating profit. The cost of maintenance and repairs is charged to expense as incurred. Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during the years presented. Leases: A lease exists at contract inception if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset. If a contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use ("ROU") asset. As a majority of the Company’s leases do not provide an implicit interest rate within the lease, an incremental borrowing rate is used to determine the ROU asset and lease liability which is based on information available at the commencement date. Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain an option will be exercised. Renewal options are most prevalent in the Company’s real estate leases. In general, the Company has not included renewal options for leases in the ROU asset and lease liability because the likelihood of renewal is not considered to be reasonably certain. In addition, leases may include variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense. The Company applies the practical expedient to not separate lease components from non-lease components for all asset classes. In addition, the Company applies the practical expedient to utilize a portfolio approach for certain equipment asset classes, primarily information technology, as the application of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases within the portfolio. There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. Leases not meeting the finance lease criteria are classified as operating leases. Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. ROU assets for operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance Sheet. For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the Consolidated Balance Sheet. Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Goodwill and Other Intangible Assets: Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from 2 to 15 years, and are reviewed when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may exist. In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets. For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including discounted cash flows and other market indicators. For purposes of testing indefinite-lived intangible assets, the Company generally uses a relief from royalty method. Pension and Other Postretirement Plans: Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost. Differences between actual and expected results or changes in the value of the obligations and plan assets are initially recognized through other comprehensive income and subsequently amortized to the Consolidated Statement of Income. Environmental: Costs that mitigate or prevent future environmental issues or extend the life or improve equipment utilized in current operations are capitalized and depreciated on a straight-line basis over the estimated useful lives of the related assets. Costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company's obligation is probable and reasonably estimable. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. Derivatives and Hedging: Derivatives are held as part of a formal documented hedging program. All derivatives are held for purposes other than trading. Matthews measures effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or future cash flows of the hedged item. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains and losses on the derivative will be recorded in other income (deductions) at that time. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) ("OCI"), net of tax, and are reclassified to earnings in a manner consistent with the underlying hedged item. The cash flows from derivative activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item. Foreign Currency: The functional currency of the Company's foreign subsidiaries is generally the local currency. Balance sheet accounts for foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date. Gains or losses that result from this process are recorded in accumulated other comprehensive income (loss). The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Realized gains and losses from foreign currency transactions are presented in the Statement of Income in a consistent manner with the underlying transaction based upon the provisions of Accounting Standards Codification ("ASC") 830 "Foreign Currency Matters." Comprehensive Income (Loss): Comprehensive income (loss) consists of net income adjusted for changes, net of any related income tax effect, in cumulative foreign currency translation, the fair value of derivatives, unrealized investment gains and losses and remeasurement of pension and other postretirement liabilities. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Treasury Stock: Treasury stock is carried at cost. The cost of treasury shares sold is determined under the average cost method. Revenue Recognition: Revenue is recognized when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. For substantially all transactions, control passes in accordance with agreed upon delivery terms, including in certain circumstances, customer acceptance. This approach is consistent with the Company’s historical revenue recognition methodology. In limited instances revenue is recognized over time as critical milestones are met and as services are provided. Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the stand alone selling price for goods and services, as well as warranties. Transaction price also reflects estimates of rebates, other sales or contract renewal incentives, cash discounts and sales returns ("Variable Consideration"). Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied. Each product or service delivered to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. Certain revenue related to mausoleum construction and significant engineering projects, including cremation and incineration projects, and marking and industrial automation projects, are recognized over time using the input method measuring progress toward completion of such projects. Amounts recognized using the over time method were less than 5% of the Company's consolidated revenue for the years ended September 30, 2020, 2019 and 2018. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates. Refer to Note 4, “Revenue Recognition,” for a further discussion. Shipping and Handling Fees and Costs: All fees billed to the customer for shipping and handling are classified as a component of net revenues. All costs associated with shipping and handling are classified as a component of cost of sales or selling expense. Research and Development Expenses: Research and development costs are expensed as incurred and were approximately $ 22,289 , $ 26,176 and $ 24,984 for the years ended September 30, 2020, 2019 and 2018, respectively. Stock-Based Compensation: Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. Income Taxes: Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations. Earnings Per Share: Basic earnings per share is computed by dividing net income by the average number of common shares outstanding. Diluted earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive securities. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 3. ACCOUNTING PRONOUNCEMENTS: Issued In August 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) , which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2021. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) , which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date. Subsequently, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) , that provide certain amendments to the new guidance. These ASUs are effective for the Company beginning in interim periods starting in fiscal year 2021. The adoption of these ASUs are not expected to have a material impact on the Company's consolidated financial statements. Adopted In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 and also simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted this ASU in the quarter ended March 31, 2020. The adoption of this ASU had no significant impact on the Company's consolidated financial statements, but modifies the methodology to assess certain tax principles in Topic 740 prospectively. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits. The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) , which provides new guidance intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) , which provides new guidance intended to clarify and reduce complexities in applying stock compensation guidance to a change to the terms or conditions of share-based payment awards. The adoption of this ASU in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements. In February 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which provides new guidance intended to improve the disclosure requirements related to the service cost component of net benefit cost. ASU 2017-07 requires a company to present the service cost components of net periodic benefit cost in the same income statement line as other employee compensation costs, with the remaining components of net periodic benefit cost presented separately from the service cost components and outside of any subtotal of operating income, if one is presented. The Company adopted this standard on October 1, 2018 applying the presentation requirements retrospectively. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business , which provides new guidance intended to make the definition of a business more operable and allow for more consistency in application. The adoption of this ASU in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements. In October 2016, the FASB issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) , which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 3. 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 . In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) , which provides new guidance intended to clarify the presentation of certain cash flow items including debt prepayments, debt extinguishment costs, contingent considerations payments, and insurance proceeds, among other things. The adoption of this ASU in the first quarter ended December 31, 2018 did not have a material impact on the Company's consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02 , Leases (Topic 842) , which provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities. This ASU requires lessees to recognize assets and liabilities that arise from financing and operating leases on the Consolidated Balance Sheet. Subsequently, the FASB issued several ASUs that address implementation issues and correct or improve certain aspects of the new lease guidance, including ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842 , ASU 2018-10, Codification Improvements to Topic 842, Leases , ASU 2018-11, Leases (Topic 842): Targeted Improvements, ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842): Codification Improvements . These ASUs do not change the core principles in the lease guidance outlined above. ASU No. 2018-11 provides an additional transition method to adopt ASU No. 2016-02. Under the transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the standard using the transition method as of October 1, 2019. Under this approach, the Company recognized and recorded ROU assets and related lease liabilities on the Consolidated Balance Sheet of approximately $ 80 million with no impact to retained earnings. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP. As part of the adoption, the Company elected the package of practical expedients permitted under the transition guidance which includes the ability to carry forward historical lease classification. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , which provides new guidance intended to improve the recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), that provides guidance related to implementation issues and corrects or improves certain aspects of the financial instruments guidance. The adoption of these ASUs in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 . This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The FASB issued ASU 2015-14 in August 2015 which resulted in a deferral of the original effective date of ASU 2014-09. During 2016 and 2017, the FASB issued six ASUs that address implementation issues and correct or improve certain aspects of the new revenue recognition guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , ASU 2016-10, Identifying Performance Obligations and Licensing , ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) and ASU 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) . These ASUs do not change the core principles in the revenue recognition guidance outlined above. The Company adopted the provisions of these ASUs in the first fiscal quarter of 2019, using the modified retrospective method. The adoption of these ASUs did not impact the Company's consolidated financial statements and therefore, there was no cumulative effect adjustment recognized to retained earnings on October 1, 2018. In February 2018, the FASB issued ASU No. 2018-02 , Income Statement - Reporting Comprehensive Income (Topic 220) , which provides new guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. The amount of reclassification is the difference between the Company's historical U.S. income tax rate and the newly enacted 21% corporate income tax rate. The Company early adopted this ASU in the third quarter ended June 30, 2018. The adoption of this ASU resulted in a decrease to AOCI and corresponding increase to retained earnings of $ 8,814 . 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 4. REVENUE RECOGNITION: The Company delivers a variety of products and services through its business segments. The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, engineered products, and imaging services for consumer goods and retail customers, merchandising display systems, and marketing and design services primarily to the consumer goods and retail industries. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment delivers marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products for the warehousing and industrial industries. The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the years ended September 30, 2020, 2019 and 2018 were as follows: North America Central and South America Europe Australia Asia Consolidated SGK Brand Solutions: 2020 $ 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 5. FAIR VALUE MEASUREMENTS: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below: Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 5. FAIR VALUE MEASUREMENTS, (continued) As of September 30, 2020 and 2019, the fair values of the Company's assets and liabilities measured on a recurring basis were categorized as follows: September 30, 2020 Level 1 Level 2 Level 3 Total Assets: Equity and fixed income mutual funds — 24,610 — 24,610 Life insurance policies — 4,621 — 4,621 Total assets at fair value $ — $ 29,231 $ — $ 29,231 Liabilities: Derivatives (1) $ — $ 7,792 $ — $ 7,792 Total liabilities at fair value $ — $ 7,792 $ — $ 7,792 (1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. September 30, 2019 Level 1 Level 2 Level 3 Total Assets: Derivatives (1) $ — $ 845 $ — $ 845 Equity and fixed income mutual funds — 22,986 — 22,986 Life insurance policies — 4,030 — 4,030 Total assets at fair value $ — $ 27,861 $ — $ 27,861 Liabilities: Derivatives (1) $ — $ 1,379 $ — $ 1,379 Total liabilities at fair value $ — $ 1,379 $ — $ 1,379 (1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. 6. INVENTORIES: Inventories at September 30, 2020 and 2019 consisted of the following: 2020 2019 Raw materials $ 36,157 $ 35,616 Work in process 70,128 76,297 Finished goods 68,815 68,361 $ 175,100 $ 180,274 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 7. INVESTMENTS: At September 30, 2020 and 2019, non-current investments were as follows: 2020 2019 Equity and fixed income mutual funds $ 24,610 $ 22,986 Life insurance policies 4,621 4,030 Equity-method investments 446 39,761 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. During fiscal 2020, the Company made $ 9,482 of additional investments in its non-consolidated Memorialization subsidiary. Subsequently in fiscal 2020, the Company sold its ownership interest in this subsidiary for $ 42,210 of cash and $ 15,000 of senior preferred shares. The senior preferred shares earn a yield based on an escalating rate ranging from 6 % to 14 % and are expected to be redeemed before the end of calendar year 2022. In connection with this sale transaction, the Company recognized a pre-tax gain of $ 11,208 which has been recorded as a component of administrative expenses. The senior preferred shares are included within other investments in the table above along with ownership interests in various entities of less than 20%, which are recorded under the cost-method of accounting. 8. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment and the related accumulated depreciation at September 30, 2020 and 2019 were as follows: 2020 2019 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 $ 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. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. LONG-TERM DEBT: Long-term debt at September 30, 2020 and 2019 consisted of the following: 2020 2019 Revolving credit facilities $ 416,793 $ 476,132 Securitization facility 67,700 93,950 Senior secured term loan 22,359 53,497 2025 Senior Notes 297,256 296,716 Notes payable to banks — 16,376 Other borrowings 20,742 395 Finance lease obligations 9,684 3,631 834,534 940,697 Less current maturities ( 26,824 ) ( 42,503 ) $ 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 quarterly principal payments through its maturity date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75 % to 2.00 % ( 1.50 % at September 30, 2020) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15 % to 0.30 % (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs of approximately $ 2,000 in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $ 35,000 ) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were $ 257,439 and $ 325,638 , respectively. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were € 117.0 million ($ 137,188 ) and € 125.0 million ($ 136,470 ), respectively. Outstanding borrowings on the term loan at September 30, 2020 and 2019 were $ 22,359 and $ 53,497 , respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at September 30, 2020 and 2019 was 2.41 % and 2.65 %, respectively. The Company has $ 300,000 of 5.25 % senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25 % per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $ 2,744 and $ 3,284 at September 30, 2020 and 2019, respectively. The Company has a $ 115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. The Securitization Facility, which had a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75 %. The Company is required to pay an annual commitment fee ranging from 0.25 % to 0.35 % of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at September 30, 2020 and 2019 were $ 67,700 and $ 93,950 , respectively. The interest rate on borrowings under this facility at September 30, 2020 and 2019 was 0.90 % and 2.77 %, respectively. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. 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, 2020 September 30, 2019 Pay fixed swaps - notional amount $ 312,500 $ 293,750 Net unrealized loss $ ( 7,792 ) $ ( 534 ) Weighted-average maturity period (years) 2.6 1.9 Weighted-average received rate 0.15 % 2.02 % Weighted-average pay rate 1.34 % 1.41 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective. The fair value of the interest rate swaps reflected an unrealized loss of $ 7,792 ($ 5,884 after tax) and an unrealized loss net of unrealized gains of $ 534 ($ 403 after tax) at September 30, 2020 and 2019, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with the rates at September 30, 2020, a loss (net of tax) of approximately $ 2,389 included in AOCI is expected to be recognized in earnings over the next twelve months. At September 30, 2020 and 2019, the interest rate swap contracts were reflected on a gross-basis in the consolidated balance sheets as follows: Derivatives: 2020 2019 Current assets: Other current assets $ — $ 548 Long-term assets: Other assets — 297 Current liabilities: Other current liabilities ( 3,164 ) ( 484 ) Long-term liabilities: Other liabilities ( 4,628 ) ( 895 ) 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 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. LONG-TERM DEBT, (continued) The Company recognized the following (losses) gains in AOCI: Derivatives in Cash Flow Hedging Relationships Amount of (Loss) Gain Recognized in AOCI on Derivatives 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 $( 6,130 ) $( 6,540 ) $ 6,095 Interest expense $( 650 ) $ 2,402 $ 1,042 * There is no ineffective portion or amount excluded from effectiveness testing. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowings available under this facility is € 35.0 million ($ 41,039 ). The credit facility matures in December 2020 and the Company intends to extend this facility. Outstanding borrowings under the credit facility totaled € 18.9 million ($ 22,166 ) and € 12.8 million ($ 14,024 ) at September 30, 2020 and 2019, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 1.25 % at September 30, 2020 and 2019. The Company’s German subsidiary, Matthews Europe GmbH, had € 15.0 million ($ 16,376 at September 30, 2019) of senior unsecured notes with European banks. The notes matured in November 2019 at which point they were paid. The weighted-average interest rate on the notes at September 30, 2019 was 1.40 %. Finance lease liabilities included as a component of debt totaled 9,684 and 3,631 at September 30, 2020 and 2019, respectively. Other borrowings totaled $ 20,742 and $ 395 at September 30, 2020 and 2019, respectively. The weighted-average interest rate on these outstanding borrowings was 2.10 % and 2.17 % at September 30, 2020 and 2019, respectively. The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $ 4,377 (net of income taxes of $ 1,420 ) and currency gains of $ 3,320 (net of income taxes of $ 1,077 ), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for fiscal 2020 and 2019, respectively. In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £ 8,570,000 ($ 11,032 at September 30, 2020) with respect to a performance guarantee on an incineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.K. Court ruled completely in favor of Matthews following a trial on the merits. However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia. The Company continues to pursue a trial on the merits in Saudi Arabia; however, given the recent coronavirus disease 2019 ("COVID-19") pandemic, the case has been further delayed. As the Company has successfully completed the project and subsequently operated the equipment, the Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial. However, the Company’s level of success in recovering funds from the customer will depend upon several factors including a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of support of the Saudi Arabian government to enforce a potential judgment against the customer. During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage. Consequently, as of the filing of this report, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts. Therefore, when considered collectively with the potential delay in completing the trial and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of June 30, 2020. The funded letter of credit was previously classified within other assets on the Consolidated Balance Sheet as of September 30, 2019. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. LONG-TERM DEBT, (continued) As of September 30, 2020 and 2019 the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of September 30, 2020. Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows: 2021 $ 55,564 (a) 2022 68,650 2023 979 2024 979 2025 395,816 Thereafter 302,862 824,850 Finance lease obligations 9,684 (b) $ 834,534 (a) The Company maintains certain debt facilities with current maturity dates in fiscal 2021 that it intends and has the ability to extend beyond fiscal 2021 totaling $ 32,255 . These balances have been classified as non-current on the Company's Consolidated Balance Sheet. (b) Aggregate maturities of finance lease obligations can be found in Note 10, "Leases." 10. LEASES: The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment. Effective October 1, 2019, ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. Reporting periods prior to October 1, 2019 continue to be presented in accordance with previous lease accounting guidance under GAAP. The following table presents the balance sheet and lease classification for the Company's lease portfolio: Balance Sheet Classification 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 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 10. LEASES, (continued) The following table presents the components of lease cost: 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) 23,735 Variable lease cost (a) 5,298 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 Less: Interest 3,922 830 Present value of lease liabilities: $ 73,239 $ 9,684 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 11. SHAREHOLDERS' EQUITY: The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $ 1.00 par value. The Company has a stock repurchase program. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 538,736 shares remain available for repurchase as of September 30, 2020. 12. SHARE-BASED PAYMENTS: The Company maintains an equity incentive plan (the "2017 Equity Incentive Plan") that provides for grants of stock options, restricted shares, restricted share units, stock-based performance units and certain other types of stock-based awards. Under the 2017 Equity Incentive Plan, which has a ten -year term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000 . At September 30, 2020, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan. 565,860 restricted share units have been granted under the 2017 Equity Incentive Plan and are outstanding as of September 30, 2020. The 2017 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares. With respect to the restricted share unit grants, units generally vest on the third anniversary of the grant date. The number of units that vest depend on certain time and performance thresholds. Approximately thirty-eight percent of the shares vest based on time, while the remaining vest based on pre-defined performance thresholds. The Company issues common stock from treasury shares once vested. For the years ended September 30, 2020, 2019 and 2018, stock-based compensation cost totaled $ 8,096 , $ 7,729 and $ 13,460 , respectively. The years ended September 30, 2020, 2019, and 2018 included $ 1,564 , $ 1,849 , and $ 2,850 respectively, of stock-based compensation cost that was recognized at the time of grant for retirement-eligible employees. The associated future income tax benefit recognized was $ 1,665 , $ 1,535 and $ 2,826 for the years ended September 30, 2020, 2019 and 2018, respectively. The transactions for restricted shares and restricted share units for the year ended September 30, 2020 were as follows: Shares Weighted- average Grant-date Fair Value 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 Non-vested at September 30, 2020 750,322 $ 40.88 As of September 30, 2020, the total unrecognized compensation cost related to unvested restricted stock was $ 9,122 which is expected to be recognized over a weighted-average period of 1.8 years. 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 12. 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"). There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan. Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2020, either cash or shares of the Company's Class A Common Stock with a value equal to $ 85 . The annual retainer fee for fiscal 2020 paid to a non-employee Chairman of the Board is $ 185 . Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits). The value of deferred shares is recorded in other liabilities. A total of 30,764 shares and share units had been deferred under the Director Fee Plans at September 30, 2020. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $ 125 for fiscal year 2020. 241,378 restricted shares and restricted share units have been granted under the Director Fee Plans, 68,149 of which were issued under the 2019 Director Fee Plan and are unvested at September 30, 2020. 13. EARNINGS PER SHARE: The information used to compute (loss) earnings per share attributable to Matthews' common shareholders was as follows: 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 year ended September 30, 2018. 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. PENSION AND OTHER POSTRETIREMENT PLANS: The Company provides defined benefit pension and other postretirement plans to certain employees. Effective January 1, 2014, the Company's principal retirement plan was closed to new participants. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 2020 and 2019: 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 loss (gain) 799 ( 581 ) — — Benefit payments ( 12,110 ) ( 11,413 ) ( 847 ) ( 1,048 ) Benefit obligation, end of year 318,887 289,957 19,431 20,952 Change in plan assets: Fair value, beginning of year (1) 155,313 158,662 — — Actual return 8,705 6,852 — — Benefit payments ( 12,110 ) ( 11,413 ) ( 847 ) ( 1,048 ) Employer contributions 16,226 1,212 847 1,048 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 ) Unrecognized prior service cost 343 ( 367 ) ( 2,048 ) ( 330 ) Net amount recognized $ ( 39,439 ) $ ( 39,270 ) $ ( 20,803 ) $ ( 21,388 ) Amounts recognized in the consolidated balance sheet: Current liability $ ( 905 ) $ ( 882 ) $ ( 831 ) $ ( 989 ) Noncurrent benefit liability ( 149,848 ) ( 133,762 ) ( 18,600 ) ( 19,963 ) Accumulated other comprehensive loss (income) 111,314 95,374 ( 1,372 ) ( 436 ) Net amount recognized $ ( 39,439 ) $ ( 39,270 ) $ ( 20,803 ) $ ( 21,388 ) Amounts recognized in accumulated other comprehensive loss (income): Net actuarial loss (income) $ 110,971 $ 95,741 $ 676 $ ( 106 ) Prior service cost 343 ( 367 ) ( 2,048 ) ( 330 ) Net amount recognized $ 111,314 $ 95,374 $ ( 1,372 ) $ ( 436 ) (1) The fair value of plan assets and funded status do not include the value of investments held in trust for the Company's non-qualified supplemental retirement plan. These investments totaled $ 24,610 and $ 22,986 as of September 30, 2020 and 2019, respectively. Refer to Note 7, "Investments" for further details. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) Based upon actuarial valuations performed as of September 30, 2020 and 2019, the accumulated benefit obligation for the Company's defined benefit pension plans was $ 295,674 and $ 270,140 at September 30, 2020 and 2019, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $ 318,887 and $ 289,957 at September 30, 2020 and 2019, respectively. Net periodic pension and other postretirement benefit cost for the plans included the following: 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 Expected return on plan assets * ( 10,214 ) ( 10,304 ) ( 10,136 ) — — — Amortization: Prior service cost ( 186 ) ( 186 ) ( 138 ) ( 464 ) ( 195 ) ( 195 ) Net actuarial loss * 9,767 4,245 7,018 — ( 59 ) — Net benefit cost $ 15,781 $ 10,955 $ 13,113 $ 264 $ 708 $ 771 * Non-service components of pension and postretirement expense are included in other income (deductions), net. Matthews has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations. In accordance with this bill, the Company was not required to make contributions to its principal retirement plan in fiscal 2020. However, the Company contributed 668,000 shares of its Class A Common Stock to its principal retirement plan during the fourth quarter of fiscal 2020. The shares had a market value of approximately $ 14,983 at the time of the contribution. The Company is required to make contributions of approximately $ 4,191 to its principal retirement plan in fiscal 2021. Contributions made in fiscal 2020 are as follows: Contributions Pension Other Postretirement Principal retirement plan * $ 14,983 $ — Supplemental retirement plan 821 — Other retirement plans 422 — Other postretirement plan — 847 * Amount represents contribution of Matthews Class A Common Stock (see above). Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2021 include: Pension Benefits Other Postretirement Benefits Net actuarial loss $ 12,076 $ — Prior service cost ( 68 ) ( 364 ) 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The measurement date of annual actuarial valuations for the Company's principal retirement and other postretirement benefit plans was September 30, for fiscal 2020, 2019 and 2018. The weighted-average assumptions for those plans were: Pension Other Postretirement 2020 2019 2018 2020 2019 2018 Discount rate 2.62 % 3.13 % 4.21 % 2.63 % 3.10 % 4.19 % Return on plan assets 6.75 % 6.75 % 6.75 % — — — Compensation increase 3.50 % 3.50 % 3.50 % — — — In October 2014, the Society of Actuaries' Retirement Plans Experience Committee ("RPEC") released new mortality tables known as RP 2014. Each year, RPEC releases an update to the mortality improvement assumption that was released with the RP 2014 tables. The Company considered the RPEC mortality and mortality improvement tables and performed a review of its own mortality history to assess the appropriateness of the RPEC tables for use in generating financial results. In fiscal years 2020, 2019 and 2018, the Company elected to value its principal retirement and other postretirement benefit plan liabilities using the base RP 2014 mortality table and a slightly modified fully generational mortality improvement assumption. The revised assumption uses the most recent RPEC mortality improvement table for all years where the RPEC tables are based on finalized data, and the most recently published Social Security Administration Intermediate mortality improvement for subsequent years. The underlying basis of the investment strategy of the Company's defined benefit plans is to ensure the assets are invested to achieve a positive rate of return over the long term sufficient to meet the plans' actuarial interest rate and provide for the payment of benefit obligations and expenses in perpetuity in a secure and prudent fashion, maintain a prudent risk level that balances growth with the need to preserve capital, diversify plan assets so as to minimize the risk of large losses or excessive fluctuations in market value from year to year, achieve investment results over the long term that compare favorably with other pension plans and appropriate indices. The Company's investment policy, as established by the Company's pension board, specifies the types of investments appropriate for the plans, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling plan fiduciaries to fulfill their responsibilities. The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2020 and 2019 and weighted-average target allocation were as follows: Plan Assets at Target Asset Category 2020 2019 Allocation * Equity securities $ 118,677 $ 105,297 65 % Fixed income, cash and cash equivalents 34,184 39,156 25 % 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. Based on an analysis of the historical and expected future performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for its primary defined benefit pension plans' assets at 6.75 % in 2020 for purposes of determining pension cost and funded status under current guidance. The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices. The Company categorizes plan assets within a three level fair value hierarchy (see Note 5, "Fair Value Measurements" for a further discussion of the fair value hierarchy). The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value hierarchy in which each type of pension plan asset is classified as follows. 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. 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. As such, these mutual fund investments are classified as Level 1. Fixed income securities consist of publicly traded fixed interest obligations (primarily U.S. government notes and corporate and agency bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data. As such, U.S. government notes are included in Level 1, and the remainder of the fixed income securities are included in Level 2. Cash and cash equivalents consist of direct cash holdings and short-term money market mutual funds. These values are valued based on cost, which approximates fair value, and as such, are classified as Level 1. Other investments consist primarily of real estate, commodities, private equity holdings and hedge fund investments. These holdings are valued by investment managers based on the most recent information available. The valuation information used by investment managers may not be readily observable. As such, these investments are classified as Level 3. The Company's defined benefit pension plans' asset categories at September 30, 2020 and 2019 were as follows: September 30, 2020 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 Fixed income securities 11,738 20,086 — 31,824 Cash and cash equivalents 2,360 — — 2,360 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 Level 1 Level 2 Level 3 Total Equity securities - stocks $ 54,985 $ — $ — $ 54,985 Equity securities - mutual funds 50,312 — — 50,312 Fixed income securities 15,829 18,968 — 34,797 Cash and cash equivalents 4,359 — — 4,359 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 Acquisitions Dispositions Realized Gains Unrealized Gains (Losses) Fair Value, End of Period Other investments: Fiscal Year Ended: September 30, 2020 $ 10,860 $ 10,835 $ ( 6,326 ) $ 220 $ ( 316 ) $ 15,273 September 30, 2019 10,115 4,162 ( 2,786 ) 685 ( 1,316 ) 10,860 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) Benefit payments expected to be paid are as follows: Years ending September 30: Pension Benefits Other Postretirement Benefits 2021 $ 11,363 $ 831 2022 12,302 858 2023 12,630 887 2024 14,138 910 2025 14,252 931 2026-2030 78,163 4,557 $ 142,848 $ 8,974 For measurement purposes, a rate of increase of 7.0 % in the per capita cost of health care benefits was assumed for 2021; the rate was assumed to decrease gradually to 4.0 % for 2070 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by one percentage point would have increased the accumulated postretirement benefit obligation as of September 30, 2020 by $ 50 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $ 3 . A decrease in the assumed health care cost trend rates by one percentage point would have decreased the accumulated postretirement benefit obligation as of September 30, 2020 by $ 46 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $ 3 . The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $ 8,692 , $ 8,176 , and $ 8,685 for the fiscal years ended September 30, 2020, 2019 and 2018, respectively. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. ACCUMULATED OTHER COMPREHENSIVE INCOME: The changes in AOCI by component, net of tax, for the years ended September 30, 2020, 2019, and 2018 were as follows: Postretirement Benefit Plans Currency Translation Adjustment Derivatives Total Attributable to Matthews: Balance, September 30, 2017 $ ( 43,623 ) $ ( 112,907 ) $ 2,415 $ ( 154,115 ) OCI before reclassification 10,584 ( 22,053 ) 6,095 ( 5,374 ) Amounts reclassified from AOCI 5,047 (a) — ( 1,042 ) (b) 4,005 Net current-period OCI 15,631 ( 22,053 ) 5,053 ( 1,369 ) Reclassification of AOCI tax effects ( 9,884 ) (c) — 1,070 (c) ( 8,814 ) Balance, September 30, 2018 $ ( 37,876 ) $ ( 134,960 ) $ 8,538 $ ( 164,298 ) OCI before reclassification ( 36,784 ) ( 21,254 ) ( 6,540 ) ( 64,578 ) Amounts reclassified from AOCI 2,917 (a) — ( 2,402 ) (b) 515 Net current-period OCI ( 33,867 ) ( 21,254 ) ( 8,942 ) ( 64,063 ) Balance, September 30, 2019 $ ( 71,743 ) $ ( 156,214 ) $ ( 404 ) $ ( 228,361 ) OCI before reclassification ( 18,094 ) 4,333 ( 6,130 ) ( 19,891 ) Amounts reclassified from AOCI 6,883 (a) — 650 (b) 7,533 Net current-period OCI ( 11,211 ) 4,333 ( 5,480 ) ( 12,358 ) Balance, September 30, 2020 $ ( 82,954 ) $ ( 151,881 ) $ ( 5,884 ) $ ( 240,719 ) Attributable to noncontrolling interest: Balance, September 30, 2017 $ — $ 396 $ — $ 396 OCI before reclassification — 71 — 71 Net current-period OCI — 71 — 71 Balance, September 30, 2018 — 467 — 467 OCI before reclassification — ( 92 ) — ( 92 ) Net current-period OCI — ( 92 ) — ( 92 ) Balance, September 30, 2019 — 375 — 375 OCI before reclassification — ( 7 ) — ( 7 ) Net current-period OCI — ( 7 ) — ( 7 ) Balance, September 30, 2020 $ — $ 368 $ — $ 368 (a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 14). (b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 9). (c) Amounts were reclassified from AOCI to retained earnings through adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) (see Note 3). Accumulated other comprehensive loss at September 30, 2020 and 2019 consisted of the following: 2020 2019 Cumulative foreign currency translation $ ( 151,881 ) $ ( 156,214 ) Fair value of derivatives, net of tax of $ 1,908 and $ 131 , respectively ( 5,884 ) ( 404 ) Minimum pension liabilities, net of tax of $ 26,988 and $ 23,195 , respectively ( 82,954 ) ( 71,743 ) $ ( 240,719 ) $ ( 228,361 ) 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. ACCUMULATED OTHER COMPREHENSIVE INCOME, (continued) Reclassifications out of AOCI for the years ended September 30, 2020, 2019 and 2018 were as follows: Details about AOCI Components September 30, 2020 September 30, 2019 September 30, 2018 Affected line item in the Statement of Income Postretirement benefit plans Prior service (cost) credit (a) $ 650 $ 381 $ 333 Actuarial losses (a) ( 9,767 ) ( 4,245 ) ( 7,018 ) ( 9,117 ) ( 3,864 ) ( 6,685 ) Income before income tax (b) 2,234 947 1,638 Income taxes $ ( 6,883 ) $ ( 2,917 ) $ ( 5,047 ) Net income Derivatives Interest rate swap contracts $ ( 861 ) $ 3,181 $ 1,380 Interest expense ( 861 ) 3,181 1,380 Income before income tax (b) 211 ( 779 ) ( 338 ) Income taxes $ ( 650 ) $ 2,402 $ 1,042 Net income (a) Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. Actuarial losses are reported in other income (deductions), net. For additional information, see Note 14. (b) For pre-tax items, positive amounts represent income and negative amounts represent expense. 16. INCOME TAXES: The income tax (benefit) provision consisted of the following: 2020 2019 2018 Current: Federal $ ( 12,354 ) $ 3,308 $ ( 2,577 ) State ( 1,030 ) 2,232 1,051 Foreign 11,306 2,049 15,533 ( 2,078 ) 7,589 14,007 Deferred: Federal 4,710 ( 5,472 ) ( 24,094 ) State 2,880 ( 2,782 ) 1,315 Foreign ( 24,197 ) 1,471 ( 346 ) ( 16,607 ) ( 6,783 ) ( 23,125 ) Total $ ( 18,685 ) $ 806 $ ( 9,118 ) The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018, which resulted in a blended U.S. statutory tax rate of 24.5 % for the Company in fiscal 2018, and a 21.0 % rate for the Company in fiscal 2019 and fiscal 2020. The Act also required a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and created new taxes on certain foreign-sourced earnings. Global intangible low taxed income ("GILTI") : The Act also created a new requirement that certain income earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has made the election to treat taxes due on future inclusions related to GILTI as current period expense. The Company has calculated that no provision for GILTI tax expense was required in fiscal 2019 or fiscal 2020. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 16. INCOME TAXES, (continued) The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows: 2020 2019 2018 Federal statutory tax rate 21.0 % 21.0 % 24.5 % Effect of state income taxes, net of federal deduction ( 1.9 ) % 2.7 % 2.2 % Foreign statutory taxes compared to federal statutory rate 3.4 % ( 0.8 ) % 1.4 % Share-based compensation ( 1.4 ) % ( 3.1 ) % ( 0.6 ) % U.S. manufacturing incentive — % — % ( 1.3 ) % Tax credits 1.8 % 4.9 % ( 2.7 ) % Tax basis difference — % 9.8 % ( 1.5 ) % Transition tax — % — % 9.0 % U.S. statutory tax rate change on temporary differences — % — % ( 38.7 ) % Goodwill write-down ( 9.4 ) % ( 40.2 ) % — % Tax rate differential on net operating loss carryback 4.2 % — % — % Other ( 0.1 ) % 3.6 % ( 1.6 ) % Effective tax rate 17.6 % ( 2.1 ) % ( 9.3 ) % The Company's consolidated income taxes for the year ended September 30, 2020 were a benefit of $ 18,685 , compared to an expense of $ 806 for fiscal 2019, and a benefit of $ 9,118 for fiscal 2018. The difference between the Company's consolidated income taxes for fiscal 2020 versus fiscal 2019 primarily resulted from the fiscal 2020 consolidated loss before income taxes, which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, which was partially non-deductible, as well as a benefit for an expected net operating loss (“NOL”) carryback. The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory tax rate of 35%. The Company’s fiscal 2020 effective tax rate was negatively affected by the non-deductible portion of the goodwill write-down along with certain other non-deductible expenses. The fiscal 2020 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the completion of a foreign tax audit, and the tax benefit of the NOL carryback. The increase in the fiscal 2019 effective tax rate, compared to fiscal 2018, primarily reflected the fiscal 2018 U.S. deferred tax benefit from the Act enactment, as well as a goodwill impairment in fiscal 2019 that was not tax deductible. The fiscal 2019 effective tax rate benefited from research and development and foreign tax credits and the elimination, achieved through tax planning, of a taxable basis difference. The Company's foreign subsidiaries had loss before income taxes for the year ended September 30, 2020 and income before income taxes for the years ended September 30, 2019 and 2018 of approximately $ 68,343 , $ 11,042 and $ 56,424 , respectively. Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations. At September 30, 2020, undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $ 383,423 . 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 16. INCOME TAXES, (continued) The components of deferred tax assets and liabilities at September 30, 2020 and 2019 are as follows: 2020 2019 Deferred tax assets: Pension and postretirement benefits $ 39,705 $ 37,587 Accruals and reserves not currently deductible 12,258 10,400 Income tax credit carryforward 5,308 3,204 Operating and capital loss carryforwards 34,146 21,896 Stock options 4,062 4,778 Other 8,376 5,381 Total deferred tax assets 103,855 83,246 Valuation allowances ( 22,527 ) ( 15,352 ) Net deferred tax assets 81,328 67,894 Deferred tax liabilities: Depreciation ( 27,671 ) ( 24,792 ) Unrealized gains and losses 389 ( 565 ) Goodwill and intangible assets ( 123,259 ) ( 138,952 ) Other ( 5,941 ) ( 1,035 ) Total deferred tax liabilities ( 156,482 ) ( 165,344 ) Net deferred tax liability $ ( 75,154 ) $ ( 97,450 ) At September 30, 2020, the Company had foreign net operating loss carryforwards of $ 101,994 and foreign capital loss carryforwards of $ 20,119 . The Company has recorded deferred tax assets of $ 2,189 for state net operating loss carryforwards, which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2021. Certain of the foreign net operating losses begin to expire in 2021 while the majority of the Company's foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business continuation. Therefore, the Company has established tax-effected valuation allowances against these tax benefits in the amount of $ 22,527 at September 30, 2020. Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows: 2020 2019 2018 Balance, beginning of year $ 15,526 $ 14,827 $ 7,968 Increases for tax positions of prior years 500 — 7,886 Decreases for tax positions of prior years ( 2,727 ) — — Increases based on tax positions related to the current year 939 1,420 882 Decreases due to lapse of statute of limitation ( 3,755 ) ( 721 ) ( 1,909 ) Balance, end of year $ 10,483 $ 15,526 $ 14,827 The Company had unrecognized tax benefits of $ 7,066 at September 30, 2020, which would impact the annual effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $ 7,803 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitation related to specific tax positions. The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $ 2,172 and $ 2,880 at September 30, 2020 and 2019, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions. 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 16. INCOME TAXES, (continued) The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions. As of September 30, 2020, the tax years that remain subject to examination by major jurisdiction generally are: United States - Federal 2017 and forward United States - State 2016 and forward Canada 2016 and forward Germany 2019 and forward United Kingdom 2019 and forward Australia 2015 and forward Singapore 2016 and forward 17. COMMITMENTS AND CONTINGENT LIABILITIES: The Company is party to various legal proceedings, the eventual outcome of which are not predictable. Although the ultimate disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows. The Company has employment agreements with certain employees, the terms of which expire at various dates between fiscal 2021 and 2025. The agreements generally provide for base salary and bonus levels and include non-compete provisions. The aggregate commitment for salaries under these agreements at September 30, 2020 was $ 6,723 . 18. SUPPLEMENTAL CASH FLOW INFORMATION: Changes in working capital items as presented in the Consolidated Statements of Cash Flows consisted of the following: 2020 2019 2018 Current assets: Accounts receivable $ 24,055 $ 8,779 $ ( 790 ) Inventories 5,976 830 ( 2,869 ) Other current assets ( 14,803 ) 10,317 ( 16,293 ) 15,228 19,926 ( 19,952 ) Current liabilities: Trade accounts payable 8,363 3,715 2,516 Accrued compensation 15,512 ( 8,832 ) ( 10,940 ) Accrued income taxes ( 2,384 ) ( 5,416 ) ( 9,973 ) Other current liabilities 9,648 ( 21,875 ) 28,415 31,139 ( 32,408 ) 10,018 Net change $ 46,367 $ ( 12,482 ) $ ( 9,934 ) 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 19. SEGMENT INFORMATION: The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss. In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments. The accounting policies of the segments are the same as those described in Summary of Significant Accounting Policies (Note 2). Intersegment sales are accounted for at negotiated prices. Segment assets include those assets that are used in the Company's operations within each segment. Assets classified under "Corporate and Non-Operating" principally consist of cash and cash equivalents, investments, deferred income taxes and corporate headquarters' assets. Long-lived assets include property, plant and equipment (net of accumulated depreciation), goodwill, and other intangible assets (net of accumulated amortization). 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 19. SEGMENT INFORMATION, (continued) Information about the Company's segments follows: SGK Brand Solutions Memorialization Industrial Technologies Corporate and Non-Operating Consolidated Sales to external customers: 2020 $ 693,093 $ 656,035 $ 149,178 $ — $ 1,498,306 2019 743,869 636,892 156,515 — 1,537,276 2018 805,274 631,392 165,914 — 1,602,580 Intersegment sales: 2020 29 4 281 — 314 2019 703 25 48 — 776 2018 310 2 9 — 321 Depreciation and amortization: 2020 87,597 20,527 5,771 5,163 119,058 2019 59,684 19,731 6,195 5,183 90,793 2018 46,300 20,005 5,796 4,873 76,974 Adjusted EBITDA: 2020 90,644 146,285 22,753 ( 56,602 ) 203,080 2019 119,493 134,286 24,082 ( 56,989 ) 220,872 2018 150,233 145,487 25,864 ( 66,470 ) 255,114 Total assets: 2020 1,014,097 779,886 192,948 85,702 2,072,633 2019 1,106,276 830,377 191,533 62,417 2,190,603 2018 1,285,053 814,800 196,855 61,036 2,357,744 Capital expenditures: 2020 20,250 11,282 1,598 1,719 34,849 2019 22,310 9,352 2,382 3,644 37,688 2018 22,133 15,513 2,577 2,977 43,200 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 19. SEGMENT INFORMATION, (continued) A reconciliation of adjusted EBITDA to net income follows: 2020 2019 2018 Total Adjusted EBITDA $ 203,080 $ 220,872 $ 255,114 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) ( 10,566 ) — — Non-recurring / incremental COVID-19 costs (5) ( 4,655 ) — — 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) — 7,347 — 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 ) Depreciation and amortization * ( 119,058 ) ( 90,793 ) ( 76,974 ) Interest expense ( 34,885 ) ( 40,962 ) ( 37,427 ) Net loss attributable to noncontrolling interests ( 497 ) ( 901 ) ( 260 ) (Loss) income before income taxes ( 106,337 ) ( 38,083 ) 97,993 Income tax benefit (provision) 18,685 ( 806 ) 9,118 Net (loss) income $ ( 87,652 ) $ ( 38,889 ) $ 107,111 (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"). (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"). (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 $8,663 within the Industrial Technologies segment and losses of $915 and $401 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 $ 87,597 , $ 59,684 , and $ 46,300 for the SGK Brand Solutions segment, $ 20,527 , $ 19,731 , and $ 20,005 for the Memorialization segment, $ 5,771 , $ 6,195 , and $ 5,796 for the Industrial Technologies segment, and $ 5,163 , $ 5,183 , and $ 4,873 for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018, respectively. ** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 13,990 , $ 8,903 , and $ 11,044 for the SGK Brand Solutions segment, $ 268 , $ 3,073 , and $ 613 for the Industrial Technologies segment, and $ 22,985 , $ 19,853 , and $ 13,961 for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 2,696 , and $ 1,430 for the Memorialization segment for the fiscal years ended September 30, 2020, and 2018, respectively. 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 19. SEGMENT INFORMATION, (continued) Information about the Company's operations by geographic area follows: North America Central and South America Europe Australia Asia Consolidated Sales to external customers: 2020 $ 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 Long-lived assets: 2020 957,393 14,063 286,990 21,746 55,482 1,335,674 2019 1,047,505 15,585 342,802 21,278 57,729 1,484,899 2018 1,182,250 16,535 365,455 23,037 58,302 1,645,579 20. ACQUISITIONS AND DIVESTITURES: Fiscal 2020: During the fourth quarter of fiscal 2020, the Company completed a small acquisition in the Memorialization segment for a purchase price of $ 1,000 (net of cash acquired and holdback amounts, subject to working capital adjustments). The preliminary purchase price allocation is not finalized as of September 30, 2020 and is subject to changes as the Company obtains additional information related to fixed assets and other assets, and liabilities. Fiscal 2019: On November 1, 2018 the Company acquired 80 % ownership of Frost Converting Systems, Inc. (“Frost”) for a purchase price of approximately $ 7,162 (net of cash acquired and holdback amounts). Frost is a leading global supplier of high-performance rotary dies for embossing, creasing and cutting of paperboard packaging and is included in the Company's SGK Brand Solutions segment. The Company finalized the allocation of the purchase price related to the Frost acquisition in the fourth quarter of fiscal 2019, resulting in an immaterial adjustment to certain working capital accounts. During fiscal 2019, the Company completed small acquisitions in the Memorialization segment for a combined purchase price of $ 3,094 (net of cash acquired and holdback amounts). The Company finalized the purchase price allocations related to these acquisitions in the first quarter of fiscal 2020, resulting in an immaterial adjustment to certain working capital accounts. During fiscal 2019, the Company completed the sale of a 51 % ownership interest in a small Memorialization business. Net proceeds from this sale totaled approximately $ 8,254 , and the transaction resulted in the recognition of a $ 5,587 loss, which is included as a component of administrative expenses for the year ended September 30, 2019. Immediately following the transaction, the Company retained a non-controlling interest in this business. The Company also divested of a small, fully owned Memorialization business, resulting in the recognition of a $ 882 loss, which is included as a component of administrative expenses for the year ended September 30, 2019. Fiscal 2018: On February 1, 2018, the Company acquired certain net assets of Star Granite and Bronze International, Inc. ("Star Granite") for a total purchase price of $ 35,961 , consisting of cash of $ 30,961 (net of cash acquired and holdback amounts) and shares of Matthews common stock valued at $ 5,000 . Star Granite manufactures and distributes granite and other memorialization products to cemetery and other customers across the United States and is included in the Company's Memorialization segment. Annual sales for this business were approximately $ 31,000 prior to the acquisition. The Company finalized the allocation of the purchase price related to the Star Granite acquisition in the second quarter of fiscal 2019, resulting in an immaterial adjustment to certain working capital accounts. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 20. ACQUISITIONS AND DIVESTITURES, (continued) On November 28, 2017, the Company acquired Compass Engineering Group, Inc. ("Compass") for $ 51,887 (net of cash acquired). Compass provides high-quality material handling control solutions and is included in the Company's Industrial Technologies segment. Annual sales for this business were approximately $ 24,000 prior to the acquisition. The Company finalized the allocation of purchase price related to the Compass acquisition in the fourth quarter of fiscal 2018, resulting in an immaterial adjustment to certain working capital and intangible asset amounts. During fiscal 2018, the Company completed several additional smaller acquisitions for an aggregate purchase price of $ 39,465 (net of cash acquired and holdback amounts). These additional acquisitions strengthen the Company's operations across the SGK Brand Solutions and Memorialization segments. The Company finalized the allocation of purchase price related to these acquisitions during fiscal 2019 and 2018 resulting in immaterial adjustments to certain working capital accounts. 21. GOODWILL AND OTHER INTANGIBLE ASSETS: Changes to goodwill during the years ended September 30, 2020 and 2019, follow. SGK Brand Solutions Memorialization Industrial Technologies Consolidated Net goodwill at September 30, 2018 $ 485,318 $ 371,550 $ 92,026 $ 948,894 Additions during period 1,506 3,592 — 5,098 Divestiture during period — ( 14,970 ) — ( 14,970 ) Translation and other adjustments ( 13,548 ) ( 435 ) ( 660 ) ( 14,643 ) Goodwill write-down ( 77,572 ) — — ( 77,572 ) Net goodwill at September 30, 2019 395,704 359,737 91,366 846,807 Translation and other adjustments 6,441 1,945 603 8,989 Goodwill write-down ( 90,408 ) — — ( 90,408 ) Net goodwill at September 30, 2020 $ 311,737 $ 361,682 $ 91,969 $ 765,388 In fiscal 2019, the additions to SGK Brand Solutions goodwill reflects the acquisition of Frost. The changes in Memorialization goodwill primarily reflect small acquisitions and divestitures completed in fiscal 2019. The net goodwill balances at September 30, 2020 and 2019 included $ 178,732 and $ 88,324 of accumulated impairment losses, respectively. Accumulated impairment losses at September 30, 2020 were $ 173,732 and $ 5,000 for the SGK Brand Solutions and Memorialization segments, respectively. Accumulated impairment losses at September 30, 2019 were $ 83,324 and $ 5,000 for the SGK Brand Solutions and Memorialization segments, respectively. The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2020 (January 1, 2020) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values. The estimated fair values for two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded their carrying values (expressed as a percentage of carrying value) by less than 10% as of January 1, 2020. On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic on March 11, 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19. In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 21. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued) 31, 2020. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $ 90,408 during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, additional goodwill write-downs may be necessary in future periods. During the fourth quarter of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the SGK Brand Solutions segment as a result of continued challenging market conditions affecting the segment. This review identified certain opportunities to improve the segment’s profitability and reduce its operating cost structure and, as a result, the Company revised its estimates of future earnings and cash flows for the Graphics Imaging reporting unit. In response to these revised projections, the Company re-evaluated the goodwill for the Graphics Imaging reporting unit, as of September 1, 2019. As a result of this interim assessment, the Company recorded a goodwill write-down of $ 77.6 million during the fiscal 2019 fourth quarter. The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of September 30, 2020 and 2019, respectively. Carrying Amount Accumulated Amortization Net September 30, 2020 Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 148,867 ( 64,462 ) 84,405 Customer relationships 379,246 ( 166,892 ) 212,354 Copyrights/patents/other 20,704 ( 14,505 ) 6,199 $ 579,357 $ ( 245,859 ) $ 333,498 September 30, 2019 Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 148,628 ( 22,653 ) 125,975 Customer relationships 374,515 ( 137,330 ) 237,185 Copyrights/patents/other 20,463 ( 13,513 ) 6,950 $ 574,146 $ ( 173,496 ) $ 400,650 The net change in intangible assets during fiscal 2020 included a small acquisition, the impact of foreign currency fluctuations during the period, and additional amortization. During fiscal 2019, the Company reassessed its trade name strategy for the SGK Brand Solutions segment, in conjunction with an overall assessment and shift of its commercial structure and strategy for this segment, and initiated a plan to reduce its global trade names for its core brand solutions businesses. As a result of this change, the Company has begun to discontinue the use of certain trade names within the SGK Brand Solutions segment. Accordingly, the remaining useful lives of the impacted trade names have been reduced to reflect the Company’s brand migration plans and an estimated time period when the discontinued trade names will be classified as defensive assets. Amortization expense on intangible assets was $ 71,514 , $ 45,756 , and $ 31,562 in fiscal 2020, 2019 and 2018, respectively. Fiscal year amortization expense is estimated to be approximately $ 60,448 in 2021, $ 47,046 in 2022, $ 28,165 in 2023, $ 26,458 in 2024 and $ 24,472 in 2025. 75 SUPPLEMENTARY FINANCIAL INFORMATION Selected Quarterly Financial Data (Unaudited): The following table sets forth certain items included in the Company's unaudited consolidated financial statements for each quarter of fiscal 2020 and fiscal 2019. Quarter Ended December 31 March 31 June 30 September 30 Year Ended September 30 (Dollar amounts in thousands, except per share data) Fiscal Year 2020 Sales $ 364,944 $ 374,800 $ 359,422 $ 399,140 $ 1,498,306 Gross profit 115,727 124,764 120,953 136,325 497,769 Operating (loss) profit ( 4,943 ) ( 85,097 ) 5,246 20,601 ( 64,193 ) Net (loss) income attributable to Matthews shareholders ( 10,466 ) ( 86,364 ) 2,269 7,406 ( 87,155 ) (Loss) earnings per share: Basic $ ( 0.34 ) $ ( 2.77 ) $ 0.07 $ 0.24 $ ( 2.79 ) Diluted ( 0.34 ) ( 2.77 ) 0.07 0.24 ( 2.79 ) Fiscal Year 2019: Sales $ 374,177 $ 391,400 $ 379,294 $ 392,405 $ 1,537,276 Gross profit 126,411 136,281 137,178 142,596 542,466 Operating profit (loss) 16,166 24,264 29,691 ( 59,818 ) 10,303 Net income (loss) attributable to Matthews shareholders 3,097 15,417 14,629 ( 71,131 ) ( 37,988 ) Earnings (loss) per share: Basic $ 0.10 $ 0.49 $ 0.47 $ ( 2.28 ) $ ( 1.21 ) Diluted 0.10 0.48 0.46 ( 2.28 ) ( 1.21 ) 76 FINANCIAL STATEMENT SCHEDULE SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Description Balance at Beginning of Period Charged to Expense Charged to other Accounts (1) Deductions (2) Balance at End of Period (Dollar amounts in thousands) Allowance for Doubtful Accounts: Fiscal Year Ended: September 30, 2020 $ 10,846 $ 1,736 $ 15 $ ( 2,979 ) $ 9,618 September 30, 2019 11,158 2,787 20 ( 3,119 ) 10,846 September 30, 2018 11,622 855 762 ( 2,081 ) 11,158 (1) Amount comprised principally of acquisitions and purchase accounting adjustments in connection with acquisitions, and amounts reclassified to other accounts. (2) Amounts determined not to be collectible (including direct write-offs), net of recoveries. Description Balance at Beginning of Period Provision Charged (Credited) To Expense (1) Allowance Changes (2) Other Additions (Deductions) (3) Balance at End of Period (Dollar amounts in thousands) Deferred Tax Asset Valuation Allowance: Fiscal Year Ended: September 30, 2020 $ 15,352 $ 6,982 $ — $ 193 $ 22,527 September 30, 2019 15,188 821 — ( 657 ) 15,352 September 30, 2018 21,917 2,482 ( 8,510 ) ( 701 ) 15,188 (1) Amounts relate primarily to adjustments in net operating loss carryforwards which are precluded from use. (2) Fiscal 2018 amounts primarily reflect the release of valuation allowances due to the termination of net operating loss carryforwards upon the liquidation of non-U.S. holding companies as part of an entity reduction plan. (3) Consists principally of adjustments related to foreign exchange. 77 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.