Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________________________________________________________
FORM 10‑Q
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2017
or   
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____

Commission File No. 0‑09115
____________________________________________________________
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
25‑0644320
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
TWO NORTHSHORE CENTER, PITTSBURGH, PA
15212‑5851
(Address of principal executive offices)
(Zip Code)
 
 
(412) 442-8200
(Registrant's telephone number, including area code)
 
 
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes ☒
 
No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes ☒
 
No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ☒
 
Smaller reporting company
 ☐
Accelerated filer
 ☐
 
Emerging growth company
 ☐
Non-accelerated filer
 ☐
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
 
Yes ☐
 
No ☒
 
As of June 30, 2017, shares of common stock outstanding were: Class A Common Stock 32,186,971 shares


PART I ‑ FINANCIAL INFORMATION
Item 1.   Financial Statements

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)
 
June 30, 2017
 
September 30, 2016
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
56,752

 
 
 
$
55,711

Accounts receivable, net
 
 
307,232

 
 
 
294,915

Inventories
 
 
179,873

 
 
 
162,472

Other current assets
 
 
70,705

 
 
 
61,086

 
 
 
 
 
 
 
 
Total current assets
 
 
614,562

 
 
 
574,184

 
 
 
 
 
 
 
 
Investments
 
 
34,567

 
 
 
31,365

Property, plant and equipment: Cost
$
574,916

 
 

 
$
525,105

 
 

Less accumulated depreciation
(336,665
)
 
 

 
(305,613
)
 
 

 
 

 
238,251

 
 

 
219,492

Deferred income taxes
 

 
866

 
 

 
775

Other assets
 

 
34,054

 
 

 
19,895

Goodwill
 

 
884,745

 
 

 
851,489

Other intangible assets, net
 

 
428,858

 
 

 
393,841

 
 
 
 
 
 
 
 
Total assets
 

 
$
2,235,903

 
 

 
$
2,091,041

 
 
 
 
 
 
 
 
LIABILITIES
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

Long-term debt, current maturities
 

 
$
31,908

 
 

 
$
27,747

Trade accounts payable
 

 
65,171

 
 

 
58,118

Accrued compensation
 

 
50,457

 
 

 
63,737

Accrued income taxes
 

 
30,724

 
 

 
15,527

Other current liabilities
 

 
110,222

 
 

 
94,219

 
 
 
 
 
 
 
 
Total current liabilities
 

 
288,482

 
 

 
259,348

 
 
 
 
 
 
 
 
Long-term debt
 

 
910,050

 
 

 
844,807

Accrued pension
 

 
109,343

 
 

 
110,941

Postretirement benefits
 

 
22,641

 
 

 
22,143

Deferred income taxes
 

 
115,400

 
 

 
107,038

Other liabilities
 

 
27,985

 
 

 
37,430

Total liabilities
 

 
1,473,901

 
 

 
1,381,707

 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY
 

 
 

 
 

 
 

Shareholders' equity-Matthews:
 

 
 

 
 

 
 

Common stock
$
36,334

 
 

 
$
36,334

 
 

Additional paid-in capital
120,724

 
 

 
117,088

 
 

Retained earnings
933,524

 
 

 
896,224

 
 

Accumulated other comprehensive loss
(166,695
)
 
 

 
(181,868
)
 
 

Treasury stock, at cost
(162,400
)
 
 

 
(159,113
)
 
 

Total shareholders' equity-Matthews
 

 
761,487

 
 

 
708,665

Noncontrolling interests
 

 
515

 
 

 
669

Total shareholders' equity
 

 
762,002

 
 

 
709,334

 
 
 
 
 
 
 
 
Total liabilities and shareholders' equity
 

 
$
2,235,903

 
 

 
$
2,091,041


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


2


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)

 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Sales
$
389,630

 
$
382,061

 
$
1,119,544

 
$
1,103,469

Cost of sales
(245,536
)
 
(236,764
)
 
(709,761
)
 
(693,845
)
 
 
 
 
 
 
 
 
Gross profit
144,094

 
145,297

 
409,783

 
409,624

 
 
 
 
 
 
 
 
Selling and administrative expenses
(107,308
)
 
(104,627
)
 
(327,106
)
 
(330,481
)
 
 
 
 
 
 
 
 
Operating profit
36,786

 
40,670

 
82,677

 
79,143

 
 
 
 
 
 
 
 
Investment income
431

 
524

 
1,548

 
1,460

Interest expense
(6,988
)
 
(6,257
)
 
(19,750
)
 
(18,146
)
Other income (deductions), net
7,935

 
460

 
7,227

 
(606
)
 
 
 
 
 
 
 
 
Income before income taxes
38,164

 
35,397

 
71,702

 
61,851

 
 
 
 
 
 
 
 
Income taxes
(8,856
)
 
(11,605
)
 
(18,552
)
 
(19,290
)
 
 
 
 
 
 
 
 
Net income
29,308

 
23,792

 
53,150

 
42,561

 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
177

 
123

 
343

 
325

 
 
 
 
 
 
 
 
Net income attributable to Matthews shareholders
$
29,485

 
$
23,915

 
$
53,493

 
$
42,886

 
 
 
 
 
 
 
 
Earnings per share attributable to Matthews shareholders:
 

 
 

 
 

 
 

 
Basic
$
0.91

 
$
0.73

 
$
1.66

 
$
1.31

 
 
 
 
 
 
 
 
Diluted
$
0.91

 
$
0.73

 
$
1.64

 
$
1.30


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


3


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollar amounts in thousands)

 
Three Months Ended June 30,
 
Matthews
 
Noncontrolling Interest
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss):
$
29,485

 
$
23,915

 
$
(177
)
 
$
(123
)
 
$
29,308

 
$
23,792

Other comprehensive (loss) income ("OCI"), net of tax:
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
32,261

 
(23,692
)
 
121

 
(57
)
 
32,382

 
(23,749
)
Pension plans and other postretirement benefits
1,422

 
1,098

 
—

 
—

 
1,422

 
1,098

Unrecognized gain (loss) on derivatives:
 

 
 

 
 

 
 

 
 

 
 

Net change from periodic revaluation
(353
)
 
(2,074
)
 
—

 
—

 
(353
)
 
(2,074
)
Net amount reclassified to earnings
(187
)
 
518

 
—

 
—

 
(187
)
 
518

Net change in unrecognized gain (loss) on derivatives
(540
)
 
(1,556
)
 
—

 
—

 
(540
)
 
(1,556
)
OCI, net of tax
33,143

 
(24,150
)
 
121

 
(57
)
 
33,264

 
(24,207
)
Comprehensive (loss) income
$
62,628

 
$
(235
)
 
$
(56
)
 
$
(180
)
 
$
62,572

 
$
(415
)

 
Nine Months Ended June 30,
 
Matthews
 
Noncontrolling Interest
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss):
$
53,493

 
$
42,886

 
$
(343
)
 
$
(325
)
 
$
53,150

 
$
42,561

OCI, net of tax:
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
5,027

 
(18,349
)
 
189

 
(111
)
 
5,216

 
(18,460
)
Pension plans and other postretirement benefits
4,420

 
3,258

 
—

 
—

 
4,420

 
3,258

Unrecognized gain (loss) on derivatives:
 

 
 

 
 

 
 

 
 

 
 

Net change from periodic revaluation
6,712

 
(4,292
)
 
—

 
—

 
6,712

 
(4,292
)
Net amount reclassified to earnings
(986
)
 
1,479

 
—

 
—

 
(986
)
 
1,479

Net change in unrecognized gain (loss) on derivatives
5,726

 
(2,813
)
 
—

 
—

 
5,726

 
(2,813
)
OCI, net of tax
15,173

 
(17,904
)
 
189

 
(111
)
 
15,362

 
(18,015
)
Comprehensive (loss) income
$
68,666

 
$
24,982

 
$
(154
)
 
$
(436
)
 
$
68,512

 
$
24,546


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


4


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the nine months ended June 30, 2017 and 2016 (Unaudited)
(Dollar amounts in thousands, except per share data)

 
Shareholders' Equity
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Non-
controlling
interests
 
Total
Balance,
September 30, 2016
$
36,334

 
$
117,088

 
$
896,224

 
$
(181,868
)
 
$
(159,113
)
 
$
669

 
$
709,334

Net income (loss)
—

 
—

 
53,493

 
—

 
—

 
(343
)
 
53,150

Minimum pension liability
—

 
—

 
—

 
4,420

 
—

 
—

 
4,420

Translation adjustment
—

 
—

 
—

 
5,027

 
—

 
189

 
5,216

Fair value of derivatives
—

 
—

 
—

 
5,726

 
—

 
—

 
5,726

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
68,512

Stock-based compensation
—

 
11,854

 
—

 
—

 
—

 
—

 
11,854

Purchase of 174,032 shares of treasury stock
—

 
—

 
—

 
—

 
(11,651
)
 
—

 
(11,651
)
Issuance of 221,958 shares of treasury stock
—

 
(8,397
)
 
—

 
—

 
8,543

 
—

 
146

Cancellations of 2,640 shares of treasury stock
—

 
179

 
—

 
—

 
(179
)
 
—

 
—

Dividends, $0.51 per share
—

 
—

 
(16,193
)
 
—

 
—

 
—

 
(16,193
)
Balance,
June 30, 2017
$
36,334

 
$
120,724

 
$
933,524

 
$
(166,695
)
 
$
(162,400
)
 
$
515

 
$
762,002

 
Shareholders' Equity
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Non-
controlling
interests
 
Total
Balance,
September 30, 2015
$
36,334

 
$
115,890

 
$
843,955

 
$
(150,326
)
 
$
(115,033
)
 
$
3,226

 
$
734,046

Net income (loss)
—

 
—

 
42,886

 
—

 
—

 
(325
)
 
42,561

Minimum pension liability
—

 
—

 
—

 
3,258

 
—

 
—

 
3,258

Translation adjustment
—

 
—

 
—

 
(18,349
)
 
—

 
(111
)
 
(18,460
)
Fair value of derivatives
—

 
—

 
—

 
(2,813
)
 
—

 
—

 
(2,813
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
24,546

Stock-based compensation
—

 
7,940

 
—

 
—

 
—

 
—

 
7,940

Purchase of 1,130,875 shares of treasury stock
—

 
—

 
—

 
—

 
(57,903
)
 
—

 
(57,903
)
Issuance of 374,108 shares of treasury stock
—

 
(7,649
)
 
—

 
—

 
13,016

 
—

 
5,367

Cancellations of 5,237 shares of treasury stock
—

 
244

 
—

 
—

 
(244
)
 
—

 
—

Dividends, $0.45 per share
—

 
—

 
(14,375
)
 
—

 
—

 
—

 
(14,375
)
Transactions with
noncontrolling interests
—

 
(2,727
)
 
—

 
—

 
—

 
(1,501
)
 
(4,228
)
Balance,
June 30, 2016
$
36,334

 
$
113,698

 
$
872,466

 
$
(168,230
)
 
$
(160,164
)
 
$
1,289

 
$
695,393

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


5


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)

 
Nine Months Ended
June 30,
 
2017
 
2016
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
53,150

 
$
42,561

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
50,810

 
49,278

Stock-based compensation expense
11,854

 
7,940

Change in deferred taxes
(3,602
)
 
(995
)
Gain on sale of assets
(332
)
 
(176
)
Unrealized gain on investments
(1,953
)
 
(819
)
Changes in working capital items
(2,908
)
 
6,585

Increase in other assets
(11,227
)
 
(4,443
)
Decrease in other liabilities
(5,012
)
 
(1,573
)
Increase in pension and postretirement benefits
6,115

 
9,778

Other operating activities, net
(1,133
)
 
(9,731
)
 
 
 
 
Net cash provided by operating activities
95,762

 
98,405

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(32,215
)
 
(32,697
)
Acquisitions, net of cash acquired
(96,320
)
 
(6,936
)
Proceeds from sale of assets
1,515

 
1,344

Other investing activities, net
(681
)
 
—

 
 
 
 
Net cash used in investing activities
(127,701
)
 
(38,289
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
372,768

 
77,713

Payments on long-term debt
(311,718
)
 
(61,295
)
Proceeds from the exercise of stock options
14

 
5,181

Purchases of treasury stock
(11,651
)
 
(57,903
)
Dividends
(16,193
)
 
(14,375
)
Transactions with noncontrolling interests
—

 
(4,228
)
Other financing activities
—

 
(2,318
)
 
 
 
 
Net cash provided by (used in) financing activities
33,220

 
(57,225
)
 
 
 
 
Effect of exchange rate changes on cash
(240
)
 
(604
)
 
 
 
 
Net change in cash and cash equivalents
$
1,041

 
$
2,287

 
 
 
 

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


6


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2017
(Dollar amounts in thousands, except per share data)


Note 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 include brand development, deployment and delivery (consisting of brand management, printing plates and cylinders, pre-media services and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services). Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment primarily for the cemetery and funeral home industries. Industrial technologies include marking and coding equipment and related consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

The Company has facilities in the United States, Europe, Asia, Canada, Australia, and Central and South America.


Note 2.   Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information for commercial and industrial companies and the instructions to Form 10‑Q and Rule 10‑01 of Regulation S‑X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2017. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10‑K for the year ended September 30, 2016.  The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.  All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements:

Issued

In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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. This ASU is effective for the Company beginning in fiscal year 2019. The Company is in the process of assessing the impact this ASU will have on its 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.  This ASU is effective for the Company beginning in fiscal year 2019. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which provides new guidance intended to simplify the subsequent measurement of goodwill and removing Step 2 from the goodwill impairment process.  This ASU is effective for the Company beginning in fiscal year 2021, and does allow for early adoption. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.



7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 2.   Basis of Presentation (continued)

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.  This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

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. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019, and early adoption is permitted.  The Company is in the process of assessing the impact this ASU will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 815): Improvements to Employees Share-Based Payment Accounting, which provides new guidance intended to simplify the accounting surrounding share-based compensation. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2018. The Company is in the process of assessing the impact this ASU will have on its 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. The implementation of this standard will require application of the new guidance at the beginning of the earliest comparative period presented, once adopted. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2020, and does allow for early adoption.  The Company is in the process of assessing the impact this ASU will have on its consolidated financial statements.

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. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which provides new guidance to simplify the measurement of inventory valuation at the lower of cost or net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new inventory measurement requirements are effective for the Company's 2018 fiscal year, and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework.  The adoption of this ASU is not expected to have a material 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, the FASB issued four 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 and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These ASUs do not change the core principles in the revenue recognition guidance outlined above. ASU No. 2014-09 and the related ASUs referenced above are effective for Matthews beginning October 1, 2018. The Company is in the process of assessing the impact these ASUs will have on its consolidated financial statements.

Adopted

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718), which provides new guidance intended to clarify the diverse accounting treatment for certain share-based payments.  Share-based payments with performance targets that could be achieved after the requisite service period should be treated as performance conditions under the existing guidance in ASC Topic 718.  The adoption of this ASU in the first quarter ended December 31, 2016 had no impact on the Company's consolidated financial statements.


8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 3.   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.

The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows:
 
June 30, 2017
 
September 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives (1)
$
—

 
$
3,641

 
$
—

 
$
3,641

 
$
—

 
$
193

 
$
—

 
$
193

Equity and fixed income mutual funds
—

 
21,031

 
—

 
21,031

 
—

 
19,790

 
—

 
19,790

Other investments
—

 
5,631

 
—

 
5,631

 
—

 
5,127

 
—

 
5,127

Total assets at fair value
$
—

 
$
30,303

 
$
—

 
$
30,303

 
$
—

 
$
25,110

 
$
—

 
$
25,110

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivatives (1)
$
—

 
$
89

 
$
—

 
$
89

 
$
—

 
$
6,027

 
$
—

 
$
6,027

Total liabilities at fair value
$
—

 
$
89

 
$
—

 
$
89

 
$
—

 
$
6,027

 
$
—

 
$
6,027

(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.


Note 4.   Inventories

Inventories consisted of the following:
 
June 30, 2017
 
September 30, 2016
 
 
 
 
Raw materials
$
33,418

 
$
29,597

Work in process
63,227

 
54,357

Finished goods
83,228

 
78,518

 
$
179,873

 
$
162,472




9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.   Debt

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900,000 senior secured revolving credit facility and a $250,000 senior secured amortizing term loan. The term loan requires scheduled principal payments of 5.0% of the outstanding principal in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments.  The balance of the revolving credit facility and the term loan are due on the maturity date of April 26, 2021. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.75% at June 30, 2017) based on the Company's leverage ratio.  The leverage ratio is defined as net indebtedness divided by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).  The Company is required to pay an annual commitment fee ranging from 0.15% to 0.25% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility.

The 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 borrowings on the revolving credit facility at June 30, 2017 and September 30, 2016 were $545,000 and $608,000, respectively. Outstanding borrowings on the term loan at June 30, 2017 and September 30, 2016 were $237,144 and $246,449, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility at June 30, 2017 and June 30, 2016 was 2.89% and 2.55%, respectively.

During the third quarter of fiscal 2017, the Company entered into a two-year $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. 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. The company had $102,900 in outstanding borrowings under the Securitization Facility as of June 30, 2017. At June 30, 2017, the interest rate on borrowings under this facility was 1.97%.

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
 
 
June 30, 2017
 
September 30, 2016
Pay fixed swaps - notional amount
 
$
393,750

 
$
403,125

Net unrealized gain (loss)
 
$
3,552

 
$
(5,834
)
Weighted-average maturity period (years)
 
3.4

 
3.9

Weighted-average received rate
 
1.22
%
 
0.53
%
Weighted-average pay rate
 
1.30
%
 
1.26
%

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 gain, net of unrealized losses, of $3,552 ($2,167 after tax) at June 30, 2017 and an unrealized loss, net of unrealized gains, of $5,834 ($3,559 after tax) at September 30, 2016. The net unrealized gain/loss is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").  Assuming market rates remain constant with the rates at June 30, 2017, a gain (net of tax) of approximately $564 included in AOCI is expected to be recognized in earnings over the next twelve months.


10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.   Debt (continued)

At June 30, 2017 and September 30, 2016, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:
Derivatives
 
June 30, 2017
 
September 30, 2016
Current assets:
 
 
 
 
Other current assets
 
$
948

 
$
43

Long-term assets:
 
 

 
 

Other assets
 
2,693

 
150

Current liabilities:
 
 

 
 

Other current liabilities
 
(25
)
 
(1,529
)
Long-term liabilities:
 
 

 
 

Other liabilities
 
(64
)
 
(4,498
)
Total derivatives
 
$
3,552

 
$
(5,834
)

The gains (losses) recognized on derivatives were as follows:
 
Derivatives in Cash Flow Hedging Relationships
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Amount of Gain (Loss) Recognized in Income on Derivatives
 
Amount of Gain (Loss) Recognized in Income on Derivatives
 
 
 
 
 
  
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
 
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
306

 
$
(848
)
 
$
1,616

 
$
(2,424
)

The Company recognized the following gains (losses) in AOCI:
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in AOCI on Derivatives
 
Location of Gain (Loss) Reclassified From AOCI into Income (Effective Portion*)
 
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion*)
 
 
June 30, 2017
 
June 30, 2016
 
 
 
June 30, 2017
 
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
6,712

 
$
(4,292
)
 
Interest expense
 
$
986

 
$
(1,479
)
 
 
 
 
 
 
 
 
 
 
 
*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.  The maximum amount of borrowing available under this facility is €35.0 million ($39,979).  Outstanding borrowings under the credit facility totaled €18.6 million ($21,292) at June 30, 2017. There were no outstanding borrowings under the credit facility at September 30, 2016.  The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2017 and 2016 was 1.75%.

In November 2016, the Company’s German subsidiary, Matthews Europe GmbH & Co. KG, issued €15.0 million ($17,134 at June 30, 2017) of senior unsecured notes with European banks.  The notes are guaranteed by Matthews International Corporation and mature in November 2019.  A portion of the notes (€5.0 million) have a fixed interest rate of 1.40%, and the remainder bear interest at Euro LIBOR plus 1.40%.  The weighted-average interest rate on the notes at June 30, 2017 was 1.40%.

The Company, through its Italian subsidiary, Matthews International S.p.A., has several loans with various Italian banks.  Outstanding borrowings on these loans totaled €2.8 million ($3,193) and €3.2 million ($3,538) at June 30, 2017 and September 30, 2016, respectively.  Matthews International S.p.A. also has multiple lines of credit totaling €11.3 million ($12,942) with the same Italian banks.  Outstanding borrowings on these lines were €5.2 million ($5,929) and €5.2 million ($5,801) at June 30, 2017 and September 30, 2016, respectively.  The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at June 30, 2017 and 2016 was 2.55% and 3.44%, respectively.


11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.   Debt (continued)

Other debt totaled $3,829 and $4,579 at June 30, 2017 and September 30, 2016, respectively. The weighted-average interest rate on these outstanding borrowings was 2.25% and 5.71% at June 30, 2017 and 2016, respectively.

In September 2014, a demand was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($11,142 at June 30, 2017) with respect to a performance guarantee on a 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 "Court"). Pursuant to this action, an order was issued by the Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the 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 Court as ordered. On June 14, 2016, the Court ruled completely in favor of Matthews following a trial on the merits. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations. If non-compliance with the Court orders continues for the remainder of this fiscal year, the Company will reassess collectability related to this matter. As of June 30, 2017 and September 30, 2016, the Company has presented the funded letter of credit within other current assets on the Consolidated Balance Sheet.

As of June 30, 2017 and September 30, 2016, the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheet.


Note 6.   Share-Based Payments

The Company maintains an equity incentive plan (the "2012 Equity Incentive Plan") that provides for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards.  The Company also maintains an equity incentive plan (the "2007 Equity Incentive Plan") and a stock incentive plan (the "1992 Incentive Stock Plan") that previously provided for grants of stock options, restricted shares and certain other types of stock-based awards.  Under the 2012 Equity Incentive Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,500,000.  There will be no further grants under the 2007 Equity Incentive Plan or the 1992 Incentive Stock Plan.  At June 30, 2017, there were 589,238 shares reserved for future issuance under the 2012 Equity Incentive Plan.  All plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option granted under any of the plans may not be less than the fair market value of the Company's Class A Common Stock on the date of grant.  As of June 30, 2017, there were no stock options outstanding.

With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vested on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.  For grants made in and after fiscal 2013, 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.

For the three-month periods ended June 30, 2017 and 2016, stock-based compensation cost totaled $2,837 and $2,673, respectively. For the nine-month periods ended June 30, 2017 and 2016, stock-based compensation cost totaled $11,854 and $7,940, respectively.  The nine-month period ended June 30, 2017 included $3,337 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 $1,106 and $1,042 for the three-month periods ended June 30, 2017 and 2016, respectively, and $4,623 and $3,097 for the nine-month periods ended June 30, 2017 and 2016, respectively.



12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

There were no stock options exercised during the three-month period ended June 30, 2017. For the three-month period ended June 30, 2016, the amount of cash received from the exercise of stock options was $3,383. For the nine-month periods ended June 30, 2017 and 2016, the amount of cash received from the exercise of stock options was $14 and $5,181, respectively. In connection with these exercises, the tax benefits realized by the Company were $3 and $747 for the nine-month periods ended June 30, 2017 and 2016, respectively.

The transactions for restricted stock for the nine months ended June 30, 2017 were as follows:
 
Shares
 
Weighted-
average
grant-date
fair value
Non-vested at September 30, 2016
522,710

 
$
45.10

Granted
216,655

 
66.61

Vested
(186,367
)
 
47.29

Expired or forfeited
(6,950
)
 
50.29

Non-vested at June 30, 2017
546,048

 
$
52.82


As of June 30, 2017, the total unrecognized compensation cost related to unvested restricted stock was $9,708 and is expected to be recognized over a weighted average period of 1.5 years.

The transactions for shares under options for the nine months ended June 30, 2017 were as follows:
 
Shares
 
Weighted-
average
exercise price
 
Weighted-
average
remaining
contractual term
 
Aggregate
intrinsic
value
Outstanding, September 30, 2016
77,733

 
$
40.56

 
 
 
 
Exercised
(333
)
 
40.56

 
 
 
 
Expired or forfeited
(77,400
)
 
40.56

 
 
 
 
Outstanding, June 30, 2017
—

 
—

 
—

 
$
—

Exercisable, June 30, 2017
—

 
$
—

 
—

 
$
—

No options vested during the three-month and nine-month periods ended June 30, 2017 and 2016, respectively.  The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the nine-month periods ended June 30, 2017 and 2016 was $9 and $2,087, respectively.
The transactions for non-vested options for the nine-months ended June 30, 2017 were as follows:
 
 
 
Weighted-average
grant-date
 
Shares
 
fair value
Non-vested at September 30, 2016
77,400

 
$
12.29

Expired or forfeited
(77,400
)
 
12.29

Non-vested at June 30, 2017
—

 
$
—



13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

The fair value of each restricted stock grant is estimated on the date of grant using a binomial lattice valuation model.  The following table indicates the assumptions used in estimating the fair value of restricted stock granted during the nine-month periods ended June 30, 2017 and 2016.
 
Nine Months Ended
June 30,
 
2017
 
2016
Expected volatility
20.2
%
 
20.7
%
Dividend yield
1.1
%
 
1.0
%
Average risk-free interest rate
1.7
%
 
1.7
%
Average expected term (years)
2.1

 
2.1


The risk-free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date.  Expected volatilities are based on the historical volatility of the Company's stock price.  The expected term for grants in the years ended September 30, 2017, 2016 and 2015 represents an estimate of the average period of time for restricted shares to vest.  The option characteristics for each grant are considered separately for valuation purposes.

The Company maintains the 1994 Director Fee Plan and the Amended and Restated 2014 Director Fee Plan (collectively, the "Director Fee Plans").  There will be no further fees or share-based awards granted under the 1994 Director Fee Plan.  Under the Amended and Restated 2014 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2017, either cash or shares of the Company's Class A Common Stock with a value equal to $75.  The annual retainer fee for fiscal 2017 paid to a non-employee Chairman of the Board is $175.  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 value of deferred shares is recorded in other liabilities.  A total of 16,100 shares had been deferred under the Director Fee Plans as of June 30, 2017.  Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $125 for fiscal 2017.  A total of 22,300 stock options have been granted under the Director Fee Plans.  At June 30, 2017, there were no options outstanding. Additionally, 161,724 shares of restricted stock have been granted under the Director Fee Plans, 58,574 of which were issued under the Amended and Restated 2014 Director Fee Plan.  25,157 share of restricted stock are unvested at June 30, 2017.  A total of 150,000 shares have been authorized to be issued under the Amended and Restated 2014 Director Fee Plan.


Note 7.   Earnings Per Share Attributable to Matthews' Shareholders

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

 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to Matthews shareholders
$
29,485

 
$
23,915

 
$
53,493

 
$
42,886

 
 
 
 
 
 
 
 
Weighted-average shares outstanding (in thousands):
 

 
 

 
 

 
 

Basic shares
32,255

 
32,542

 
32,248

 
32,795

Effect of dilutive securities
317

 
207

 
348

 
254

Diluted shares
32,572

 
32,749

 
32,596

 
33,049

 
 
 
 
 
 
 
 

Anti-dilutive securities excluded from the dilution calculation were insignificant for the three and nine months ended June 30, 2017 and 2016.



14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 8.   Pension and Other Postretirement Benefit Plans

The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:
 
Three months ended June 30,
 
Pension
 
Other Postretirement
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Service cost
$
2,138

 
$
1,813

 
$
98

 
$
101

Interest cost
1,841

 
2,406

 
157

 
211

Expected return on plan assets
(2,312
)
 
(2,407
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

Prior service cost
(45
)
 
(46
)
 
(49
)
 
(49
)
Net actuarial loss
2,509

 
1,866

 
—

 
—

 
 
 
 
 
 
 
 
Net benefit cost
$
4,131

 
$
3,632

 
$
206

 
$
263


 
Nine months ended June 30,
 
Pension
 
Other Postretirement
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Service cost
$
6,414

 
$
5,439

 
$
294

 
$
303

Interest cost
5,523

 
7,218

 
471

 
633

Expected return on plan assets
(6,936
)
 
(7,221
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

Prior service cost
(135
)
 
(138
)
 
(147
)
 
(147
)
Net actuarial loss
7,527

 
5,598

 
—

 
—

 
 
 
 
 
 
 
 
Net benefit cost
$
12,393

 
$
10,896

 
$
618

 
$
789


On September 30, 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for its pensions. Historically, the Company estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Matthews has elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change is being made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligations. The Company has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly, is recognizing its effects prospectively beginning in fiscal 2017. The impact of this change was not material for the three and nine months ended June 30, 2017.


15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 8.   Pension and Other Postretirement Benefit Plans (continued)

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company's operating funds.  Under IRS regulations, the Company was required to make contributions of $5,110 to its principal retirement plan in fiscal year 2017, which the Company has fully contributed in the third quarter. The Company is not required to make any additional significant contributions to its principal retirement plan for the remainder of fiscal 2017.

Contributions made and anticipated for fiscal year 2017 are as follows:
Contributions
 
Pension
 
Other Postretirement
 
 
 
 
 
Contributions during the nine months ended June 30, 2017:
 
 
 
 
Principal retirement plan
 
$
5,110

 
$
—

Supplemental retirement plan
 
543

 
—

Other postretirement plan
 
—

 
552

 
 
 
 
 
Additional contributions expected in fiscal 2017:
 
 

 
 

Principal retirement plan
 
$
—

 
$
—

Supplemental retirement plan
 
217

 
—

Other postretirement plan
 
—

 
596




16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income

The changes in AOCI by component, net of tax, for the three-month periods ended June 30, 2017 and 2016 were as follows:
 
  
Post-retirement benefit plans
 
Currency translation adjustment
 
Derivatives
 
Total
Attributable to Matthews:
 
 
 
 
 
 
 
 
Balance, March 31, 2017
 
$
(53,052
)
 
$
(149,493
)
 
$
2,707

 
$
(199,838
)
OCI before reclassification
 
—

 
32,261

 
(353
)
 
31,908

Amounts reclassified from AOCI
(a)
1,422

 
—

(b)
(187
)
 
1,235

Net current-period OCI
 
1,422

 
32,261

 
(540
)
 
33,143

Balance, June 30, 2017
 
$
(51,630
)
 
$
(117,232
)
 
$
2,167

 
$
(166,695
)
Attributable to noncontrolling interest:
 
 

 
 

 
 

 
 

Balance, March 31, 2017
 
—

 
$
345

 
—

 
$
345

OCI before reclassification
 
—

 
121

 
—

 
121

Net current-period OCI
 
—

 
121

 
—

 
121

Balance, June 30, 2017
 
—

 
$
466

 
—

 
$
466


 
  
Post-retirement benefit plans
 
Currency translation adjustment
 
Derivatives
 
Total
Attributable to Matthews:
 
 
 
 
 
 
 
 
Balance, March 31, 2016
 
$
(41,314
)
 
$
(99,261
)
 
$
(3,505
)
 
$
(144,080
)
OCI before reclassification
 
—

 
(23,692
)
 
(2,074
)
 
(25,766
)
Amounts reclassified from AOCI
(a)
1,098

 
—

(b)
518

 
1,616

Net current-period OCI
 
1,098

 
(23,692
)
 
(1,556
)
 
(24,150
)
Balance, June 30, 2016
 
$
(40,216
)
 
$
(122,953
)
 
$
(5,061
)
 
$
(168,230
)
Attributable to noncontrolling interest:
 
 

 
 

 
 

 
 

Balance, March 31, 2016
 
—

 
$
312

 
—

 
$
312

OCI before reclassification
 
—

 
(57
)
 
—

 
(57
)
Net current-period OCI
 
—

 
(57
)
 
—

 
(57
)
Balance, June 30, 2016
 
—

 
$
255

 
—

 
$
255


(a)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 8).
(b)
Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 5).




17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income (continued)

The changes in AOCI by component, net of tax, for the nine-month periods ended June 30, 2017 and 2016 were as follows:
 
  
Post-retirement benefit plans
 
Currency translation adjustment
 
Derivatives
 
Total
Attributable to Matthews:
 
 
 
 
 
 
 
 
Balance, September 30, 2016
 
$
(56,050
)
 
$
(122,259
)
 
$
(3,559
)
 
$
(181,868
)
OCI before reclassification
 
—

 
5,027

 
6,712

 
11,739

Amounts reclassified from AOCI
(a)
4,420

 
—

(b)
(986
)
 
3,434

Net current-period OCI
 
4,420

 
5,027

 
5,726

 
15,173

Balance, June 30, 2017
 
$
(51,630
)
 
$
(117,232
)
 
$
2,167

 
$
(166,695
)
Attributable to noncontrolling interest:
 
 

 
 

 
 

 
 

Balance, September 30, 2016
 
—

 
$
277

 
—

 
$
277

OCI before reclassification
 
—

 
189

 
—

 
189

Net current-period OCI
 
—

 
189

 
—

 
189

Balance, June 30, 2017
 
—

 
$
466

 
—

 
$
466


 
  
Post-retirement benefit plans
 
Currency translation adjustment
 
Derivatives
 
Total
Attributable to Matthews:
 
 
 
 
 
 
 
 
Balance, September 30, 2015
 
$
(43,474
)
 
$
(104,604
)
 
$
(2,248
)
 
$
(150,326
)
OCI before reclassification
 
—

 
(18,349
)
 
(4,292
)
 
(22,641
)
Amounts reclassified from AOCI
(a)
3,258

 
—

(b)
1,479

 
4,737

Net current-period OCI
 
3,258

 
(18,349
)
 
(2,813
)
 
(17,904
)
Balance, June 30, 2016
 
$
(40,216
)
 
$
(122,953
)
 
$
(5,061
)
 
$
(168,230
)
Attributable to noncontrolling interest:
 
 

 
 

 
 

 
 

Balance, September 30, 2015
 
—

 
$
366

 
—

 
$
366

OCI before reclassification
 
—

 
(111
)
 
—

 
(111
)
Net current-period OCI
 
—

 
(111
)
 
—

 
(111
)
Balance, June 30, 2016
 
—

 
$
255

 
—

 
$
255


(a)
Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 8).
(b)
Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 5).



18


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income (continued)

Reclassifications out of AOCI for the three and nine-month periods ended June 30, 2017 were as follows:
 
 
Amount reclassified from AOCI
 
Details about AOCI Components
 
Three Months Ended June 30, 2017
 
Nine Months Ended June 30, 2017
 
Affected line item in the Statement of income
 
 
 
 
 
 
 
Postretirement benefit plans
 
 
 
 
 
    
Prior service (cost) credit
 
$
94

(a)
$
282

 
 
Actuarial losses
 
(2,509
)
(a)
(7,527
)
 
 
 
 
(2,415
)
(b)
(7,245
)
 
Income before income tax
 
 
(993
)
 
(2,825
)
 
Income taxes