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 March 31, 2019
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
 ☒
 
Accelerated filer
 ☐
Non-accelerated filer
 ☐
 
Smaller reporting company
 ☐
 
 
 
Emerging growth 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 ☒
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Class A Common Stock, $1.00 par value
 
MATW
 
Nasdaq Global Select Market
As of March 31, 2019, shares of common stock outstanding were: Class A Common Stock 31,728,614 shares.


PART I ‑ FINANCIAL INFORMATION
Item 1.   Financial Statements

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)
 
March 31, 2019
 
September 30, 2018
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
37,730

 
 
 
$
41,572

Accounts receivable, net
 
 
318,147

 
 
 
331,463

Inventories, net
 
 
187,653

 
 
 
180,451

Other current assets
 
 
74,274

 
 
 
61,592

 
 
 
 
 
 
 
 
Total current assets
 
 
617,804

 
 
 
615,078

 
 
 
 
 
 
 
 
Investments
 
 
61,356

 
 
 
45,430

Property, plant and equipment, net
 

 
243,493

 
 

 
252,775

Deferred income taxes
 

 
1,945

 
 

 
1,837

Other assets
 

 
46,845

 
 

 
49,820

Goodwill
 

 
933,748

 
 

 
948,894

Other intangible assets, net
 

 
430,706

 
 

 
443,910

 
 
 
 
 
 
 
 
Total assets
 

 
$
2,335,897

 
 

 
$
2,357,744

 
 
 
 
 
 
 
 
LIABILITIES
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

Long-term debt, current maturities
 

 
$
56,596

 
 

 
$
31,260

Trade accounts payable
 

 
67,656

 
 

 
70,044

Accrued compensation
 

 
41,819

 
 

 
51,490

Accrued income taxes
 

 
9,869

 
 

 
11,413

Other current liabilities
 

 
131,627

 
 

 
122,195

 
 
 
 
 
 
 
 
Total current liabilities
 

 
307,567

 
 

 
286,402

 
 
 
 
 
 
 
 
Long-term debt
 

 
919,102

 
 

 
929,342

Accrued pension
 

 
84,562

 
 

 
82,035

Postretirement benefits
 

 
17,407

 
 

 
17,753

Deferred income taxes
 

 
116,793

 
 

 
121,519

Other liabilities
 

 
43,005

 
 

 
51,979

Total liabilities
 

 
1,488,436

 
 

 
1,489,030

 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY
 

 
 

 
 

 
 

Shareholders' equity-Matthews:
 

 
 

 
 

 
 

Common stock
$
36,334

 
 

 
$
36,334

 
 

Additional paid-in capital
135,055

 
 

 
129,252

 
 

Retained earnings
1,041,856

 
 

 
1,040,378

 
 

Accumulated other comprehensive loss
(180,186
)
 
 

 
(164,298
)
 
 

Treasury stock, at cost
(187,391
)
 
 

 
(173,315
)
 
 

Total shareholders' equity-Matthews
 

 
845,668

 
 

 
868,351

Noncontrolling interests
 

 
1,793

 
 

 
363

Total shareholders' equity
 

 
847,461

 
 

 
868,714

 
 
 
 
 
 
 
 
Total liabilities and shareholders' equity
 

 
$
2,335,897

 
 

 
$
2,357,744


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
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Sales
$
391,400

 
$
414,061

 
$
765,577

 
$
783,515

Cost of sales
(255,119
)
 
(263,381
)
 
(502,885
)
 
(501,422
)
 
 
 
 
 
 
 
 
Gross profit
136,281

 
150,680

 
262,692

 
282,093

 
 
 
 
 
 
 
 
Selling expense
(34,352
)
 
(37,191
)
 
(69,381
)
 
(74,108
)
Administrative expense
(68,156
)
 
(74,024
)
 
(135,259
)
 
(142,490
)
Intangible amortization
(9,509
)
 
(8,249
)
 
(17,622
)
 
(14,930
)
 
 
 
 
 
 
 
 
Operating profit
24,264

 
31,216

 
40,430

 
50,565

 
 
 
 
 
 
 
 
Investment (loss) income
2,091

 
(74
)
 
739

 
393

Interest expense
(10,259
)
 
(9,262
)
 
(20,560
)
 
(17,063
)
Other income (deductions), net
(1,067
)
 
(1,596
)
 
(1,991
)
 
(3,680
)
 
 
 
 
 
 
 
 
Income before income taxes
15,029

 
20,284

 
18,618

 
30,215

 
 
 
 
 
 
 
 
Income tax (provision) benefit
165

 
(2,212
)
 
(440
)
 
23,015

 
 
 
 
 
 
 
 
Net income
15,194

 
18,072

 
18,178

 
53,230

 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
223

 
110

 
336

 
132

 
 
 
 
 
 
 
 
Net income attributable to Matthews shareholders
$
15,417

 
$
18,182

 
$
18,514

 
$
53,362

 
 
 
 
 
 
 
 
Earnings per share attributable to Matthews shareholders:
Basic
$
0.49

 
$
0.57

 
$
0.59

 
$
1.68

 
 
 
 
 
 
 
 
Diluted
$
0.48

 
$
0.57

 
$
0.58

 
$
1.68


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 March 31,
 
Matthews
 
Noncontrolling Interest
 
Total
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss):
$
15,417

 
$
18,182

 
$
(223
)
 
$
(110
)
 
$
15,194

 
$
18,072

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

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
134

 
11,413

 
19

 
90

 
153

 
11,503

Pension plans and other postretirement benefits
734

 
1,022

 
—

 
—

 
734

 
1,022

Unrecognized (loss) gain on derivatives:
 

 
 

 
 

 
 

 
 

 
 

Net change from periodic revaluation
(1,356
)
 
3,260

 
—

 
—

 
(1,356
)
 
3,260

Net amount reclassified to earnings
(664
)
 
(133
)
 
—

 
—

 
(664
)
 
(133
)
Net change in unrecognized gain (loss) on derivatives
(2,020
)
 
3,127

 
—

 
—

 
(2,020
)
 
3,127

OCI, net of tax
(1,152
)
 
15,562

 
19

 
90

 
(1,133
)
 
15,652

Comprehensive (loss) income
$
14,265

 
$
33,744

 
$
(204
)
 
$
(20
)
 
$
14,061

 
$
33,724


 
Six Months Ended March 31,
 
Matthews
 
Noncontrolling Interest
 
Total
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss):
$
18,514

 
$
53,362

 
$
(336
)
 
$
(132
)
 
$
18,178

 
$
53,230

OCI, net of tax:
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
(12,430
)
 
19,011

 
6

 
103

 
(12,424
)
 
19,114

Pension plans and other postretirement benefits
1,463

 
2,040

 
—

 
—

 
1,463

 
2,040

Unrecognized (loss) gain on derivatives:
 

 
 

 
 

 
 

 
 

 
 

Net change from periodic revaluation
(3,702
)
 
4,893

 
—

 
—

 
(3,702
)
 
4,893

Net amount reclassified to earnings
(1,219
)
 
(171
)
 
—

 
—

 
(1,219
)
 
(171
)
Net change in unrecognized (loss) gain on derivatives
(4,921
)
 
4,722

 
—

 
—

 
(4,921
)
 
4,722

OCI, net of tax
(15,888
)
 
25,773

 
6

 
103

 
(15,882
)
 
25,876

Comprehensive (loss) income
$
2,626

 
$
79,135

 
$
(330
)
 
$
(29
)
 
$
2,296

 
$
79,106


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 three and six months ended March 31, 2019 and 2018 (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, 2018
$
36,334

 
$
129,252

 
$
1,040,378

 
$
(164,298
)
 
$
(173,315
)
 
$
363

 
$
868,714

Net income (loss)
—

 
—

 
3,097

 
—

 
—

 
(113
)
 
2,984

Minimum pension liability
—

 
—

 
—

 
729

 
—

 
—

 
729

Translation adjustment
—

 
—

 
—

 
(12,564
)
 
—

 
(13
)
 
(12,577
)
Fair value of derivatives
—

 
—

 
—

 
(2,901
)
 
—

 
—

 
(2,901
)
Total comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
(11,765
)
Stock-based compensation
—

 
3,647

 
—

 
—

 
—

 
—

 
3,647

Purchase of 186,417 shares of treasury stock
—

 
—

 
—

 
—

 
(7,751
)
 
—

 
(7,751
)
Issuance of 2,822 shares of treasury stock
—

 
(115
)
 
—

 
—

 
115

 
—

 
—

Cancellations of 19,433 shares of treasury stock
—

 
891

 
—

 
—

 
(891
)
 
—

 
—

Dividends, $0.20 per share
—

 
—

 
(6,414
)
 
—

 
—

 
—

 
(6,414
)
Acquisition
—

 
—

 
—

 
—

 
—

 
1,760

 
1,760

Cumulative tax adjustment for intra-entity transfers
—

 
—

 
(4,176
)
 
—

 
—

 
—

 
(4,176
)
Balance,
December 31, 2018
$
36,334

 
$
133,675

 
$
1,032,885

 
$
(179,034
)
 
$
(181,842
)
 
$
1,997

 
$
844,015

Net income (loss)
—

 
—

 
15,417

 
—

 
—

 
(223
)
 
15,194

Minimum pension liability
—

 
—

 
—

 
734

 
—

 
—

 
734

Translation adjustment
—

 
—

 
—

 
134

 
—

 
19

 
153

Fair value of derivatives
—

 
—

 
—

 
(2,020
)
 
—

 
—

 
(2,020
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
14,061

Stock-based compensation
—

 
1,366

 
—

 
—

 
—

 
—

 
1,366

Purchase of 143,092 shares of treasury stock
—

 
—

 
—

 
—

 
(5,535
)
 
—

 
(5,535
)
Cancellations of 41 shares of treasury stock
—

 
14

 
—

 
—

 
(14
)
 
—

 
—

Dividends, $0.20 per share
—

 
—

 
(6,446
)
 
—

 
—

 
—

 
(6,446
)
Balance,
March 31, 2019
$
36,334

 
$
135,055

 
$
1,041,856

 
$
(180,186
)
 
$
(187,391
)
 
$
1,793

 
$
847,461

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

 
Shareholders' Equity
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
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 (loss)
—

 
—

 
35,180

 
—

 
—

 
(22
)
 
35,158

Minimum pension liability
—

 
—

 
—

 
1,018

 
—

 
—

 
1,018

Translation adjustment
—

 
—

 
—

 
7,598

 
—

 
13

 
7,611

Fair value of derivatives
—

 
—

 
—

 
1,595

 
—

 
—

 
1,595

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
45,382

Stock-based compensation
—

 
5,474

 
—

 
—

 
—

 
—

 
5,474

Purchase of 75,765 shares of treasury stock
—

 
—

 
—

 
—

 
(4,415
)
 
—

 
(4,415
)
Issuance of 223,971 shares of treasury stock
—

 
(8,922
)
 
—

 
—

 
8,922

 
—

 
—

Cancellations of 5,214 shares of treasury stock
—

 
310

 
—

 
—

 
(310
)
 
—

 
—

Dividends, $0.19 per share
—

 
—

 
(6,071
)
 
—

 
—

 
—

 
(6,071
)
Balance,
December 31, 2017
$
36,334

 
$
120,294

 
$
977,939

 
$
(143,904
)
 
$
(160,577
)
 
$
543

 
$
830,629

Net income (loss)
—

 
—

 
18,182

 
—

 
—

 
(110
)
 
18,072

Minimum pension liability
—

 
—

 
—

 
1,022

 
—

 
—

 
1,022

Translation adjustment
—

 
—

 
—

 
11,413

 
—

 
90

 
11,503

Fair value of derivatives
—

 
—

 
—

 
3,127

 
—

 
—

 
3,127

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
33,724

Stock-based compensation
—

 
2,658

 
—

 
—

 
—

 
—

 
2,658

Purchase of 260,621 shares of treasury stock
—

 
—

 
—

 
—

 
(13,890
)
 
—

 
(13,890
)
Issuance of 102,856 shares of treasury stock
—

 
883

 
—

 
—

 
4,117

 
—

 
5,000

Dividends, $0.19 per share
—

 
—

 
(6,039
)
 
—

 
—

 
—

 
(6,039
)
Balance,
March 31, 2018
$
36,334

 
$
123,835

 
$
990,082

 
$
(128,342
)
 
$
(170,350
)
 
$
523

 
$
852,082

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)

 
Six Months Ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
18,178

 
$
53,230

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

 
 

Depreciation and amortization
40,276

 
36,986

Stock-based compensation expense
5,013

 
8,132

Deferred tax benefit
(3,176
)
 
(38,429
)
Gain on sale of assets
(128
)
 
(813
)
Loss on divestiture
4,465

 
—

Unrealized loss (gain) on investments
806

 
(199
)
Changes in working capital items
(17,552
)
 
(7,818
)
Increase in other assets
(406
)
 
(8,192
)
Increase in other liabilities
937

 
9,628

Other operating activities, net
(3,124
)
 
3,745

 
 
 
 
Net cash provided by operating activities
45,289

 
56,270

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(19,170
)
 
(21,854
)
Acquisitions, net of cash acquired
(11,525
)
 
(119,689
)
Proceeds from sale of assets
462

 
1,731

Proceeds from divestiture
8,254

 
—

Investments and advances
(11,488
)
 
(11,746
)
 
 
 
 
Net cash used in investing activities
(33,467
)
 
(151,558
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
181,594

 
627,192

Payments on long-term debt
(167,327
)
 
(495,109
)
Purchases of treasury stock
(13,286
)
 
(18,305
)
Dividends
(12,860
)
 
(12,110
)
Payment of acquisition holdback
(2,050
)
 
—

Other financing activities
(1,436
)
 
—

 
 
 
 
Net cash (used in) provided by financing activities
(15,365
)
 
101,668

 
 
 
 
Effect of exchange rate changes on cash
(299
)
 
936

 
 
 
 
Net change in cash and cash equivalents
$
(3,842
)
 
$
7,316

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Acquisition of long-term asset under financing arrangement
$
—

 
$
14,544

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


6


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
(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 consist of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer packaged goods and retail industries. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment primarily for the cemetery and funeral home industries. 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 North America, Europe, Asia, 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 six months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019. 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, 2018.  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.

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. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications are not material to the prior year presentation.

New 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 August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits.  This ASU is effective for the Company beginning in interim periods starting in fiscal year 2020. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.






7


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

Note 2. Basis of Presentation (continued)

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), which provides new guidance intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This ASU is effective for the Company beginning in fiscal year 2020. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In 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 new transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has elected to use this transition method at the adoption date of October 1, 2019. ASU No. 2016-02 and the related ASUs referenced above are effective for the Company beginning in interim periods starting in fiscal year 2020. The Company is in the process of assessing the impact these ASUs will have on its consolidated financial statements.

Adopted

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. For the three months ended March 31, 2018, the Company reclassified net benefit costs of $714, $226 and $485, from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net. For the six months ended March 31, 2018, the Company reclassified net benefit costs of $1,428, $452 and $970 from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides new guidance intended to make the definition of a business more operable and allow for more consistency in application.  The adoption of this ASU in the first quarter ended December 31, 2018 had no impact on the Company's consolidated financial statements.

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



8


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

Note 2. Basis of Presentation (continued)

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. Refer to Note 3, “Revenue Recognition,” for a further discussion.


Note 3.   Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various delivery terms applicable to the Company’s sales. 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, estimates of rebates and other sales or contract renewal incentives, and 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.

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 and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services primarily to the consumer packaged goods and retail industries. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets and cremation equipment primarily for the cemetery and funeral home industries.  The 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. 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 three and six months ended March 31, 2019 and 2018. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates.



9


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

Note 3.   Revenue Recognition (continued)

The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the three and six months ended March 31, 2019 and 2018 were as follows:
 
 
SGK Brand Solutions
 
Memorialization
 
Industrial Technologies
 
Consolidated
 
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
 
2019
2018
 
2019
2018
 
2019
2018
 
2019
2018
North America
 
$
79,170

$
89,609

 
$
151,441

$
156,512

 
$
30,988

$
29,609

 
$
261,599

$
275,730

Central and South America
 
1,480

1,571

 
—

—

 
—

—

 
1,480

1,571

Europe
 
96,070

101,703

 
8,606

9,769

 
7,035

7,731

 
111,711

119,203

Australia
 
2,901

3,007

 
2,129

2,408

 
—

—

 
5,030

5,415

Asia
 
11,030

11,162

 
—

—

 
550

980

 
11,580

12,142

Total Sales
 
$
190,651

$
207,052

 
$
162,176

$
168,689

 
$
38,573

$
38,320

 
$
391,400

$
414,061


 
 
SGK Brand Solutions
 
Memorialization
 
Industrial Technologies
 
Consolidated
 
 
Six Months Ended March 31,
 
Six Months Ended March 31,
 
Six Months Ended March 31,
 
Six Months Ended March 31,
 
 
2019
2018
 
2019
2018
 
2019
2018
 
2019
2018
North America
 
$
158,752

$
176,562

 
$
294,734

$
289,261

 
$
58,702

$
53,468

 
$
512,188

$
519,291

Central and South America
 
2,697

3,136

 
—

—

 
—

—

 
2,697

3,136

Europe
 
186,588

190,573

 
16,764

19,014

 
13,372

15,362

 
216,724

224,949

Australia
 
5,860

6,010

 
4,564

5,303

 
—

—

 
10,424

11,313

Asia
 
22,054

22,537

 
—

—

 
1,490

2,289

 
23,544

24,826

Total Sales
 
$
375,951

$
398,818

 
$
316,062

$
313,578

 
$
73,564

$
71,119

 
$
765,577

$
783,515



Note 4.   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.



10


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

Note 4.   Fair Value Measurements (continued)

The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows:
 
March 31, 2019
 
September 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives (1)
$
—

 
$
4,791

 
$
—

 
$
4,791

 
$
—

 
$
11,309

 
$
—

 
$
11,309

Equity and fixed income mutual funds
—

 
22,512

 
—

 
22,512

 
—

 
22,758

 
—

 
22,758

Life insurance policies
—

 
4,045

 
—

 
4,045

 
—

 
5,894

 
—

 
5,894

Total assets at fair value
$
—

 
$
31,348

 
$
—

 
$
31,348

 
$
—

 
$
39,961

 
$
—

 
$
39,961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivatives (1)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total liabilities at fair value
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

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


Note 5.   Inventories

Inventories consisted of the following:
 
March 31, 2019
 
September 30, 2018
 
 
 
 
Raw materials
$
36,880

 
$
34,880

Work in process
72,210

 
67,827

Finished goods
78,563

 
77,744

 
$
187,653

 
$
180,451


 
Note 6.   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% (1.50% at March 31, 2019) 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 0.25% (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 March 31, 2019 and September 30, 2018 were $342,500 and $319,500, respectively. Outstanding borrowings on the term loan at March 31, 2019 and September 30, 2018 were $199,666 and $212,086, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at March 31, 2019 and March 31, 2018 was 3.25% and 2.68%, 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.


11


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

Note 6.   Debt (continued)

The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures on April 11, 2020. 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 March 31, 2019 and September 30, 2018 were $102,200 and $102,250, respectively. At March 31, 2019 and 2018, the interest rate on borrowings under this facility was 3.24% and 2.63%, respectively.

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
 
 
March 31, 2019
 
September 30, 2018
Pay fixed swaps - notional amount
 
$
331,250

 
$
343,750

Net unrealized gain 
 
$
4,791

 
$
11,309

Weighted-average maturity period (years)
 
2.2

 
2.7

Weighted-average received rate
 
2.49
%
 
2.26
%
Weighted-average pay rate
 
1.40
%
 
1.37
%

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 of $4,791 ($3,617 after tax) at March 31, 2019 and an unrealized gain of $11,309 ($8,538 after tax) at September 30, 2018. The unrealized gain is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").  Assuming market rates remain constant with the rates at March 31, 2019, a gain (net of tax) of approximately $1,574 included in AOCI is expected to be recognized in earnings over the next twelve months.

At March 31, 2019 and September 30, 2018, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:
Derivatives
 
March 31, 2019
 
September 30, 2018
Current assets:
 
 
 
 
Other current assets
 
$
2,085

 
$
3,867

Long-term assets:
 
 

 
 

Other assets
 
2,706

 
7,442

Current liabilities:
 
 

 
 

Other current liabilities
 
—

 
—

Long-term liabilities:
 
 

 
 

Other liabilities
 
—

 
—

Total derivatives
 
$
4,791

 
$
11,309




12


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

Note 6.   Debt (continued)

The gains recognized on derivatives were as follows:
 
Derivatives in Cash Flow Hedging Relationships
 
Location of Gain Recognized in Income on Derivative
 
Amount of Gain Recognized in Income on Derivatives
 
Amount of Gain Recognized in Income on Derivatives
 
 
 
 
 
  
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
 
 
2019
 
2018
 
2019
 
2018
 
Interest rate swaps
 
Interest expense
 
$
880

 
$
202

 
$
1,615

 
$
265


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 Gain Reclassified From AOCI into Income (Effective Portion*)
 
Amount of Gain
Reclassified from
AOCI into Income
(Effective Portion*)
 
 
March 31, 2019
 
March 31, 2018
 
 
 
March 31, 2019
 
March 31, 2018
Interest rate swaps
 
$
(3,702
)
 
$
4,893

 
Interest expense
 
$
1,219

 
$
171

*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 borrowing available under this facility is €35.0 million ($39,270).  The credit facility matures in December 2019 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €9.8 million ($11,033) and €2.8 million ($3,211) at March 31, 2019 and September 30, 2018, respectively. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2019 and 2018 was 1.25% and 1.75%, respectively.

The Company’s German subsidiary, Matthews Europe GmbH & Co. KG, has €15.0 million ($16,830) of senior unsecured notes with European banks.  The notes are guaranteed by Matthews and mature in November 2019.  A portion of the notes (€5.0 million) have a fixed interest rate of 1.40%, and the remainder bear interest at Euro LIBOR plus 1.40%.  The weighted-average interest rate on the notes at March 31, 2019 and 2018 was 1.40%.

Other debt totaled $3,299 and $5,399 at March 31, 2019 and September 30, 2018, respectively. The weighted-average interest rate on these outstanding borrowings was 5.50% and 2.77% at March 31, 2019 and 2018, respectively.

In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($11,176 at March 31, 2019) with respect to a performance guarantee on an environmental solutions 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. The Company has determined that resolution of this matter may take an extended period of time and therefore has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of March 31, 2019 and September 30, 2018. The Company will continue to assess collectability related to this matter as facts and circumstances evolve.

As of March 31, 2019 and September 30, 2018, the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of March 31, 2019.



13


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

Note 7.   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 March 31, 2019, there were 1,700,000 shares reserved for future issuance under the 2017 Equity Incentive Plan, including 262,200 restricted share units that were granted during the first quarter of fiscal 2019.  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 forty 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 three-month periods ended March 31, 2019 and 2018, stock-based compensation cost totaled $1,366 and $2,658, respectively. For the six-month periods ended March 31, 2019 and 2018, stock-based compensation cost totaled and $5,013 and $8,132, respectively. The six-month periods ended March 31, 2019 and 2018 included $1,849 and $2,850 of stock-based compensation cost, respectively, that was recognized at the time of grant for retirement-eligible employees. The associated future income tax benefit recognized for stock-based compensation was $335 and $651 for the three-month periods ended March 31, 2019 and 2018, respectively, and $870 and $1,521 for the six-month periods ended March 31, 2019 and 2018, respectively.

The transactions for restricted shares and restricted share units for the six months ended March 31, 2019 were as follows:
 
Shares /Units
 
Weighted-
average
Grant-date
Fair Value
Non-vested at September 30, 2018
554,233

 
$
55.71

Granted
262,200

 
42.21

Vested
(174,816
)
 
58.06

Expired or forfeited
(19,507
)
 
45.91

Non-vested at March 31, 2019
622,110

 
$
49.67


As of March 31, 2019, the total unrecognized compensation cost related to unvested restricted stock was $10,777 and is expected to be recognized over a weighted average period of 2.2 years.



14


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

Note 7.   Share-Based Payments (continued)

The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans").  The 2019 Director Fee Plan was approved by the Company’s shareholders at the 2019 Annual Meeting of Shareholders on February 21, 2019. There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan.  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 2019, either cash or shares of the Company's Class A Common Stock with a value equal to $85.  The annual retainer fee for fiscal 2019 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 25,498 shares had been deferred under the Director Fee Plans as of March 31, 2019.  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 2019.  196,266 restricted shares and restricted share units have been granted under the Director Fee Plans, 23,037 of which were issued under the 2019 Director Fee Plan.  34,542 restricted shares and restricted share units are unvested at March 31, 2019. 


Note 8.   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
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
Net income attributable to Matthews shareholders
$
15,417

 
$
18,182

 
$
18,514

 
$
53,362

 
 
 
 
 
 
 
 
Weighted-average shares outstanding (in thousands):
 

 
 

 
 

 
 

Basic shares
31,528

 
31,727

 
31,563

 
31,722

Effect of dilutive securities
141

 
126

 
135

 
124

Diluted shares
31,669

 
31,853

 
31,698

 
31,846


Anti-dilutive securities excluded from the dilution calculation were insignificant for the three and six months ended March 31, 2019 and 2018.



15


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

Note 9.   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 March 31,
 
Pension
 
Other Postretirement
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Service cost
$
2,000

 
$
2,039

 
$
61

 
$
84

Interest cost *
2,301

 
2,049

 
180

 
158

Expected return on plan assets *
(2,596
)
 
(2,534
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

Prior service cost
(46
)
 
(35
)
 
(49
)
 
(49
)
Net actuarial loss (gain) *
1,100

 
1,752

 
(15
)
 
—

Net benefit cost
$
2,759

 
$
3,271

 
$
177

 
$
193

 
Six months ended March 31,
 
Pension
 
Other Postretirement
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Service cost
$
4,000

 
$
4,078

 
$
122

 
$
168

Interest cost *
4,602

 
4,098

 
360

 
316

Expected return on plan assets *
(5,192
)
 
(5,068
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

Prior service cost
(92
)
 
(70
)
 
(98
)
 
(98
)
Net actuarial loss (gain) *
2,161

 
3,504

 
(30
)
 
—

Net benefit cost
$
5,479

 
$
6,542

 
$
354

 
$
386

* Non-service components of pension and postretirement expense are included in other income (deductions), net.
 
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 is not required to make any significant contributions to its principal retirement plan in fiscal year 2019.

Contributions made and anticipated for fiscal year 2019 are as follows:
Contributions
 
Pension
 
Other Postretirement
Contributions during the six months ended March 31, 2019:
 
 
 
 
Supplemental retirement plan
 
$
391

 
$
—

Other postretirement plan
 
—

 
757

 
 
 
 
 
Additional contributions expected in fiscal 2019:
 
 

 
 

Supplemental retirement plan
 
$
466

 
$
—

Other postretirement plan
 
—

 
318




16


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

Note 10.   Accumulated Other Comprehensive Income

The changes in AOCI by component, net of tax, for the three-month periods ended March 31, 2019 and 2018 were as follows:
 
  
Post-retirement benefit plans
 
Currency translation adjustment
 
Derivatives
 
Total
Attributable to Matthews:
 
 
 
 
 
 
 
 
Balance, December 31, 2018
 
$
(37,147
)
 
$
(147,524
)
 
$
5,637

 
$
(179,034
)
OCI before reclassification
 
—

 
134

 
(1,356
)
 
(1,222
)
Amounts reclassified from AOCI
 
734

(a) 
—

 
(664
)
(b) 
70

Net current-period OCI
 
734

  
134

  
(2,020
)
 
(1,152
)
Balance, March 31, 2019
 
$
(36,413
)
 
$
(147,390
)
 
$
3,617

 
$
(180,186
)
Attributable to noncontrolling interest:
 
 

 
 

 
 

 
 

Balance, December 31, 2018
 
—

 
$
454

 
—

 
$
454

OCI before reclassification
 
—

 
19

 
—

 
19

Net current-period OCI
 
—

 
19

 
—

 
19

Balance, March 31, 2019
 
—