|6 Months Ended|
Mar. 31, 2018
|Debt Disclosure [Abstract]|
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% (1.25% at March 31, 2018) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured 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 March 31, 2018 and September 30, 2017 were $386,000 and $525,000, respectively. Outstanding borrowings on the term loan at March 31, 2018 and September 30, 2017 were $222,944 and $232,479, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at March 31, 2018 and March 31, 2017 was 2.68% and 2.70%, respectively.
In December 2017, the Company issued $300,000 aggregate principal amount 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 beginning on June 1, 2018. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The proceeds from the 2025 Senior Notes were used primarily to reduce indebtedness under the Company's domestic credit facility. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes of $4,127, which are being deferred and amortized over the term of the 2025 Senior Notes.
The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. The Securitization Facility, which had an original maturity date of April 4, 2019, was amended subsequent to the end of the Company's fiscal second quarter, to extend the maturity date until 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, 2018 and September 30, 2017 were $99,600 and $95,825, respectively. At March 31, 2018, the interest rate on borrowings under this facility was 2.63%.
Note 5. Debt (continued)
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
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 $9,912 ($6,414 after tax) at March 31, 2018 and an unrealized gain, net of unrealized losses, of $3,959 ($2,415 after tax) at September 30, 2017. The net unrealized gain is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with the rates at March 31, 2018, a gain (net of tax) of approximately $1,072 included in AOCI is expected to be recognized in earnings over the next twelve months.
At March 31, 2018 and September 30, 2017, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:
The gains recognized on derivatives were as follows:
Note 5. Debt (continued)
The Company recognized the following gains in AOCI:
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews International Corporation. The maximum amount of borrowing available under this facility is €35.0 million ($43,143). The credit facility matures in December 2018 and the Company intends to extend this facility. Outstanding borrowings under the credit facility totaled €12.4 million ($15,236) and €22.1 million ($26,126) at March 31, 2018 and September 30, 2017, respectively. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2018 and 2017 was 1.75%.
The Company’s German subsidiary, Matthews Europe GmbH & Co. KG, has €15.0 million ($18,490) 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 March 31, 2018 and 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 €1.2 million ($1,418) and €2.6 million ($3,079) at March 31, 2018 and September 30, 2017, respectively. The maturity dates for these loans range from April 2018 through November 2019. Matthews International S.p.A. also has multiple on-demand lines of credit totaling €11.3 million ($13,966) with the same Italian banks. Outstanding borrowings on these lines were €268,000 ($330) and €4.0 million ($4,735) at March 31, 2018 and September 30, 2017, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at March 31, 2018 and 2017 was 2.23% and 2.31%, respectively.
Other debt totaled $918 and $1,032 at March 31, 2018 and September 30, 2017, respectively. The weighted-average interest rate on these outstanding borrowings was 2.82% and 2.39% at March 31, 2018 and 2017, respectively.
In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($12,013 at March 31, 2018) 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. 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, 2018 and September 30, 2017. The Company will continue to assess collectability related to this matter as facts and circumstances evolve.
As of March 31, 2018 and September 30, 2017, 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, 2018.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef