Matthews International Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

3 Months Ended

Dec. 31, 2015

Note 5. Debt

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions. The maximum amount of borrowings available under the facility is $900,000 and borrowings under the facility bear interest at LIBOR plus a factor ranging from .75% to 2.00% (1.75% at December 31, 2015) based on the Company's leverage ratio. The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization). The Company is required to pay an annual commitment fee ranging from .15% to .25% (based on the Company's leverage ratio) of the unused portion of the facility.

The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $30,000) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at December 31, 2015 and September 30, 2015 were $872,425 and $857,425, respectively. The weighted-average interest rate on outstanding borrowings at December 31, 2015 and 2014 was 2.31% and 2.51%, respectively.

The Company has entered into the following interest rate swaps:

Effective Date	Amount	Fixed Interest Rate	Interest Rate Spread at December 31, 2015	Maturity Date
June 2012	$40,000	1.88%	1.75%	June 2022
August 2012	35,000	1.74%	1.75%	June 2022
September 2012	25,000	1.24%	1.75%	March 2017
May 2014	25,000	1.35%	1.75%	May 2018
November 2014	25,000	1.26%	1.75%	June 2018
March 2015	25,000	1.49%	1.75%	March 2019
September 2015	25,000	1.39%	1.75%	September 2020
November 2015	25,000	1.32%	1.75%	November 2020
December 2015	25,000	1.59%	1.75%	December 2020

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 the future variable interest payments under the Revolving Credit Facility, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss, net of unrealized gains, of $1,092 ($666 after tax) at December 31, 2015 and an unrealized loss, net of unrealized gains, of $3,686 ($2,248 after tax) at September 30, 2015. The net unrealized gain and loss are included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with the rates at December 31, 2015, a loss (net of tax) of approximately $240 included in AOCI is expected to be recognized in earnings over the next twelve months.

At December 31, 2015 and September 30, 2015, the interest rate swap contracts were reflected in the consolidated balance sheets as follows:


Derivatives	December 31, 2015			September 30, 2015
Current assets:
Other current assets	$	26		$	-
Long-term assets:
Other assets		99			-
Current liabilities:
Other current liabilities		(420	)		(1,165	)
Long-term liabilities:
Other liabilities		(797	)		(2,521	)
Total derivatives	$	(1,092	)	$	(3,686	)

The loss recognized on derivatives was as follows:

	Location of
Derivatives in	Loss	Amount of Loss
Cash Flow	Recognized in	Recognized in Income
Hedging	Income on	on Derivatives
Relationships	Derivative	Three Months Ended December 31,
		2015	2014

Interest rate swaps	Interest expense	$(830)	$(1,077)

The Company recognized the following gains or losses in AOCI:

Location of

Gain or

(Loss)

Reclassified

Amount of Loss

Amount of Gain or (Loss)

from

Reclassified from

Derivatives in

Recognized in

AOCI into

AOCI into Income

Cash Flow

AOCI on Derivatives

Income

(Effective Portion*)

Hedging Relationships

December 31,
2015

December 31,
2014

(Effective

Portion*)

December 31, 2015

December 31,
2014

Interest rate swaps

$1,076

$(1,468)

Interest expense

$(506)

$(657)

*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 borrowings available under this facility is 35.0 million Euros ($38,171). Outstanding borrowings under the credit facility totaled 20.9 million Euros ($22,810) and 23.9 million Euros ($26,829) at December 31, 2015 and September 30, 2015, respectively. The weighted-average interest rate on outstanding borrowings under this facility at December 31, 2015 and 2014 was 1.50% and 1.27%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG ("Saueressig"), has several loans with various European banks. Outstanding borrowings under these loans totaled 965,452 Euros ($1,053) and 734,452 Euros ($824) at December 31, 2015 and September 30, 2015, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at December 31, 2015 and 2014 was 4.00% and 4.24%, respectively.

The Company, through its German subsidiary, Wetzel GmbH ("Wetzel"), has several loans with various European banks. Outstanding borrowings on these loans totaled 1.5 million Euros ($1,597) and 1.9 million Euros ($2,110) at December 31, 2015 and September 30, 2015, respectively. The weighted-average interest rate on outstanding borrowings of Wetzel at December 31, 2015 and 2014 was 6.12% and 5.74%, respectively.

The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks. Outstanding borrowings on these loans totaled 3.5 million Euros ($3,780) and 4.3 million Euros ($4,772) at December 31, 2015 and September 30, 2015, respectively. Matthews International S.p.A. also has three lines of credit totaling 11.3 million Euros ($12,356) with the same Italian banks. Outstanding borrowings on these lines were 5.7 million Euros ($6,192) and 4.6 million Euros ($5,166) at December 31, 2015 and September 30, 2015, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at December 31, 2015 and 2014 was 3.33% and 3.18%, respectively.

In September 2014, a claim seeking to draw upon a letter of credit issued by the Company of $12,925 was filed with respect to a project for a customer. In January 2015, the Company made payment on the draw to the financial institution for the letter of credit. Pursuant to an action initiated by the Company, a court order has been issued requiring these funds to ultimately be remitted to the court pending resolution of the dispute between the parties. While it is possible the resolution of this matter could be unfavorable to the Company, management has assessed the customer's claim to be without merit and, based on information available as of this filing, expects that the ultimate resolution of this matter will not have a material adverse effect on Matthews' financial condition, results of operations or cash flows. As of December 31, 2015 and September 30, 2015, the Company has presented the funded letter of credit as restricted cash on the Consolidated Balance Sheet.

As of December 31, 2015 and September 30, 2015 the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheet.