What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-11-19 compared with 2020-11-20 · 150 added, 153 removed, 183 unchanged (62% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Gross profit for the year ended September 30, 2021 was $541.8 million, compared to $497.8 million for fiscal 2020.

Consolidated gross profit as a percent of sales was 32.4% and 33.2% in fiscal 2021 and fiscal 2020, respectively.

The increase in gross profit primarily reflected higher sales, benefits from the realization of productivity improvements and other cost-reduction initiatives, and improved margins for cylinder (packaging) products within the SGK Brand Solutions segment.

These improvements were partially offset by the impact of higher material and transportation costs, particularly in the Memorialization segment, ongoing price competition in the brand market, and lower margins on certain cremation and incineration projects.

Higher material costs in the Memorialization segment reflected a significant increase in commodity costs, particularly steel, lumber and bronze ingot.

Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $17.3 million and $12.4 million in fiscal 2021 and 2020, respectively.

Selling and administrative expenses for the year ended September 30, 2021 were $415.6 million, compared to $400.0 million for fiscal 2020.

Consolidated selling and administrative expenses, as a percent of sales, were 24.9% for fiscal 2021, compared to 26.7% in fiscal 2020.

The decrease in selling and administrative expenses reflected the impact of lower sales in fiscal 2020, reduced travel and entertainment ("T&E") costs resulting from the COVID-19 pandemic, and benefits from ongoing cost-reduction initiatives, partially offset by increased performance-based compensation compared to fiscal 2019.

Fiscal 2020 selling and administrative expenses included a $10.6 million charge for a legal matter involving a letter of credit for a customer in Saudi Arabia (see "Liquidity and Capital Resources" below).

Fiscal 2019 selling and administrative expenses included $7.3 million of net gains from the sale of buildings and vacant properties.

Selling and administrative expenses included an $11.2 million gain and $6.5 million of losses recognized on the sales of ownership interests in Memorialization businesses completed in fiscal 2020 and 2019, respectively.

The increase in selling and administrative expenses reflected higher performance-based compensation compared to fiscal 2020, partially offset by benefits from ongoing cost-reduction initiatives, and reduced travel and entertainment ("T&E") costs reflecting travel limitations resulting from the pandemic.

Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $17.5 million in fiscal 2021, compared to $31.5 million in fiscal 2020.

Fiscal 2020 selling and administrative expenses also included an $11.2 million gain on the sale of an ownership interest in a Memorialization business and a $10.6 million charge for a legal matter involving a letter of credit for a customer in Saudi Arabia.

Intangible amortization for the year ended September 30, 2021 was $84.2 million, compared to $71.5 million for fiscal 2020.

The increase in intangible amortization primarily reflected $24.4 million of incremental amortization resulting from the fiscal 2019 reduction in useful lives for certain trade names that are being discontinued.

The Company recorded goodwill write-downs within the SGK Brand Solutions segment totaling $90.4 million and $77.6 million for the years ended September 30, 2020 and 2019, respectively.

The increase in intangible amortization reflected $15.2 million of incremental amortization resulting from a reduction in useful lives for certain customer relationships.

Intangible amortization also included accelerated amortization resulting from the fiscal 2019 reduction in useful lives for certain trade names that are being discontinued.

Amortization for these trade names totaled $35.5 million and $37.5 million in fiscal 2021 and fiscal 2020, respectively.

During the second quarter of fiscal 2020, the Company recorded a goodwill write-down totaling $90.4 million related to its two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products).

Refer to Note 21, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary Data" for further details.

1 unchanged sentence

Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2021 was $99.7 million, compared to $90.6 million for fiscal 2020.

The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, unfavorable changes in product mix, ongoing price competition, a decline in margins for cylinders, surfaces and engineered products, and increased performance-based compensation compared to fiscal 2019.

Changes in foreign currency exchange rates had an unfavorable impact of $1.8 million on the segment's adjusted EBITDA compared to the prior year.

These decreases in segment adjusted EBITDA were partially offset by benefits from cost-reduction initiatives, and reduced T&E costs resulting from COVID-19.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from cost-reduction initiatives, reduced T&E costs, and improved margins for cylinders and engineered products.

Changes in foreign currency exchange rates had a favorable impact of $2.0 million on the segment's adjusted EBITDA compared to the prior year.

These increases were partially offset by increased performance-based compensation compared to fiscal 2020, and the impact of ongoing price competition in the brand market.

Memorialization segment adjusted EBITDA for fiscal 2021 was $165.7 million, compared to $146.3 million for fiscal 2020.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from productivity initiatives and lower T&E costs, partially offset by increased performance-based compensation compared to fiscal 2019.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from productivity initiatives, lower T&E costs, and benefits from a recently completed acquisition of a small cemetery products business.

These increases were partially offset by the impact of higher material and transportation costs, increased performance-based compensation compared to fiscal 2020, and lower margins on certain cremation and incineration projects.

Adjusted EBITDA for the Industrial Technologies segment for fiscal 2021 was $26.7 million, compared to $22.8 million in fiscal 2020.

Industrial Technologies segment adjusted EBITDA primarily reflected the impact of lower sales, partially offset by benefits from cost-reduction initiatives and reduced T&E costs.

Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher warehouse automation and product identification sales, and reduced T&E costs, partially offset by increased performance-based compensation expense and higher product development costs.

Changes in foreign currency exchange rates had a favorable impact of $545,000 on the segment's adjusted EBITDA compared to the prior year.

Investment income for the fiscal year ended September 30, 2021 was $2.6 million, compared to $2.0 million for the year ended September 30, 2020.

The increase primarily reflected higher rates of return on investments (primarily marketable securities) held in trust for certain of the Company's benefit plans.

Investment income for both fiscal years primarily reflected changes in the value of investments (primarily marketable securities) held in trust for certain of the Company's benefit plans.

Interest expense for fiscal 2021 was $28.7 million, compared to $34.9 million in fiscal 2020.

The decrease in interest expense reflected lower average interest rates and a decrease in average borrowing levels in the current fiscal year.

The decrease in interest expense reflected a decrease in average borrowing levels and lower average interest rates in the current fiscal year.

Other income (deductions), net for the year ended September 30, 2021 represented a decrease in pre-tax income of $6.8 million, compared to a decrease in pre-tax income of $9.2 million in fiscal 2020.

Other income (deductions), net includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances.

Other income (deductions), net also includes the non-service components of pension and postretirement expense, which totaled $7.8 million and $3.8 million in fiscal years 2020 and 2019, respectively.

Fiscal 2019 other income (deductions), net also included a $3.7 million loss from the write-down of a cost-method investment and related assets.

The Company's consolidated income taxes for the year ended September 30, 2020 were a benefit of $18.7 million, compared to an expense of $806,000 for fiscal 2019.

The difference between the Company's consolidated income taxes for fiscal 2020 versus fiscal 2019 primarily resulted from the fiscal 2020 consolidated loss before income taxes, which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, which was partially non-deductible, as well as a benefit for an expected net operating loss (“NOL”) carryback.

The NOL will be carried back five years allowing it to offset income that was previously taxed at a federal statutory tax rate of 35%.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $5.8 million and $7.8 million in fiscal years 2021 and 2020, respectively.

Other income (deductions), net also includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company's consolidated income taxes for the year ended September 30, 2021 were an expense of $6.4 million, compared to a benefit of $18.7 million for fiscal 2020.

The difference between the Company's consolidated income taxes for fiscal 2021 compared to fiscal 2020 primarily resulted from fiscal 2021 having consolidated income before income taxes, compared to fiscal 2020 having a consolidated loss, which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, that was partially non-deductible.

Additionally, the fiscal 2021 tax rate was negatively impacted by the termination of the Company's Supplemental Retirement Plan ("SERP"), which resulted in certain expenses that are nondeductible for tax purposes.

The fiscal 2021 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the expiration of the statute of limitations in certain jurisdictions, and the completion of a state tax audit, and the tax benefit of the NOL carryback.

The Company’s fiscal 2020 effective tax rate was negatively affected by the non-deductible portion of the goodwill write-down along with certain other non-deductible expenses.

3 unchanged sentences

The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Comparison of Fiscal 2020 and Fiscal 2019:

19 unchanged sentences

(Dollar amounts in thousands)

Net (loss) income $ (87,652) $ (38,889) $ 107,111

Income tax (benefit) provision (18,685) 806 (9,118)

(Loss) income before income taxes (106,337) (38,083) 97,993

Net income (loss) $ 2,858 $ (87,652) $ (38,889)

Income tax provision (benefit) 6,375 (18,685) 806

Income (loss) before income taxes 9,233 (106,337) (38,083)

Net loss attributable to noncontrolling interests 52 497 901

2 unchanged sentences

133,512 119,058 90,793

Acquisition costs (1)**

Acquisition related items (1)**

541 3,440 10,084

2 unchanged sentences

Strategic initiatives and other charges:

33,799 13,449 5,266

Workforce reductions and related costs 10,644 9,232 5,061

Other cost-reduction initiatives 17,317 25,718 9,176

Legal matter reserve (4)

Non-recurring / incremental COVID-19 costs (5)***

5,312 3,908 —

Goodwill write-downs (6)

3 unchanged sentences

— (11,208) 6,469

Realized loss (gain) on cost-method investments (8)

— 4,731 (3,771)

Realized loss on cost-method investments (8)

Net gains from the sale of buildings and vacant properties (9)

5 unchanged sentences

Total Adjusted EBITDA $ 227,750 $ 203,080 $ 220,872

(1) Includes certain non-recurring costs associated with recent acquisition activities.

(1) Includes certain non-recurring items associated with recent acquisition activities.

(2) Represents costs associated with global ERP system integration efforts.

6 unchanged sentences

(8) Includes gains/losses related to cost-method investments, and related assets, within the SGK Brand Solutions and Memorialization segments.

(9) Includes significant building and vacant property transactions resulting in a gain of $8.7 million within the Industrial Technologies segment and losses of $0.9 million and $0.4 million within the SGK Brand Solutions and Memorialization segments, respectively.

(9) Includes significant building and vacant property transactions resulting in a gain of $8.7 million within the Industrial Technologies segment and losses of $915,000 and $401,000 within the SGK Brand Solutions and Memorialization segments, respectively.

(10) Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment.

(11) Non-service pension and postretirement expense includes interest cost, expected return on plan assets and amortization of actuarial gains and losses.

(11) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, and curtailment gains and losses.

These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates.

Curtailment gains and losses are excluded from Adjusted EBITDA since they generally result from certain non-recurring events, such as plan amendments to modify future benefits.

The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits.

1 unchanged sentence

* Depreciation and amortization was $99.5 million, $87.6 million, and $59.7 million for the SGK Brand Solutions segment, $23.0 million, $20.5 million, and $19.7 million for the Memorialization segment, $5.6 million, $5.8 million, and $6.2 million for the Industrial Technologies segment, and $5.4 million, $5.2 million, and $5.2 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2021, 2020, and 2019, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $14.0 million, $8.9 million, and $11.0 million for the SGK Brand Solutions segment, $0.3 million, $3.1 million, and $0.6 million for the Industrial Technologies segment, and $23.0 million, $19.9 million, and $14.0 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2020, 2019, and 2018, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $2.7 million, and $1.4 million for the Memorialization segment for the fiscal years ended September 30, 2020 and 2018, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $16.3 million, $14.7 million, and $8.9 million for the SGK Brand Solutions segment and $11.3 million, $23.0 million, and $19.9 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2021, 2020, and 2019, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.9 million and $2.7 million for the Memorialization segment for the fiscal years ended September 30, 2021 and 2020, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $268,000 and $3.1 million for the Industrial Technologies segment for the fiscal years ended September 30, 2020 and 2019, respectively.

*** Non-recurring/incremental COVID-19 costs were $1.6 million and $1.5 million for the SGK Brand Solutions segment, $3.6 million and $1.8 million for the Memorialization segment, $14,000 and $21,000 for the Industrial Technologies segment, and $89,000 and $615,000 for Corporate and Non-Operating, for the fiscal years ended September 30, 2021 and 2020, respectively.

LIQUIDITY AND CAPITAL RESOURCES :

Net cash provided by operating activities was $162.8 million for the year ended September 30, 2021, compared to $180.4 million and $131.1 million for fiscal years 2020 and 2019, respectively.

Operating cash flow for fiscal 2020 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, and non-cash pension expense, and changes in working capital items.

The favorable movements in working capital in fiscal 2020 primarily reflected enhanced accounts receivable collection efforts and effective management of trade accounts payable, as the Company has been focusing its efforts on cash management.

The fiscal 2020 decrease in other assets reflects changes in operating leases assets.

Operating cash flow for fiscal 2019 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, net gains from the sale of buildings and other property, and non-cash pension expense, and changes in working capital items.

Fiscal 2021 operating cash flow reflected a $15.0 million discretionary contribution to fund the Company's principal defined benefit retirement plan ("DB Plan").

Operating cash flow for fiscal 2021 principally included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains related to investments, and non-cash pension expense, and changes in working capital items.

Fiscal 2018 operating cash flow also included cash contributions of $12.7 million to the Company's pension and other postretirement plans.

The favorable movements in working capital in fiscal 2021 primarily reflected the Company's continued emphasis on working capital management, particularly trade accounts payable.

The favorable movements in working capital in fiscal 2020 primarily reflected enhanced accounts receivable collection efforts and effective management of trade accounts payable.

Operating cash flow for fiscal 2019 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, net gains from sale of buildings and other property, and non-cash pension expense, and changes in working capital items.

Cash used in investing activities was $13.0 million for the year ended September 30, 2021, compared to $2.7 million and $60.8 million for fiscal years 2020 and 2019, respectively.

Investing activities for fiscal 2021 primarily reflected capital expenditures of $34.3 million, acquisition payments (net of cash acquired or received from sellers) of $15.6 million, proceeds from the sale of investments of $34.2 million, and proceeds from sale of assets of $2.8 million.

Investing activities for fiscal 2020 primarily reflected capital expenditures of $34.8 million, acquisition payments (net of cash acquired or received from sellers) of $1.0 million, proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business, and investments and advances of $9.7 million.

Investing activities for fiscal 2019 primarily reflected capital expenditures of $37.7 million, acquisition payments (net of cash acquired or received from sellers) of $11.5 million, proceeds of $13.3 million from the sale of assets, proceeds of $8.3 million from the sale of a controlling interest in a Memorialization business, and additional investments made in non-consolidated subsidiaries of $33.1 million.

Investing activities for fiscal 2018 primarily reflected capital expenditures of $43.2 million, acquisition payments (net of cash acquired or received from sellers) of $121.1 million, proceeds of $9.2 million from the sale of certain cost-method investments, and cash payments of $11.9 million for purchases of investments.

Capital expenditures were $34.3 million for the year ended September 30, 2021, compared to $34.8 million and $37.7 million for fiscal years 2020 and 2019, respectively.

2 unchanged sentences

Capital expenditures for the last three fiscal years were primarily financed through operating cash.

Capital spending for fiscal 2021 is currently estimated to be approximately $40 million.

Capital spending for fiscal 2022 is currently estimated to be approximately $60 million, reflecting additional capital projects to support new production capabilities and increased efficiencies within the SGK Brand Solutions and Memorialization segments.

The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cash used in financing activities for the year ended September 30, 2020 was $172.3 million, and principally reflected repayments, net of proceeds, on long-term debt of $126.3 million, purchases of treasury stock of $4.4 million, payment of dividends to the Company's shareholders of $26.4 million ($0.84 per share), $10.2 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million (see below).

Cash used in financing activities for the year ended September 30, 2019 was $75.0 million, and principally reflected repayments, net of proceeds, on long-term debt of $16.0 million, purchases of treasury stock of $26.1 million, payment of dividends to the Company's shareholders of $25.6 million ($0.80 per share), and $4.4 million of holdback and contingent consideration payments related to a fiscal 2018 acquisition.

Cash provided by financing activities for the year ended September 30, 2018 was $0.9 million, and primarily reflected proceeds, net of repayments on long-term debt of $53.0 million, purchases of treasury stock of $21.2 million, payment of dividends to the Company's shareholders of $24.6 million ($0.76 per share), and payment of deferred financing fees of $4.1 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020.

The amended and restated loan agreement includes a $750.0 million senior secured revolving credit facility, which matures in March 2025, and a $35.0 million senior secured amortizing term loan, which matures in July 2021.

Cash used in financing activities for the year ended September 30, 2021 was $122.9 million, and principally reflected repayments, net of proceeds, on long-term debt of $76.8 million, purchases of treasury stock of $11.9 million, payment of dividends to the Company's shareholders of $27.7 million ($0.86 per share), $1.8 million of holdback and contingent consideration payments related to acquisitions from prior years, and $1.8 million of payments for the acquisition of noncontrolling interests.

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750.0 million senior secured revolving credit facility, which matures in March 2025, and a $35.0 million senior secured amortizing term loan.

The senior secured amortizing term loan was paid in full in March 2021.

A portion of the revolving credit facility (not to exceed $350.0 million ) can be drawn in foreign currencies.

The term loan requires scheduled quarterly principal payments through its maturity date.

Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.50% at September 30, 2020) based on the Company's secured leverage ratio.

Borrowings under the revolving credit facility bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.00% at September 30, 2021) based on the Company's secured leverage ratio.

The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement.

The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility.

The Company incurred debt issuance costs of approximately $2.0 million in connection with the amended and restated agreement, which was deferred and is being amortized over the term of the facility.

The Company incurred debt issuance costs in connection with the domestic credit facility.

Unamortized costs were $2.2 million and $2.7 million at September 30, 2021 and September 30, 2020, respectively.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios.

2 unchanged sentences

dollar denominated borrowings on the revolving credit facility at September 30, 2021 and 2020 were $349.8 million and $257.4 million, respectively.

Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 and 2019 were €117.0 million ($137.2 million) and €125.0 million ($136.5 million), respectively.

Outstanding borrowings on the term loan at September 30, 2020 and 2019 were $22.4 million and $53.5 million, respectively.

There were no outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2021.

Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 were €117.0 million ($137.2 million).

There were no outstanding borrowings on the term loan as of September 30, 2021.

Outstanding borrowings on the term loan at September 30, 2020 were $22.4 million.

The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at September 30, 2021 and 2020 was 2.03% and 2.41%, respectively.

5 unchanged sentences

Unamortized costs were $2.2 million and $2.7 million at September 30, 2021 and 2020, respectively.

The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions.

The Securitization Facility, which had a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022.

The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures in March 2022 and the Company intends to extend this facility.

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.

6 unchanged sentences

The interest rate on borrowings under this facility at September 30, 2021 and 2020 was 0.83% and 0.90%, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:

9 unchanged sentences

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The fair value of the interest rate swaps reflected an unrealized loss of $7.8 million ($5.9 million after tax) and an unrealized loss net of unrealized gains of $534,000 ($403,000 after tax) at September 30, 2020 and 2019, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

The fair value of the interest rate swaps reflected an unrealized loss net of unrealized gains of $2.1 million ($1.6 million after tax) and an unrealized loss of $7.8 million ($5.9 million after tax) at September 30, 2021 and 2020, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Assuming market rates remain constant with the rates at September 30, 2021, a loss (net of tax) of approximately $1.4 million included in AOCI is expected to be recognized in earnings over the next twelve months.

The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews.

The maximum amount of borrowings available under this facility is €35.0 million ($41.0 million).

The maximum amount of borrowings available under this facility is €25.0 million ($29.0 million), which includes €8.0 million ($9.3 million) for bank guarantees.

The credit facility matures in December 2021 and the Company intends to extend this facility.

Outstanding borrowings under the credit facility totaled €18.9 million ($22.2 million) and €12.8 million ($14.0 million) at September 30, 2020 and 2019, respectively.

The weighted-average interest rate on outstanding borrowings under this facility at September 30, 2020 and 2019 was 1.25%.

The Company’s German subsidiary, Matthews Europe GmbH, had €15.0 million ($16.4 million at September 30, 2019) of senior unsecured notes with European banks.

The notes matured in November 2019 at which point they were paid.

The weighted-average interest rate on the notes at September 30, 2019 was 1.40%.

Finance lease liabilities included as a component of debt totaled $9.7 million and $3.6 million at September 30, 2020 and 2019, respectively.

See Note 10, "Leases" in Item 8 - “Financial Statements and Supplementary Data” for further discussion on the Company's lease obligations.

Other borrowings totaled $20.7 million and $395,000 at September 30, 2020 and 2019, respectively.

The weighted-average interest rate on other borrowings was 2.10% and 2.17% at September 30, 2020 and 2019, respectively.

The Company was in compliance with all of its debt covenants as of September 30, 2020.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations.

Currency losses of $4.4 million (net of income taxes of $1.4 million) and currency gains of $3.3 million (net of income taxes of $1.1 million), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2020 and 2019, respectively.

In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8.6 million ($11.0 million at September 30, 2020) with respect to a performance guarantee on an incineration equipment project in Saudi Arabia.

Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K.

Pursuant to this action, an order was issued by the U.K.

Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K.

Court pending resolution of the dispute between the parties.

As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer.

The customer did not remit the funds to the U.K.

Court as ordered.

On June 14, 2016, the U.K.

Court ruled completely in favor of Matthews following a trial on the merits.

However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia.

The Company continues to pursue a trial on the merits in Saudi Arabia;

however, given the recent COVID-19 pandemic, the case has been further delayed.

As the Company has successfully completed the project and subsequently operated the equipment, the Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial.

However, the Company’s level of success in recovering funds from the customer will depend upon several factors including a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of support of the Saudi Arabian government to enforce a potential judgment against the customer.

During the third quarter of fiscal 2020, the Saudi Arabian government implemented restrictions on travel to Mecca due to the COVID-19 pandemic.

As a result, the Company was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the current year Hajj Pilgrimage.

Consequently, as of the filing of this report, the Company is now concerned regarding the level of anticipated support from the government in its collection efforts.

Therefore, when considered collectively with the potential delay in completing the trial and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of June 30, 2020.

The funded letter of credit was previously classified within other assets on the Consolidated Balance Sheet as of September 30, 2019.

The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Outstanding borrowings under the credit facility totaled €704,000 ($817,000) and €18.9 million ($22.2 million) at September 30, 2021 and 2020, respectively.

The weighted-average interest rate on outstanding borrowings under this facility was 2.25% and 1.25% at September 30, 2021 and 2020, respectively.

Other borrowings totaled $10.2 million and $20.7 million at September 30, 2021 and 2020, respectively.

The weighted-average interest rate on these borrowings was 2.19% and 2.10% at September 30, 2021 and 2020, respectively.

During fiscal 2021, the Company entered into a U.S.

Dollar/Euro cross currency swap with a notional amount of $94.5 million as of September 30, 2021, which was designated as a net investment hedge of foreign operations.

The swap contract matures in seven years.

The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices.

A gain of $22,000 (net of income taxes of $7,000) which represented an effective hedge of net investments, was reported as a component of AOCI within currency translation adjustment for fiscal 2021.

Income of $63,000, which represented the recognized portion of the fair value excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for fiscal 2021.

The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations.

Currency losses of $5.4 million (net of income taxes of $1.7 million) and currency losses of $4.4 million (net of income taxes of $1.4 million), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2021 and 2020, respectively.

The Company has a stock repurchase program.

Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 538,736 shares remain available for repurchase as of September 30, 2020.

The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share.

Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation.

The Company utilized certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (commonly referred to as the CARES Act) and other similar economic relief initiatives that were enacted in response to COVID-19.

Under the CARES Act, the Company elected to defer payments for certain taxes, primarily U.S.

payroll taxes, which were $8.4 million for fiscal 2020.

On July 28, 2021, the Company's Board of Directors approved the continuation of the stock repurchase program and increased the authorization for stock repurchases by an additional 2,500,000 shares.

Under the current authorization, 2,658,627 shares remain available for repurchase as of September 30, 2021.

Consolidated working capital was $269.9 million at September 30, 2021, compared to $258.7 million at September 30, 2020.

Cash and cash equivalents were $49.2 million at September 30, 2021, compared to $41.3 million at September 30, 2020.

The Company's current ratio was 1.8 and 2.1 at September 30, 2020 and 2019, respectively.

The Company's current ratio was 1.8 at September 30, 2021 and 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at September 30, 2021, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

Payments due in fiscal year:

Total 2022 (1)

2023 to 2024 2025 to 2026 After

Contractual Cash Obligations:

(Dollar amounts in thousands)

Revolving credit facilities $ 350,597 $ 817 $ — $ 349,780 $ —

Securitization facility 95,990 95,990 — — —

2025 Senior Notes 368,671 15,750 31,500 321,421 —

Finance lease obligations (2)

9,887 3,927 3,347 1,021 1,592

Non-cancelable operating leases (2)

86,165 26,643 36,541 18,640 4,341

Other 43,316 4,609 31,620 2,171 4,916

Total contractual cash obligations $ 954,626 $ 147,736 $ 103,008 $ 693,033 $ 10,849

(1) The Company maintains certain debt facilities with current maturity dates in fiscal 2022 that it intends and has the ability to extend beyond fiscal 2022 totaling $96.8 million.

These balances have been classified as non-current on the Company's Consolidated Balance Sheet.

(2) Lease obligations have not been discounted to their present value.

Benefit payments under the Company's DB Plan are made from plan assets, while benefit payments under the SERP and postretirement benefit plan are funded from the Company's operating cash.

During fiscal 2021 contributions of $15.0 million, $806,000 and $507,000 were made under the DB Plan, SERP and postretirement plan, respectively.

In April 2021, the Compensation Committee of the Company's Board of Directors (the “Committee”) approved resolutions to freeze all future benefit accruals for all participants in the Company's SERP and the defined benefit portion of the Officers Retirement Restoration Plan (“ORRP”), effective April 30, 2021.

In August 2021, the Committee approved the termination of the SERP and the defined benefit portion of the ORRP.

In September 2021, the Company notified SERP and ORRP participants of its intention to fully settle the obligations of the SERP and ORRP in early fiscal 2023.

In August 2021, the Company's Board of Directors approved the freeze of all future benefit accruals for the Company's DB Plan, effective September 30, 2021, and the planned termination of the DB Plan in early fiscal 2022.

At such time, the Company notified all plan participants of the Company's intentions to terminate and fully settle the obligations of the DB Plan early in fiscal 2022.

In November 2021, subsequent to the date of the balance sheet, the Company contributed $20.0 million to the DB Plan.

Also in November 2021, lump sum distributions of $178.2 million from the DB Plan were made to plan participants, resulting in the settlement of a substantial portion of the DB Plan obligations.

This settlement of the DB Plan obligations is expected to result in the recognition of a non-cash charge in excess of $30.0 million in the first quarter of fiscal 2022.

This amount represents the immediate recognition of a portion of the deferred AOCI balances related to the DB Plan, and is based on current estimates as of September 30, 2021.

The Company currently anticipates additional contributions of approximately $15.0 million to its DB Plan during fiscal 2022 to fully fund the anticipated settlement of the remaining DB Plan obligations.

The Company also expects to make payments totaling approximately $24.2 million in fiscal 2023 to fully settle the SERP and ORRP obligations.

The obligations of the SERP are expected to be funded from an existing rabbi trust.

The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities.

If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary.

As of September 30, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $2.8 million.

The timing of potential future payments related to the unrecognized tax benefits is not presently determinable.

The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

ACQUISITIONS AND DIVESTITURES:

Refer to Note 20, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data," for further details on the Company's acquisitions.

Refer to Note 20, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data," for further details on the Company's acquisitions and divestitures.

FORWARD-LOOKING INFORMATION:

3 unchanged sentences

Due to the global footprint of this segment, currency fluctuations can also be a significant factor.

For the Memorialization segment, North America death rates, the cremation trend, and price realization impact sales growth for the Company's bronze and granite memorials, caskets and cremation and incineration-related products.

For the Memorialization segment, sales growth will be influenced by North America death rates, and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products.

For the Industrial Technologies segment, sales growth drivers include economic/industrial market conditions, new product development, and the e-commerce trend.

1 unchanged sentence

These actions leveraged the benefit of the Company's new global ERP platform, primarily targeted at the SGK Brand Solutions segment, both operational and commercial structure, and the Company's shared financial services and other administrative functions.

This evaluation identified opportunities for significant cost structure improvements, which the Company expects to achieve through fiscal 2022.

The Company's recent strategic review has also resulted in improvements to the commercial structure within the SGK Brand Solutions segment, including the consolidation of several of the segment's trade names.

As a result, the amortization of these intangible assets will significantly increase for fiscal 2020 through fiscal 2022.

On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic on March 11, 2020.

This evaluation identified opportunities for significant cost structure improvements, which the Company expects to achieve through at least fiscal 2022.

The Company's recent strategic review has also resulted in improvements to the commercial structure within the SGK Brand Solutions segment.

Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions.

1 unchanged sentence

However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.

Considerable judgement is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results.

Management expects that each of its business segments will experience some level of sales impacts in the short-term, potentially due to customer business disruptions, facilities shut-downs, weaker global economic conditions, and possible customer project delays.

Longer-term financial impacts will depend on global economic conditions eventually resulting from COVID-19.

Management expects each of its businesses to experience increased financial volatility in the short-term, but currently anticipates its core businesses will return to a more normalized future state once the COVID-19 pandemic subsides.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Considerable judgment is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results.

Management expects that each of its business segments will experience some level of impacts in the short-term, potentially due to customer business disruptions, supply chain disruptions, facilities shut-downs, changing global economic conditions, and customer project delays.

Additionally, recent increases in the cost of certain raw materials, labor, and other inflationary impacts are expected to impact the Company's results for the near future.

The Company expects to partially mitigate these cost increases through price realization and the cost-reduction initiatives discussed above.

Longer-term financial impacts will depend on global economic conditions resulting from COVID-19.

CRITICAL ACCOUNTING POLICIES:

5 unchanged sentences

Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's consolidated financial statements for the year ended September 30, 2021.

16 unchanged sentences

In order to further validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization is performed using a reasonable control premium.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2020 (January 1, 2020) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values.

The estimated fair values for two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) exceeded their carrying values (expressed as a percentage of carrying value) by less than 10% as of January 1, 2020.

In its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values for its two reporting units (discussed above), management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2021 (January 1, 2021) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary.

The estimated fair value of the Company's Graphics Imaging reporting unit, within the SGK Brand Solutions segment, exceeded the carrying value (expressed as a percentage of carrying value) by approximately 5%.

If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, goodwill write-downs may be necessary in future periods.

In fiscal 2020, in its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values over carrying values for its two reporting units, management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020.

As a result of this interim assessment, the Company recorded a goodwill write-down totaling $90.4 million during the fiscal 2020 second quarter.

Subsequent to this write-down, the fair values of the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020.

The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology.

If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, additional goodwill write-downs may be necessary in future periods.

The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology.

During the fourth quarter of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the SGK Brand Solutions segment as a result of continued challenging market conditions affecting the segment.

2 unchanged sentences

As a result of this interim assessment, the Company recorded a goodwill write-down of $77.6 million during the fiscal 2019 fourth quarter.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Pension and Postretirement Benefits:

1 unchanged sentence

Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost.

The Company's principal pension plan maintains a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company's pension board.

The Company's DB Plan has historically maintained a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company's pension board.

Based on an analysis of the historical performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for these assets at 6.75% at September 30, 2020 for purposes of determining fiscal 2021 pension cost.

5 unchanged sentences

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S.

Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at September 30, 2020, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

Payments due in fiscal year:

Total 2021 (1)

2022 to 2023 2024 to 2025 After

Contractual Cash Obligations:

(Dollar amounts in thousands)

Revolving credit facilities $ 416,793 $ 22,166 $ — $ 394,627 $ —

Securitization facility 67,700 — 67,700 — —

Senior secured term loan 22,359 22,359 — — —

2025 Senior Notes 383,881 15,750 31,500 31,500 305,131

Finance lease obligations (2)

10,514 3,847 4,045 869 1,753

Non-cancelable operating leases (2)

77,161 25,804 31,912 14,221 5,224

Other 27,338 13,970 5,594 2,168 5,606

Total contractual cash obligations $ 1,005,746 $ 103,896 $ 140,751 $ 443,385 $ 317,714

(1) The Company maintains certain debt facilities with current maturity dates in fiscal 2021 that it intends and has the ability to extend beyond fiscal 2021 totaling $32.3 million.

These balances have been classified as non-current on the Company's Consolidated Balance Sheet.

(2) Lease obligations have not been discounted to their present value.

A significant portion of the loans included in the table above bear interest at variable rates.

At September 30, 2020, the weighted-average interest rate was 2.41% on the Company's domestic credit facility, 0.90% on the Company's Securitization Facility, 1.25% on the credit facility through the Company's European subsidiaries, and 2.10% on other outstanding borrowings.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash.

In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations.

In accordance with this bill, the Company was not required to make contributions to its principal retirement plan in fiscal 2020.

However, the Company contributed 668,000 shares of its Class A Common Stock to its principal retirement plan during the fourth quarter of fiscal 2020.

The shares had a market value of approximately $15.0 million at the time of the contribution.

The Company is required to make cash contributions of approximately $4.2 million to its principal retirement plan in fiscal 2021.

The Company estimates that benefit payments to participants under its retirement plans (including its supplemental retirement plan) and postretirement benefit payments will be approximately $11.4 million and $831,000, respectively, in fiscal 2021.

The amounts are expected to increase incrementally each year thereafter, to $14.3 million and $931,000, respectively, in 2025.

The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities.

If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary.

As of September 30, 2020, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $10.5 million.

The timing of potential future payments related to the unrecognized tax benefits is not presently determinable.

The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

Except for the volatility in the cost of bronze ingot, steel, wood, granite and fuel (see "Results of Operations"), inflation has not had a material impact on the Company over the past three years nor is it anticipated to have a material impact for the foreseeable future.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are exempt from tax, and such earnings are considered to be reinvested indefinitely in foreign operations.

Except for the volatility in the cost of bronze ingot, steel, wood, granite and fuel (see "Results of Operations"), inflation has not had a material impact on the Company over the past three years.

Although recent economic conditions increase the level of uncertainty in the Company's near-term outlook, inflation is not currently anticipated to have a material impact on a long-term basis.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

Refer to Note 3, "Accounting Pronouncements" in Item 8 - "Financial Statements and Supplementary Data," for further details on recently issued accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The following discussion about the Company's market risk involves forward-looking statements.

Actual results could differ materially from those projected in the forward-looking statements.

The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates.

The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.

Interest Rates - The Company's most significant long-term instrument is the domestic credit facility, which bears interest at variable rates based on LIBOR (Euro-LIBOR for balances drawn in Euros).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis