What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-28 compared with 2021-07-30 · 142 added, 156 removed, 114 unchanged (72% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

Gross profit for the nine months ended June 30, 2021 was $403.8 million, compared to $361.4 million for the same period a year ago.

Consolidated gross profit as a percent of sales was 32.8% and 32.9% for the first nine months of 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 cylinders and engineered 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, and lower margins on U.K.

based cremation and incineration projects.

Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $15.5 million and $6.6 million for the nine months ended June 30, 2021 and 2020, respectively.

Selling and administrative expenses for the nine months ended June 30, 2021 were $308.0 million, compared to $302.2 million for the first nine months of fiscal 2020.

Consolidated selling and administrative expenses, as a percent of sales, were 25.0% for the nine months ended June 30, 2021, compared to 27.5% for the same period last year.

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 resulting from the pandemic.

reported higher sales of mausoleums and cremation and incineration equipment.

The increase in sales also reflected improved price realization and benefits from the fiscal 2021 acquisition of a small cemetery products business.

Industrial Technologies segment sales were $74.3 million for the first three months of fiscal 2022, compared to $53.4 million for the first three months of fiscal 2021.

The sales increase primarily reflected higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market) and increased sales of warehouse automation solutions.

These increases were partially offset by reduced sales of surfaces products.

Changes in foreign currency exchange rates had an unfavorable impact of $1.5 million on the segment's sales compared to the prior year.

On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $4.1 million on fiscal 2022 sales compared to a year ago.

Gross profit for the three months ended December 31, 2021 was $131.6 million, compared to $125.5 million for the same period a year ago.

Consolidated gross profit as a percent of sales was 30.0% and 32.5% for the first three months of fiscal 2022 and fiscal 2021, 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 surfaces and engineered products within the Industrial Technologies segment.

These improvements were partially offset by the impact of higher material, labor and transportation costs, particularly in the Memorialization segment, and unfavorable changes in sales mix within the SGK Brand Solutions segment.

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 $1.5 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively.

Selling and administrative expenses for the three months ended December 31, 2021 were $99.3 million, compared to $99.9 million for the first three months of fiscal 2021.

Consolidated selling and administrative expenses, as a percent of sales, were 22.6% for the three months ended December 31, 2021, compared to 25.8% for the same period last year.

Fiscal 2022 selling and administrative expenses reflected lower performance-based compensation compared to fiscal 2021 and benefits from ongoing cost-reduction initiatives, which were partially offset by the impact of higher salaries and wage rates.

Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $3.5 million in fiscal 2022, compared to $4.4 million in fiscal 2021.

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 nine months ended June 30, 2021 was $61.2 million, compared to $53.6 million for the nine months ended June 30, 2020.

The increase in intangible amortization reflected $10.1 million of incremental amortization resulting from a reduction in useful lives for certain customer relationships.

Refer to Note 15, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements" for further details.

Intangible amortization for the three months ended December 31, 2021 was $21.5 million, compared to $15.2 million for the three months ended December 31, 2020.

The increase in intangible amortization reflected $4.0 million of incremental amortization resulting from the fiscal 2021 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 $26.0 million and $28.1 million for the nine months ended June 30, 2021 and June 30, 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).

Adjusted EBITDA was $175.7 million for the nine months ended June 30, 2021 and $139.0 million for the nine months ended June 30, 2020.

Adjusted EBITDA for the SGK Brand Solutions segment was $75.4 million for the first nine months of fiscal 2021 compared to $61.8 million for the same period a year ago.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from cost-reduction initiatives, reduced T&E costs resulting from COVID-19, 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.

Memorialization segment adjusted EBITDA was $132.1 million for the first nine months of fiscal 2021 compared to $103.0 million for the first nine months of fiscal 2020.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from productivity initiatives, and lower T&E costs.

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 U.K.

based cremation and incineration projects.

Adjusted EBITDA for the Industrial Technologies segment was $15.2 million for the nine months ended June 30, 2021 and the nine months ended June 30, 2020.

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

Changes in foreign currency exchange rates had a favorable impact of $512,000 on the segment's adjusted EBITDA compared to the prior year.

Investment income was $3.0 million for the nine months ended June 30, 2021 and $1.4 million for the nine months ended June 30, 2020.

Amortization for these trade names totaled $9.5 million and $7.0 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

Adjusted EBITDA was $53.3 million for the three months ended December 31, 2021 and $54.8 million for the three months ended December 31, 2020.

Adjusted EBITDA for the SGK Brand Solutions segment was $15.4 million for the first three months of fiscal 2022 compared to $21.8 million for the same period a year ago.

The decrease in segment adjusted EBITDA primarily reflected the impact of unfavorable changes in sales mix, higher travel and entertainment costs, and production inefficiencies related to the COVID-19 remote-work environment.

These decreases were partially offset by the impact of higher sales, and benefits from cost-reduction initiatives.

Changes in foreign currency exchange rates had an unfavorable impact of $684,000 on the segment's adjusted EBITDA compared to the prior year.

Memorialization segment adjusted EBITDA was $43.4 million for the first three months of fiscal 2022 compared to $44.1 million for the first three months of fiscal 2021.

Fiscal 2022 segment adjusted EBITDA reflected the benefits of higher sales and productivity initiatives, which were offset by the impact of higher material, labor and transportation costs.

Adjusted EBITDA for the Industrial Technologies segment was $7.2 million for the three months ended December 31, 2021 compared to $3.0 million for the three months ended December 31, 2020.

Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales of purpose-built engineered products and warehouse automation solutions, improved margins for surfaces and engineered products, and benefits from cost-reduction initiatives.

Changes in foreign currency exchange rates had an unfavorable impact of $191,000 on the segment's adjusted EBITDA compared to the prior year.

Investment income was $1.0 million for the three months ended December 31, 2021 and $1.1 million for the three months ended December 31, 2020.

Investment income for both periods 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 the first nine months of fiscal 2021 was $21.7 million, compared to $26.9 million for the same period last year.

Interest expense for the first three months of fiscal 2022 was $6.5 million, compared to $7.7 million for the same period last 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 nine months ended June 30, 2021 represented a decrease in pre-tax income of $6.8 million, compared to a decrease in pre-tax income of $7.4 million for the same period last year.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $5.7 million and $6.7 million for the nine months ended June 30, 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.

Other income (deductions), net, for the three months ended December 31, 2021 represented a decrease in pre-tax income of $31.7 million, compared to a decrease in pre-tax income of $1.7 million for the same period last year.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $31.1 million and $1.9 million for

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

the three months ended December 31, 2021 and 2020, respectively.

Fiscal 2022 non-service pension expense included a $30.9 million non-cash charge resulting from the full settlement of the Company's principal defined benefit retirement plan ("DB Plan") obligations.

Refer to Note 10, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" for further details.

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.

Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year.

The Company's consolidated income taxes for the nine months ended June 30, 2021 were an expense of $2.6 million, compared to a benefit of $22.7 million for the first nine months of fiscal 2020.

The difference between the Company’s consolidated income taxes for the first nine months of fiscal 2021 compared to the same period for fiscal 2020 primarily resulted from consolidated pre-tax income in fiscal 2021 compared to a pre-tax loss in fiscal 2020.

Additionally, fiscal 2021 included discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a net operating loss (“NOL”) carryback to tax years where the U.S.

The Company's consolidated income taxes for the first three months of fiscal 2022 were a benefit of $6.6 million, compared to an expense of $4.0 million for the first three months of fiscal 2021.

The difference between the Company’s consolidated income taxes for the first three months of fiscal 2022 compared to the same period for fiscal 2021 primarily resulted from a consolidated pre-tax loss in fiscal 2022 compared to pre-tax income in fiscal 2021.

Additionally, fiscal 2022 included discrete tax expenses related to the addition of uncertain tax liabilities.

Fiscal 2021 included discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a net operating loss (“NOL”) carryback to tax years where the U.S.

federal statutory rate was 35%, and additional foreign tax credits.

Fiscal 2020 included discrete tax benefits resulting from the closure of several tax audits.

The Company’s fiscal 2021 nine-month effective tax rate varied from the U.S.

The Company’s fiscal 2022 three month effective tax rate varied from the U.S.

statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits.

The Company’s fiscal 2021 three-month effective tax rate varied from the U.S.

statutory tax rate of 21.0% primarily due to discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a NOL carryback to tax years where the U.S.

federal statutory rate was 35%, and additional foreign tax credits.

Additionally, state taxes, foreign statutory rate differentials, and tax credits all affected the fiscal 2021 effective tax rate.

The Company’s fiscal 2020 nine-month effective tax rate varied from the U.S.

statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, the goodwill write-down, the expected NOL carryback, and discrete tax benefits recognized in fiscal 2020.

Net losses attributable to noncontrolling interests were $60,000 for the nine months ended June 30, 2021 and $491,000 for the nine months ended June 30, 2020.

Net losses attributable to noncontrolling interests were $7,000 for the three months ended December 31, 2021 and $234,000 for the three months ended December 31, 2020.

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

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Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(Dollar amounts in thousands)

Net income (loss) $ 3,366 $ 1,849 $ 6,526 $ (95,052)

Net loss $ (19,810) $ (1,992)

Income tax (benefit) provision (6,628) 3,980

Income (loss) before income taxes 1,041 (4,360) 9,153 (117,724)

Net (income) loss attributable to noncontrolling interests (11) 420 60 491

(Loss) income before income taxes (26,438) 1,988

Net loss attributable to noncontrolling interests 7 234

Interest expense 6,507 7,728

1 unchanged sentence

33,501 27,351

Acquisition related items (1)**

398 355 38 2,576

ERP integration costs (2)**

118 745 477 2,160

Strategic initiatives and other charges (1)**

Workforce reductions and related costs 1,826 776 10,644 4,425

Other cost-reduction initiatives 4,871 4,743 12,339 20,951

Gain on sale of ownership interest in a subsidiary (4)

— (11,208) — (11,208)

Legal matter reserve (5)

— 10,566 — 10,566

Non-recurring / incremental COVID-19 costs (2)***

1,993 1,871 4,689 2,534

Goodwill write-down (7)

Joint Venture depreciation, amortization, interest expense and other charges (8)

— 2,473 — 4,732

Defined benefit plan termination related costs (3)

Stock-based compensation 3,709 3,246

Non-service pension and postretirement expense (4)

1,929 2,227 5,730 6,682

Total Adjusted EBITDA $ 53,333 $ 54,763

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

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

(3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels.

(4) Represents a gain on the sale of an ownership interest in a subsidiary within the Memorialization segment.

(5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment.

(1) Includes certain non-recurring items associated with recent acquisition activities, costs associated with global ERP system integration efforts, and certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels.

(2) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19.

This amount does not include the impact of any lost sales or underutilization due to COVID-19.

(7) Represents the goodwill write-down for two reporting units within the SGK Brand Solutions segment.

(8) 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.

(9) 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.

(3) Represents costs associated with the termination of the Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan.

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

Curtailment gains and losses and settlement 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 or settlements of plan obligations.

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.

Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.

* Depreciation and amortization was $26.8 million and $21.8 million for the SGK Brand Solutions segment, $5.8 million and $5.5 million for the Memorialization segment, $1.4 million and $1.5 million for the Industrial Technologies segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization was $72.7 million and $65.3 million for the SGK Brand Solutions segment, $17.0 million and $15.0 million for the Memorialization segment, $4.2 million and $4.3 million for the Industrial Technologies segment, and $4.0 million and $3.8 million for Corporate and Non-Operating, for the nine months ended June 30, 2021 and 2020, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3.8 million and $1.8 million for the SGK Brand Solutions segment, income of $484,000 and charges of $697,000 for the Memorialization segment, and charges of $2.9 million and $4.1 million for Corporate and Non-Operating, for the three months ended June 30, 2021 and 2020, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $14.1 million and $9.1 million for the SGK Brand Solutions segment, $1.3 million and $1.8 million for the Memorialization segment, and $8.1 million and $19.0 million for Corporate and Non-Operating, for the nine months ended June 30, 2021 and 2020, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $268,000 for the Industrial Technologies segment, for the nine months ended June 30, 2020.

* Depreciation and amortization was $23.7 million and $17.8 million for the SGK Brand Solutions segment, $5.8 million and $5.5 million for the Memorialization segment, $2.7 million and $2.7 million for the Industrial Technologies segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended December 31, 2021 and 2020, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.2 million and $4.7 million for the SGK Brand Solutions segment, $671,000 and $1.1 million for the Memorialization segment, $32,000 and $2.7 million for the Industrial Technologies segment, and $1.9 million and $2.7 million for Corporate and Non-Operating, for the three months ended December 31, 2021 and 2020, respectively.

*** Non-recurring/incremental COVID-19 costs were $220,000 and $409,000 for the SGK Brand Solutions segment, $464,000 and $650,000 for the Memorialization segment, $4,000 and $18,000 for the Industrial Technologies segment, and $2,000 and $47,000 for Corporate and Non-Operating, for the three months ended December 31, 2021 and 2020, respectively.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $106.9 million for the first nine months of fiscal 2021, compared to $123.6 million for the first nine months of fiscal 2020.

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

Fiscal 2021 operating cash flow also reflected a $15.0 million discretionary contribution to fund the Company's principal retirement plan.

Net changes in working capital items decreased operating cash flow by $7.5 million in fiscal 2021, and contributed $41.7 million to operating cash flow in fiscal 2020.

The fiscal 2021 change in working capital reflected payments of certain payroll tax amounts that were deferred due to COVID-19, an increase in inventory due to higher material costs, and delayed refunds of federal taxes.

Cash used in investing activities was $22.9 million for the nine months ended June 30, 2021, compared to cash provided by investing activities of $7.4 million for the nine months ended June 30, 2020.

Investing activities for the first nine months of fiscal 2021 reflected capital expenditures of $24.5 million, acquisitions payments (net of cash acquired and holdback amounts) totaling $15.6 million, proceeds from the sale of investments of $15.0 million, and proceeds from the sale of assets of $2.2 million.

Investing activities for the first nine months of fiscal 2020 primarily reflected capital expenditures of $25.5 million, proceeds of $42.2 million from the sale of an ownership interest in a Memorialization business, and investments and advances of $9.7 million.

Net cash used in operating activities was $27.2 million for the first three months of fiscal 2022, compared to net cash provided by operating activities of $35.3 million for the first three months of fiscal 2021.

Operating cash flow for both periods principally included net loss adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses (gains) related to investments, non-cash pension expense, other non-cash adjustments, and changes in working capital items.

Fiscal 2022 operating cash flow also reflected $35.7 million of DB Plan contributions to fully fund the settlement of the DB Plan obligations.

Net changes in working capital items reduced operating cash flow by $40.8 million and $3.7 million in fiscal 2022 and fiscal 2021, respectively.

The fiscal 2022 change in working capital primarily reflected increased fiscal year-end compensation-related payments, and higher inventory levels reflecting increased commodity costs.

Cash used in investing activities was $12.5 million for the three months ended December 31, 2021, compared to $5.8 million for the three months ended December 31, 2020.

Investing activities for the first three months of fiscal 2022 primarily reflected capital expenditures of $12.6 million and proceeds from the sale of assets of $301,000.

Investing activities for the first three months of fiscal 2021 reflected capital expenditures of $7.5 million and proceeds from the sale of assets of $1.7 million.

Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements.

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

Cash used in financing activities for the nine months ended June 30, 2021 was $79.8 million, primarily reflecting repayments, net of proceeds, on long-term debt of $49.0 million, treasury stock purchases of $6.1 million, dividends of $20.9 million to the Company's shareholders, and $1.6 million of holdback and deferred payments related to acquisitions from prior years.

Cash used in financing activities for the nine months ended June 30, 2020 was $123.1 million, primarily reflecting repayments, net of proceeds, on long-term debt of $92.1 million, treasury stock purchases of $2.4 million, dividends of $19.8 million to the Company's shareholders, $4.7 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million.

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.

Cash provided by financing activities for the three months ended December 31, 2021 was $62.4 million, primarily reflecting proceeds, net of repayments, on long-term debt of $72.3 million, treasury stock purchases of $2.4 million and dividends of $6.8 million to the Company's shareholders.

Cash used in financing activities for the three months ended December 31, 2020 was $31.4 million, primarily reflecting repayments, net of proceeds, on long-term debt of $18.0 million, treasury stock purchases of $4.2 million, dividends of $6.8 million to the Company's shareholders, and $1.6 million of holdback and contingent consideration payments related to acquisitions from prior years.

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.

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

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 June 30, 2021) based on the Company's secured leverage ratio.

Borrowings under the revolving credit facility bear interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.00% at December 31, 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.

1 unchanged sentence

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

Unamortized costs were $2.4 million and $2.7 million at June 30, 2021 and September 30, 2020, respectively.

Unamortized costs were $2.0 million and $2.2 million at December 31, 2021 and September 30, 2021, respectively.

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

1 unchanged sentence

Outstanding U.S.

dollar denominated borrowings on the revolving credit facility at June 30, 2021 and September 30, 2020 were $259.2 million and $257.4 million, respectively.

Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2021 and September 30, 2020 were €97.0 million ($115.2 million) and €117.0 million ($137.2 million), respectively.

There were no outstanding borrowings on the term loan as of June 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 June 30, 2021 and 2020 was 1.94% and 2.44%, respectively.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

dollar denominated borrowings on the revolving credit facility at December 31, 2021 and September 30, 2021 were $405.0 million and $349.8 million, respectively.

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 December 31, 2021 and 2020 was 1.86% and 2.07%, respectively.

The Company has $300.0 million of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes").

3 unchanged sentences

The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes.

Unamortized costs were $2.3 million and $2.7 million at June 30, 2021 and September 30, 2020, respectively.

Unamortized costs were $2.1 million and $2.2 million at December 31, 2021 and September 30, 2021, respectively.

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.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

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.

3 unchanged sentences

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 June 30, 2021 and September 30, 2020 were $90.7 million and $67.7 million, respectively.

At June 30, 2021 and 2020, the interest rate on borrowings under this facility was 0.85% and 0.91% respectively.

Outstanding borrowings under the Securitization Facility at December 31, 2021 and September 30, 2021 were $104.7 million and $96.0 million, respectively.

At December 31, 2021 and 2020, the interest rate on borrowings under this facility was 0.85% and 0.89% respectively.

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges (dollar amounts in thousands):

June 30, 2021 September 30, 2020

December 31, 2021 September 30, 2021

Pay fixed swaps - notional amount $ 250,000 $ 250,000

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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 of $3.0 million ($2.3 million after tax) at June 30, 2021 and an unrealized loss of $7.8 million ($5.9 million after tax) at September 30, 2020 that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Assuming market rates remain constant with the rates at June 30, 2021, a loss (net of tax) of approximately $1.8 million included in AOCI is expected to be recognized in earnings over the next twelve months.

The fair value of the interest rate swaps reflected an unrealized loss net of unrealized gains of $102,000 ($77,000 after tax) at December 31, 2021 and an unrealized loss net of unrealized gains of $2.1 million ($1.6 million after tax) at September 30, 2021, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Assuming market rates remain constant with the rates at December 31, 2021, a loss (net of tax) of approximately $663,000 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 borrowing available under this facility is €25.0 million ($28.4 million), which includes €8.0 million ($9.1 million) for bank guarantees.

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

Outstanding borrowings under the credit facility totaled €6.6 million ($7.8 million) and €18.9 million ($22.2 million) at June 30, 2021 and September 30, 2020, respectively.

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

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

Currency losses of $6.0 million (net of income taxes of $1.9 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 June 30, 2021 and September 30, 2020, respectively.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

In the first quarter of fiscal 2022, the Company extended this facility to a current maturity of December 2022 and the Company intends to continue to extend this facility.

There were no outstanding borrowings under the credit facility at December 31, 2021.

Outstanding borrowings under the credit facility totaled €704,000 ($817,000) at September 30, 2021.

The weighted-average interest rate on outstanding borrowings under this facility was 2.25% at December 31, 2020.

Other borrowings totaled $20.3 million and $10.2 million at December 31, 2021 and September 30, 2021, respectively.

The weighted-average interest rate on these borrowings was 1.88% and 2.11% at December 31, 2021 and 2020, respectively.

The Company has a U.S.

Dollar/Euro cross currency swap with a notional amount of $94.5 million as of December 31, 2021, which has been designated as a net investment hedge of foreign operations.

The swap contract matures in September 2028.

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

A gain of $2.1 million (net of income taxes of $675,000) and a gain of $29,000 (net of income taxes of $10,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at December 31, 2021 and September 30, 2021, respectively.

Income of $365,000, 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 the three months ended December 31, 2021.

At December 31, 2021 and September 30, 2021, the swap, which is included in other assets in the Consolidated Balance Sheets, totaled $2.8 million and $39,000, respectively.

The Company has a stock repurchase program.

The Company's Board of Directors had authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 324,861 shares remained available for repurchase as of June 30, 2021.

On July 28, 2021, the Company's Board of Directors authorized an additional 2,500,000 shares for repurchase under the program.

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.

Consolidated working capital of the Company was $291.3 million at June 30, 2021, compared to $258.7 million at September 30, 2020.

Cash and cash equivalents were $46.2 million at June 30, 2021, compared to $41.3 million at September 30, 2020.

The Company's current ratio was 1.9 at June 30, 2021 and 1.8 at September 30, 2020.

Under the current authorization, 2,595,881 shares remain available for repurchase as of December 31, 2021.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

Consolidated working capital of the Company was $345.6 million at December 31, 2021, compared to $269.9 million at September 30, 2021.

Cash and cash equivalents were $71.0 million at December 31, 2021, compared to $49.2 million at September 30, 2021.

The Company's current ratio was 2.0 at December 31, 2021 and 1.8 at September 30, 2021.

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at December 31, 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 $ 405,000 $ — $ — $ 405,000 $ —

Securitization Facility 104,690 104,690 — — —

2025 Senior Notes 360,931 7,875 31,500 321,556 —

Finance lease obligations (2)

8,797 2,830 3,347 1,025 1,595

Non-cancelable operating leases (2)

85,063 19,851 38,958 20,821 5,433

Other 50,403 3,596 34,336 2,169 10,302

Total contractual cash obligations $ 1,014,884 $ 138,842 $ 108,141 $ 750,571 $ 17,330

(1) The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $104.7 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 supplemental retirement plan ("SERP") and postretirement benefit plan are made from the Company's operating funds.

In the first quarter of fiscal 2022, the Company terminated its DB Plan and made plan contributions totaling $35.7 million to fully fund the planned settlement of the DB Plan obligations.

Also during the first quarter of fiscal 2022, lump sum distributions of $186.0 million were made from the DB Plan to plan participants, and non-participating annuity contracts totaling $56.3 million were purchased by the DB Plan for plan participants, resulting in the full settlement of the DB Plan obligations.

The settlement of the DB Plan obligations resulted in the recognition of a non-cash charge of $30.9 million, which has been presented as a component of other income (deductions), net for the three months ended December 31, 2021.

This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan.

During the three months ended December 31, 2021 contributions of $199,000 and $83,000 were made under the SERP and postretirement benefit plan, respectively.

The Company currently anticipates contributing an additional $561,000 and $801,000 under the SERP and postretirement benefit plan, respectively, for the remainder of fiscal 2022.

The Company also expects to make payments totaling approximately $24.2 million in fiscal 2023 to fully settle the SERP and defined benefit portion of the officers retirement restoration plan 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 December 31, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.3 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 of Financial Condition and Results of Operations, Continued

REGULATORY MATTERS:

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The Company is currently performing environmental assessments and remediation at certain sites, as applicable.

ACQUISITIONS:

Refer to Note 14, "Acquisitions" in Item 1 - "Financial Statements" for further details on the Company's acquisitions.

FORWARD-LOOKING INFORMATION:

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

Additionally, the retail-based businesses in the SGK Brand Solutions segment continue to recover from the unfavorable sales impacts of the pandemic (see below).

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.

Order rates and backlogs in the warehouse and product identification businesses are expected to support continued sales growth for the Industrial Technologies segment in fiscal 2022.

In addition, sales for the energy solutions business in the Industrial Technologies segment, which supports the electric vehicle market, grew significantly in fiscal 2021 and, based on current backlogs and significant interest from multiple well-known auto manufacturers, are expected to significantly grow again in fiscal 2022.

During fiscal 2019, the Company initiated a strategic evaluation to improve profitability and reduce the Company's cost structure.

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 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.

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

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

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 in March 2020.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations, 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 and other inflationary impacts are expected to impact the Company's results for the near future.

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 eventually resulting from COVID-19.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

CRITICAL ACCOUNTING POLICIES:

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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.

LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at June 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:

Remainder 2022 (1) to 2023

2024 to 2025 After

Contractual Cash Obligations:

(Dollar amounts in thousands)

Revolving credit facilities $ 382,253 $ — $ 7,786 $ 374,467 $ —

Securitization Facility 90,710 — 90,710 — —

2025 Senior Notes 368,536 — 31,500 31,500 305,536

Finance lease obligations (2)

11,024 1,232 5,967 1,780 2,045

Non-cancelable operating leases (2)

89,820 7,096 45,950 24,926 11,848

Other 20,609 984 11,459 2,132 6,034

Total contractual cash obligations $ 962,952 $ 9,312 $ 193,372 $ 434,805 $ 325,463

(1) The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $98.5 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 June 30, 2021, the weighted-average interest rate was 1.94% on the Company's domestic credit facility, 0.85% on the Company's Securitization Facility and 2.25% on the credit facility through the Company's European subsidiaries.

Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

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.

During the nine months ended June 30, 2021 contributions of $15.0 million, $607,000 and $436,000 were made under the principal retirement plan, supplemental retirement plan and postretirement plan, respectively.

Under IRS regulations, no further contributions are required to be made to the Company's principal retirement plan during fiscal 2021.

The Company currently anticipates contributing an additional $298,000 and $395,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2021.

During the third quarter of fiscal 2021, the Compensation Committee of the Company's Board of Directors approved a resolution to freeze all future benefit accruals for all participants in the Company’s supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan, effective April 30, 2021.

Consequently, participants in these plans will no longer earn additional benefits after April 30, 2021.

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 June 30, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $8.1 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk during the three and nine months ended June 30, 2021.

There have been no material changes in the Company’s market risk during the three months ended December 31, 2021.

For additional information see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

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-Q

Item 2. Management’s Discussion and Analysis