MATTHEWS INTERNATIONAL CORP 10-Q

Item 1. Financial Statements MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands) December 31, 2021 September 30, 2021 ASSETS Current assets: Cash and cash equivalents $ 70,984 $ 49,176 Accounts receivable, net 313,997 309,818 Inventories, net 192,744 189,088 Restricted cash, current 19,167 — Other current assets 89,860 76,083 Total current assets 686,752 624,165 Restricted cash, non-current — 19,167 Investments 30,416 30,438 Property, plant and equipment, net 221,940 223,707 Operating lease right-of-use assets 79,128 80,262 Deferred income taxes 2,987 3,489 Goodwill 771,983 773,787 Other intangible assets, net 239,724 261,542 Other assets 20,385 15,521 Total assets $ 2,053,315 $ 2,032,078 LIABILITIES Current liabilities: Long-term debt, current maturities $ 4,271 $ 4,624 Current portion of operating lease liabilities 24,535 25,151 Trade accounts payable 112,016 112,722 Accrued compensation 38,506 68,938 Accrued income taxes 4,728 4,235 Other current liabilities 157,074 138,555 Total current liabilities 341,130 354,225 Long-term debt 831,791 759,086 Operating lease liabilities 56,859 57,272 Accrued pension 33,990 84,803 Postretirement benefits 18,010 17,958 Deferred income taxes 108,683 97,416 Other liabilities 18,180 24,915 Total liabilities 1,408,643 1,395,675 SHAREHOLDERS' EQUITY Shareholders' equity-Matthews: Common stock $ 36,334 $ 36,334 Additional paid-in capital 148,425 149,484 Retained earnings 807,581 834,208 Accumulated other comprehensive loss ( 159,114 ) ( 192,739 ) Treasury stock, at cost ( 188,406 ) ( 190,739 ) Total shareholders' equity-Matthews 644,820 636,548 Noncontrolling interests ( 148 ) ( 145 ) Total shareholders' equity 644,672 636,403 Total liabilities and shareholders' equity $ 2,053,315 $ 2,032,078 The accompanying notes are an integral part of these consolidated financial statements. 2 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollar amounts in thousands, except per share data) Three Months Ended December 31, 2021 2020 Sales $ 438,579 $ 386,657 Cost of sales ( 306,942 ) ( 261,159 ) Gross profit 131,637 125,498 Selling expense ( 30,743 ) ( 30,795 ) Administrative expense ( 68,569 ) ( 69,109 ) Intangible amortization ( 21,546 ) ( 15,221 ) Operating profit 10,779 10,373 Investment income 1,003 1,077 Interest expense ( 6,507 ) ( 7,728 ) Other income (deductions), net ( 31,713 ) ( 1,734 ) (Loss) income before income taxes ( 26,438 ) 1,988 Income tax benefit (provision) 6,628 ( 3,980 ) Net loss ( 19,810 ) ( 1,992 ) Net loss attributable to noncontrolling interests 7 234 Net loss attributable to Matthews shareholders $ ( 19,803 ) $ ( 1,758 ) Loss per share attributable to Matthews shareholders: Basic $ ( 0.62 ) $ ( 0.06 ) Diluted $ ( 0.62 ) $ ( 0.06 ) The accompanying notes are an integral part of these consolidated financial statements. 3 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Dollar amounts in thousands) Three Months Ended December 31, Matthews Noncontrolling Interest Total 2021 2020 2021 2020 2021 2020 Net loss: $ ( 19,803 ) $ ( 1,758 ) $ ( 7 ) $ ( 234 ) $ ( 19,810 ) $ ( 1,992 ) OCI, net of tax: Foreign currency translation adjustment ( 1,989 ) 17,055 4 ( 3 ) ( 1,985 ) 17,052 Pension plans and other postretirement benefits 34,133 2,124 — — 34,133 2,124 Unrecognized gain on derivatives: Net change from periodic revaluation 875 353 — — 875 353 Net amount reclassified to earnings 606 682 — — 606 682 Net change in unrecognized gain on derivatives 1,481 1,035 — — 1,481 1,035 OCI, net of tax 33,625 20,214 4 ( 3 ) 33,629 20,211 Comprehensive income (loss) $ 13,822 $ 18,456 $ ( 3 ) $ ( 237 ) $ 13,819 $ 18,219 The accompanying notes are an integral part of these consolidated financial statements. 4 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the three months ended December 31, 2021 and 2020 (Unaudited) (Dollar amounts in thousands, except per share data) Shareholders' Equity Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock Non- controlling Interests Total Balance, September 30, 2021 $ 36,334 $ 149,484 $ 834,208 $ ( 192,739 ) $ ( 190,739 ) $ ( 145 ) $ 636,403 Net loss — — ( 19,803 ) — — ( 7 ) ( 19,810 ) Minimum pension liability — — — 34,133 — — 34,133 Translation adjustment — — — ( 1,989 ) — 4 ( 1,985 ) Fair value of derivatives — — — 1,481 — — 1,481 Total comprehensive income 13,819 Stock-based compensation — 3,709 — — — — 3,709 Purchase of 62,746 shares of treasury stock — — — — ( 2,435 ) — ( 2,435 ) Issuance of 174,107 shares of treasury stock — ( 6,859 ) — — 6,859 — — Cancellations of 31,057 shares of treasury stock — 2,091 — — ( 2,091 ) — — Dividends, $ 0.22 per share — — ( 6,824 ) — — — ( 6,824 ) Balance, December 31, 2021 $ 36,334 $ 148,425 $ 807,581 $ ( 159,114 ) $ ( 188,406 ) $ ( 148 ) $ 644,672 Shareholders' Equity Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock Non- controlling Interests Total Balance, September 30, 2020 $ 36,334 $ 135,187 $ 859,002 $ ( 240,719 ) $ ( 178,997 ) $ 626 $ 611,433 Net loss — — ( 1,758 ) — — ( 234 ) ( 1,992 ) Minimum pension liability — — — 2,124 — — 2,124 Translation adjustment — — — 17,055 — ( 3 ) 17,052 Fair value of derivatives — — — 1,035 — — 1,035 Total comprehensive income 18,219 Stock-based compensation — 3,246 — — — — 3,246 Purchase of 162,291 shares of treasury stock — — — — ( 4,237 ) — ( 4,237 ) Issuance of 10,300 shares of treasury stock — ( 407 ) — — 407 — — Cancellations of 34,727 shares of treasury stock — 1,982 — — ( 1,982 ) — — Dividends, $ 0.215 per share — — ( 6,808 ) — — — ( 6,808 ) Balance, December 31, 2020 $ 36,334 $ 140,008 $ 850,436 $ ( 220,505 ) $ ( 184,809 ) $ 389 $ 621,853 The accompanying notes are an integral part of these consolidated financial statements. 5 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollar amounts in thousands) Three Months Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 19,810 ) $ ( 1,992 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 33,501 27,351 Stock-based compensation expense 3,709 3,246 Deferred tax provision 47 707 Gain on sale of assets, net ( 276 ) ( 569 ) Other investment loss (gain) 91 ( 654 ) Pension settlement loss 30,856 — Changes in working capital items ( 40,816 ) ( 3,729 ) Decrease in other assets 2,112 1,515 (Decrease) increase in other liabilities ( 39,121 ) 8,813 Other operating activities, net 2,551 638 Net cash (used in) provided by operating activities ( 27,156 ) 35,326 Cash flows from investing activities: Capital expenditures ( 12,640 ) ( 7,535 ) Proceeds from sale of assets 301 1,689 Investments and advances ( 130 ) — Net cash used in investing activities ( 12,469 ) ( 5,846 ) Cash flows from financing activities: Proceeds from long-term debt 174,859 121,596 Payments on long-term debt ( 102,514 ) ( 139,635 ) Purchases of treasury stock ( 2,435 ) ( 4,237 ) Dividends ( 6,824 ) ( 6,808 ) Acquisition holdback and contingent consideration payments — ( 1,556 ) Other financing activities ( 725 ) ( 735 ) Net cash provided by (used in) financing activities 62,361 ( 31,375 ) Effect of exchange rate changes on cash ( 928 ) 1,736 Net change in cash, cash equivalents and restricted cash 21,808 ( 159 ) Cash, cash equivalents and restricted cash at beginning of year 68,343 41,334 Cash, cash equivalents and restricted cash at end of period $ 90,151 $ 41,175 The accompanying notes are an integral part of these consolidated financial statements. 6 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) December 31, 2021 (Dollar amounts in thousands, except per share data) Note 1. Nature of Operations Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of brand solutions, memorialization products and industrial technologies. The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022. Prior periods were revised to reflect retrospective application of this segment realignment. Brand solutions consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial technologies includes the design, manufacturing, service and distribution of high-tech custom energy storage, marking, coding and industrial automation technologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The Company has facilities in North America, Europe, Asia, Australia, and Central and South America. Note 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2021. The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. All intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 3. Revenue Recognition The Company delivers a variety of products and services through its business segments. The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment designs, manufactures, services and distributes high-tech custom energy storage, marking, coding and industrial automation technologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 3. Revenue Recognition (continued) The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the three months ended December 31, 2021 and 2020 were as follows: SGK Brand Solutions Memorialization Industrial Technologies Consolidated Three Months Ended December 31, Three Months Ended December 31, Three Months Ended December 31, Three Months Ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 North America $ 74,190 $ 70,402 $ 196,751 $ 170,324 $ 36,365 $ 27,635 $ 307,306 $ 268,361 Central and South America 1,020 1,375 — — — — 1,020 1,375 Europe 61,002 63,628 11,514 10,440 36,555 24,172 109,071 98,240 Australia 2,868 3,481 2,441 2,510 — — 5,309 5,991 Asia 14,462 11,073 — — 1,411 1,617 15,873 12,690 Total Sales $ 153,542 $ 149,959 $ 210,706 $ 183,274 $ 74,331 $ 53,424 $ 438,579 $ 386,657 Revenue from products or services provided to customers over time accounted for approximately 13 % and 7 % of revenue for the three months ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and September 30, 2021, the Company had contract assets of $ 15,701 and $ 23,998 , respectively, that were recorded in other current assets within the Consolidated Balance Sheets. As of December 31, 2021 and September 30, 2021, the Company had contract liabilities of $ 21,138 and $ 19,752 , respectively, that were recorded in other current liabilities within the Consolidated Balance Sheets. Note 4. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below: Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows: December 31, 2021 September 30, 2021 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Derivatives (1) $ — $ 3,906 $ — $ 3,906 $ — $ 209 $ — $ 209 Equity and fixed income mutual funds — 6,914 — 6,914 — 6,936 — 6,936 Life insurance policies — 4,585 — 4,585 — 4,626 — 4,626 Total assets at fair value $ — $ 15,405 $ — $ 15,405 $ — $ 11,771 $ — $ 11,771 Liabilities: Derivatives (1) $ — $ 1,254 $ — $ 1,254 $ — $ 2,232 $ — $ 2,232 Total liabilities at fair value $ — $ 1,254 $ — $ 1,254 $ — $ 2,232 $ — $ 2,232 (1) Interest rate swaps and cross currency swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. The carrying values for other financial assets and liabilities approximated fair value at December 31, 2021 and September 30, 2021. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 5. Inventories Inventories consisted of the following: December 31, 2021 September 30, 2021 Raw materials $ 43,041 $ 37,673 Work in process 79,040 75,997 Finished goods 70,663 75,418 $ 192,744 $ 189,088 Note 6. Investments Non-current investments consisted of the following: December 31, 2021 September 30, 2021 Equity and fixed income mutual funds $ 6,914 $ 6,936 Life insurance policies 4,585 4,626 Equity-method investments 391 458 Other (primarily cost-method) investments 18,526 18,418 $ 30,416 $ 30,438 Note 7. Debt Long-term debt at December 31, 2021 and September 30, 2021 consisted of the following: December 31, 2021 September 30, 2021 Revolving credit facilities $ 405,000 $ 350,597 Securitization facility 104,690 95,990 2025 Senior Notes 297,931 297,796 Other borrowings 20,296 10,150 Finance lease obligations 8,145 9,177 Total debt 836,062 763,710 Less current maturities ( 4,271 ) ( 4,624 ) Long-term debt $ 831,791 $ 759,086 The Company has a domestic credit facility with a syndicate of financial institutions that includes a $ 750,000 senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $ 350,000 ) can be drawn in foreign currencies. 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. 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 in connection with the domestic credit facility. Unamortized costs were $ 2,004 and $ 2,182 at December 31, 2021 and September 30, 2021, respectively. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $ 35,000 ) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at December 31, 2021 and September 30, 2021 were $ 405,000 and $ 349,780 , respectively. The weighted-average interest rate on the 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. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 7. Debt (continued) The Company has $ 300,000 of 5.25 % senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25 % per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $ 2,069 and $ 2,204 at December 31, 2021 and September 30, 2021, respectively. The Company has a $ 115,000 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. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75 %. The Company is required to pay an annual commitment fee ranging from 0.25 % to 0.35 % of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at December 31, 2021 and September 30, 2021 were $ 104,690 and $ 95,990 , 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: December 31, 2021 September 30, 2021 Pay fixed swaps - notional amount $ 250,000 $ 250,000 Net unrealized loss $ ( 102 ) $ ( 2,062 ) Weighted-average maturity period (years) 2.0 2.2 Weighted-average received rate 0.10 % 0.08 % Weighted-average pay rate 1.34 % 1.34 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective. The fair value of the interest rate swaps reflected an unrealized loss net of unrealized gains of $ 102 ($ 77 after tax) at December 31, 2021 and an unrealized loss net of unrealized gains of $ 2,062 ($ 1,558 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 included in AOCI is expected to be recognized in earnings over the next twelve months. At December 31, 2021 and September 30, 2021, the interest rate swap contracts were reflected on a gross-basis in the Consolidated Balance Sheets as follows: Derivatives December 31, 2021 September 30, 2021 Current assets: Other current assets $ 269 $ 31 Long-term assets: Other assets 883 139 Current liabilities: Other current liabilities ( 1,148 ) ( 1,922 ) Long-term liabilities: Other liabilities ( 106 ) ( 310 ) Total derivatives $ ( 102 ) $ ( 2,062 ) 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 7. Debt (continued) The losses recognized on derivatives were as follows: Derivatives in Cash Flow Hedging Relationships Location of Loss Recognized in Income on Derivative Amount of Loss Recognized in Income on Derivatives Three Months Ended December 31, 2021 2020 Interest rate swaps Interest expense $ ( 801 ) $ ( 903 ) The Company recognized the following gains (losses) in AOCI: Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in AOCI on Derivatives Location of Loss Reclassified From AOCI into Income (Effective Portion*) Amount of Loss Reclassified from AOCI into Income (Effective Portion*) December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 Interest rate swaps $ 875 $ 353 Interest expense $ ( 606 ) $ ( 682 ) * There is no ineffective portion or amounts excluded from effectiveness testing. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is € 25.0 million ($ 28,361 ), which includes € 8.0 million ($ 9,075 ) for bank guarantees. 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 € 0.7 million ($ 817 ) 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 $ 20,296 and $ 10,150 at December 31, 2021 and September 30, 2021, respectively. The weighted-average interest rate on all other 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 $ 94,464 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 $ 2,079 (net of income taxes of $ 675 ) and a gain of $ 29 (net of income taxes of $ 10 ), 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 , 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 $ 2,754 and $ 39 , respectively. As of December 31, 2021 and September 30, 2021, the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of December 31, 2021. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 8. Share-Based Payments The Company maintains an equity incentive plan (the "2017 Equity Incentive Plan") that provides for grants of stock options, restricted shares, restricted share units, stock-based performance units and certain other types of stock-based awards. Under the 2017 Equity Incentive Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000 . In November 2021, the Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan (the "Amended 2017 Plan"), which increases the maximum number of shares available for grants or awards to an aggregate of 3,450,000 . The Amended 2017 Plan is subject to shareholder approval at the February 2022 Annual Shareholder Meeting. At December 31, 2021, 211,788 shares have been issued under the 2017 Equity Incentive Plan. 768,498 time-based restricted share units, 933,212 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan. 1,479,325 of these share-based awards are outstanding as of December 31, 2021. The 2017 Equity Incentive plan is administered by the Compensation Committee of the Board of Directors. For the three-month periods ended December 31, 2021 and 2020, stock-based compensation cost totaled $ 3,709 and $ 3,246 , respectively. The associated future income tax benefit recognized for stock-based compensation was $ 409 and $ 239 for the three-month periods ended December 31, 2021 and 2020, respectively. With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares. With respect to the restricted share unit grants, units generally vest on the third anniversary of the grant date. The number of units that vest depend on certain time and performance thresholds. Such performance thresholds include adjusted earnings per share, return on invested capital, appreciation in the market value of the Company's Class A Common Stock, or other targets established by the Compensation Committee of the Board of Directors. Approximately 42 % of the outstanding share units vest based on time, while the remaining vest based on pre-defined performance thresholds. The Company issues common stock from treasury shares once vested. The transactions for restricted shares and restricted share units for the three months ended December 31, 2021 were as follows: Shares /Units Weighted- average Grant-date Fair Value Non-vested at September 30, 2021 1,083,365 $ 34.07 Granted 636,800 38.20 Vested ( 163,201 ) 42.21 Expired or forfeited ( 116,368 ) 48.40 Non-vested at December 31, 2021 1,440,596 $ 33.81 During the third quarter of fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan. The option price for each stock option granted was $ 41.70 , which was equal to the fair market value of the Company's Class A Common Stock on the date of grant. These options vest in one-third increments annually over three years from the grant date. Unvested stock options expire on the earlier of five years from the date of grant, or upon employment termination, retirement or death. The Company generally settles employee stock option exercises with treasury shares. As of December 31, 2021, the total unrecognized compensation cost related to all unvested stock-based awards was $ 30,245 and is expected to be recognized over a weighted average period of 2.7 years. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 8. Share-Based Payments (continued) The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans"). There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan. Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2022, either cash or shares of the Company's Class A Common Stock with a value equal to $ 90 . The annual retainer fee for fiscal 2022 paid to the non-employee Chairman of the Board is $ 210 . Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits). The value of deferred shares is recorded in other liabilities. A total of 38,832 shares and share units had been deferred under the Director Fee Plans as of December 31, 2021. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $ 140 for fiscal 2022. As of December 31, 2021, 265,225 restricted shares and restricted share units have been granted under the Director Fee Plans, 91,996 of which were issued under the 2019 Director Fee Plan. 74,639 restricted shares and restricted share units are unvested at December 31, 2021. Note 9. Earnings Per Share Attributable to Matthews' Shareholders The information used to compute loss per share attributable to Matthews' common shareholders was as follows: Three Months Ended December 31, 2021 2020 Net loss attributable to Matthews shareholders $ ( 19,803 ) $ ( 1,758 ) Weighted-average shares outstanding (in thousands): Basic shares 31,719 31,725 Effect of dilutive securities — — Diluted shares 31,719 31,725 Anti-dilutive securities excluded from the dilution calculation were insignificant for the three months ended December 31, 2021. During periods in which the Company incurs a net loss, diluted weighted-average shares outstanding are equal to basic weighted-average shares outstanding because the effect of all equity awards is anti-dilutive. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 10. Pension and Other Postretirement Benefit Plans The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following: Three months ended December 31, Pension Other Postretirement 2021 2020 2021 2020 Service cost $ 380 $ 2,213 $ 41 $ 50 Interest cost * 990 1,548 103 94 Expected return on plan assets * ( 1,042 ) ( 2,763 ) — — Amortization: Prior service cost (credit) 47 ( 17 ) ( 91 ) ( 91 ) Net actuarial loss * 201 3,021 — — Settlement loss * 30,856 — — — Net benefit cost $ 31,432 $ 4,002 $ 53 $ 53 * Non-service components of pension and postretirement expense are included in other income (deductions), net. Benefit payments under the Company's principal defined benefit retirement plan ("DB Plan") are made from plan assets, while benefit payments under the supplemental retirement plan 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 $ 35,706 to fully fund the planned settlement of the DB Plan obligations. Also during the first quarter of fiscal 2022, lump sum distributions of $ 185,958 were made from the DB Plan to plan participants, and non-participating annuity contracts totaling $ 56,274 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 $ 30,856 , 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. Contributions made and anticipated for fiscal year 2022 are as follows: Contributions Pension Other Postretirement Contributions during the three months ended December 31, 2021: Principal defined benefit retirement plan $ 35,706 $ — Supplemental retirement plan 199 — Other postretirement plan — 83 Additional contributions expected in fiscal 2022: Supplemental retirement plan $ 561 $ — Other postretirement plan — 801 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 11. Accumulated Other Comprehensive Income The changes in AOCI by component, net of tax, for the three-month periods ended December 31, 2021 and 2020 were as follows: Post-retirement benefit plans Currency translation adjustment Derivatives Total Attributable to Matthews: Balance, September 30, 2021 $ ( 35,930 ) $ ( 155,251 ) $ ( 1,558 ) $ ( 192,739 ) OCI before reclassification 10,718 ( 1,989 ) 875 9,604 Amounts reclassified from AOCI 23,415 (a) — 606 (b) 24,021 Net current-period OCI 34,133 ( 1,989 ) 1,481 33,625 Balance, December 31, 2021 $ ( 1,797 ) $ ( 157,240 ) $ ( 77 ) $ ( 159,114 ) Attributable to noncontrolling interest: Balance, September 30, 2021 $ — $ 241 $ — $ 241 OCI before reclassification — 4 — 4 Net current-period OCI — 4 — 4 Balance, December 31, 2021 $ — $ 245 $ — $ 245 Post-retirement benefit plans Currency translation adjustment Derivatives Total Attributable to Matthews: Balance, September 30, 2020 $ ( 82,954 ) $ ( 151,881 ) $ ( 5,884 ) $ ( 240,719 ) OCI before reclassification — 17,055 353 17,408 Amounts reclassified from AOCI 2,124 (a) — 682 (b) 2,806 Net current-period OCI 2,124 17,055 1,035 20,214 Balance, December 31, 2020 $ ( 80,830 ) $ ( 134,826 ) $ ( 4,849 ) $ ( 220,505 ) Attributable to noncontrolling interest: Balance, September 30, 2020 $ — $ 368 $ — $ 368 OCI before reclassification — ( 3 ) — ( 3 ) Net current-period OCI — ( 3 ) — ( 3 ) Balance, December 31, 2020 $ — $ 365 $ — $ 365 (a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 10). (b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7). 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 11. Accumulated Other Comprehensive Income (continued) Reclassifications out of AOCI for the three-month periods ended December 31, 2021 and 2020 were as follows: Amount reclassified from AOCI Details about AOCI Components Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Affected line item in the Statement of income Postretirement benefit plans Prior service credit (a) $ 44 $ 108 Actuarial losses ( 201 ) ( 3,021 ) Other income (deductions), net Settlement loss ( 30,856 ) — Other income (deductions), net ( 31,013 ) ( 2,913 ) Income before income tax (b) 7,598 789 Income taxes $ ( 23,415 ) $ ( 2,124 ) Net income Derivatives Interest rate swap contracts $ ( 801 ) $ ( 903 ) Interest expense ( 801 ) ( 903 ) Income before income tax (b) 195 221 Income taxes $ ( 606 ) $ ( 682 ) Net income (a) Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. For additional information, see Note 10. (b) For pre-tax items, positive amounts represent income and negative amounts represent expense. Note 12. Income Taxes 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 first three months of fiscal 2022 were a benefit of $ 6,628 , compared to an expense of $ 3,980 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. 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. The Company had unrecognized tax benefits (excluding penalties and interest) of $ 3,328 and $ 2,807 on December 31, 2021 and September 30, 2021, respectively, which would impact the annual effective rate at December 31, 2021 and September 30, 2021, respectively. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $ 414 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitations. The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $ 808 and $ 691 at December 31, 2021 and September 30, 2021, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 12. Income Taxes (continued) The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions. As of December 31, 2021, the tax years that remain subject to examination by major jurisdiction generally are: United States – Federal 2018 and forward United States – State 2017 and forward Canada 2017 and forward Germany 2019 and forward United Kingdom 2020 and forward Singapore 2017 and forward Australia 2017 and forward Note 13. Segment Information The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022. Prior periods were revised to reflect retrospective application of this segment realignment. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes the design, manufacturing, service and distribution of high-tech custom energy storage, marking, coding and industrial automation technologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss. In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 13. Segment Information (continued) The following table sets forth information about the Company's segments, including a reconciliation of adjusted EBITDA to net income. Three Months Ended December 31, 2021 2020 Sales: SGK Brand Solutions $ 153,542 $ 149,959 Memorialization 210,706 183,274 Industrial Technologies 74,331 53,424 Consolidated Sales $ 438,579 $ 386,657 Adjusted EBITDA: SGK Brand Solutions $ 15,414 $ 21,833 Memorialization 43,370 44,072 Industrial Technologies 7,183 2,996 Corporate and Non-Operating ( 12,634 ) ( 14,138 ) Total Adjusted EBITDA $ 53,333 $ 54,763 Strategic initiatives and other charges (1)** ( 3,823 ) ( 11,192 ) Non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs (2)*** ( 690 ) ( 1,124 ) Defined benefit plan termination related costs (3) ( 426 ) — Stock-based compensation ( 3,709 ) ( 3,246 ) Non-service pension and postretirement expense (4) ( 31,108 ) ( 1,900 ) Depreciation and amortization * ( 33,501 ) ( 27,351 ) Interest expense ( 6,507 ) ( 7,728 ) Net loss attributable to noncontrolling interests ( 7 ) ( 234 ) (Loss) income before income taxes ( 26,438 ) 1,988 Income tax benefit (provision) 6,628 ( 3,980 ) Net loss $ ( 19,810 ) $ ( 1,992 ) 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 13. Segment Information (continued) (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. (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 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 $ 23,725 and $ 17,848 for the SGK Brand Solutions segment, $ 5,810 and $ 5,469 for the Memorialization segment, $ 2,653 and $ 2,740 for the Industrial Technologies segment, and $ 1,313 and $ 1,294 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 $ 1,229 and $ 4,696 for the SGK Brand Solutions segment, $ 671 and $ 1,130 for the Memorialization segment, $ 32 and $ 2,659 for the Industrial Technologies segment, and $ 1,891 and $ 2,707 for Corporate and Non-Operating, for the three months ended December 31, 2021 and 2020, respectively. *** Non-recurring/incremental COVID-19 costs were $ 220 and $ 409 for the SGK Brand Solutions segment, $ 464 and $ 650 for the Memorialization segment, $ 4 and $ 18 for the Industrial Technologies segment, and $ 2 and $ 47 for Corporate and Non-Operating, for the three months ended December 31, 2021 and 2020, respectively. Note 14. Goodwill and Other Intangible Assets A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows: SGK Brand Solutions Memorialization Industrial Technologies Consolidated Net goodwill at September 30, 2021 $ 314,850 $ 366,360 $ 92,577 $ 773,787 Translation and other adjustments ( 1,422 ) ( 479 ) 97 ( 1,804 ) Net goodwill at December 31, 2021 $ 313,428 $ 365,881 $ 92,674 $ 771,983 The net goodwill balances at December 31, 2021 and September 30, 2021 included $ 178,732 of accumulated impairment losses. Accumulated impairment losses at December 31, 2021 and September 30, 2021 were $ 149,786 , $ 5,000 , and $ 23,946 for the SGK Brand Solutions, Memorialization, and Industrial Technologies segments, respectively. 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. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued (Dollar amounts in thousands, except per share data) Note 14. Goodwill and Other Intangible Assets (continued) The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of December 31, 2021 and September 30, 2021, respectively. Carrying Amount Accumulated Amortization Net December 31, 2021: Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 148,794 ( 114,714 ) 34,080 Customer relationships 388,112 ( 220,667 ) 167,445 Copyrights/patents/other 23,485 ( 15,826 ) 7,659 $ 590,931 $ ( 351,207 ) $ 239,724 September 30, 2021 : Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 148,867 ( 104,211 ) 44,656 Customer relationships 388,699 ( 210,361 ) 178,338 Copyrights/patents/other 23,584 ( 15,576 ) 8,008 $ 591,690 $ ( 330,148 ) $ 261,542 The net change in intangible assets during the three months ended December 31, 2021 included the impact of foreign currency fluctuations during the period and additional amortization. Amortization expense on intangible assets was $ 21,546 and $ 15,221 for the three-month periods ended December 31, 2021 and 2020, respectively. Amortization expense is estimated to be $ 35,988 for the remainder of fiscal 2022, $ 41,064 in 2023, $ 35,505 in 2024, $ 19,770 in 2025 and $ 14,686 in 2026. 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES: The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation ("Matthews" or the "Company") and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company's products, changes in mortality and cremation rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, or other factors such as supply chain disruptions, labor shortages or labor cost increases, changes in product demand or pricing as a result of domestic or international competitive pressures, ability to achieve cost-reduction objectives, unknown risks in connection with the Company's acquisitions, cybersecurity concerns, effectiveness of the Company's internal controls, compliance with domestic and foreign laws and regulations, technological factors beyond the Company's control, impact of pandemics or similar outbreaks, or other disruptions to our industries, customers or supply chains, and other factors described in Item 1A - "Risk Factors" in this Form 10-Q and Item 1A - "Risk Factors" in the Company's Form 10-K for the fiscal year ended September 30, 2021. In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors. Matthews cautions that the foregoing list of important factors is not all inclusive. Readers are also cautioned not to place undue reliance on any forward looking statements, which reflect management's analysis only as of the date of this report, even if subsequently made available by Matthews on its website or otherwise. Matthews does not undertake to update any forward looking statement, whether written or oral, that may be made from time to time by or on behalf of Matthews to reflect events or circumstances occurring after the date of this report. Included in this report are measures of financial performance that are not defined by generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures assist management in comparing the Company's performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company's core operations. For additional information and reconciliations from the consolidated financial statements see "Non-GAAP Financial Measures" below. RESULTS OF OPERATIONS: The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022. Prior periods were revised to reflect retrospective application of this segment realignment. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes the design, manufacturing, service and distribution of high-tech custom energy storage, marking, coding and industrial automation technologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss. In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments. The following table sets forth the sales and adjusted EBITDA for the Company's three reporting segments for the three-month periods ended December 31, 2021 and 2020. Refer to Note 13, "Segment Information" in Item 1 - "Financial Statements" for the Company's financial information by segment. Three Months Ended December 31, 2021 2020 Sales: (Dollar amounts in thousands) SGK Brand Solutions $ 153,542 $ 149,959 Memorialization 210,706 183,274 Industrial Technologies 74,331 53,424 Consolidated Sales $ 438,579 $ 386,657 Adjusted EBITDA: SGK Brand Solutions $ 15,414 $ 21,833 Memorialization 43,370 44,072 Industrial Technologies 7,183 2,996 Corporate and Non-Operating (12,634) (14,138) Total Adjusted EBITDA (1) $ 53,333 $ 54,763 (1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below. Sales for the three months ended December 31, 2021 were $438.6 million, compared to $386.7 million for the three months ended December 31, 2020, representing an increase of $51.9 million. The increase in fiscal 2022 sales reflected higher sales in all of the Company's segments. Fiscal 2022 sales continued to be impacted by the global outbreak of coronavirus disease 2019 ("COVID-19"), which has caused some commercial impacts in certain of the Company's segments and geographic locations. These impacts have included higher sales volumes for memorialization products and services, but have also included temporary business disruptions and customer project delays for certain of the Company's businesses. Additionally, recent increases in the cost of certain raw materials and other inflationary pressures have had an unfavorable impact on the Company's results of operations. While substantially all of the Company's operations have remained open during the COVID-19 pandemic, management expects COVID-19 to continue to impact its sales and results of operations in the short-term until the pandemic subsides (see "Forward Looking Information" below). In the SGK Brand Solutions segment, sales for the first three months of fiscal 2022 were $153.5 million, compared to $150.0 million for the first three months of fiscal 2021. The increase primarily resulted from higher retail-based sales (principally merchandising solutions) and higher brand sales in the Asia-Pacific market. These increases were partially offset by lower brand sales in the U.S. and Europe. Changes in foreign currency exchange rates had an unfavorable impact of $2.4 million on the segment's sales compared to the prior year. Memorialization segment sales for the first three months of fiscal 2022 were $210.7 million, compared to $183.3 million for the first three months of fiscal 2021. The increase in sales predominantly resulted from increased unit sales of caskets and bronze and granite memorial products, due to COVID-19. The segment also 22