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Item 1. Financial Statements

2022-04-29 compared with 2022-01-28 · 400 added, 149 removed, 539 unchanged (50% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands)

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

Current assets:

45 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

Sales $ 444,978 $ 417,154 $ 883,557 $ 803,811

5 unchanged sentences

Operating profit 7,366 14,972 18,145 25,345

Investment income 1,003 1,077

Investment (loss) income ( 327 ) 969 676 2,046

Interest expense ( 6,260 ) ( 7,233 ) ( 12,767 ) ( 14,961 )

Other income (deductions), net 562 ( 2,584 ) ( 31,151 ) ( 4,318 )

(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:

Income (loss) before income taxes 1,341 6,124 ( 25,097 ) 8,112

Income tax (provision) benefit ( 3,277 ) ( 972 ) 3,351 ( 4,952 )

Net (loss) income ( 1,936 ) 5,152 ( 21,746 ) 3,160

Net loss (income) attributable to noncontrolling interests 31 ( 163 ) 38 71

Net (loss) income attributable to Matthews shareholders $ ( 1,905 ) $ 4,989 $ ( 21,708 ) $ 3,231

(Loss) earnings per share attributable to Matthews shareholders:

Basic $ ( 0.06 ) $ 0.16 $ ( 0.68 ) $ 0.10

4 unchanged sentences

(Dollar amounts in thousands)

Three Months Ended December 31,

Three Months Ended March 31,

Matthews Noncontrolling Interest Total

2022 2021 2022 2021 2022 2021

Net (loss) income:

$ ( 1,905 ) $ 4,989 $ ( 31 ) $ 163 $ ( 1,936 ) $ 5,152

Other comprehensive income (loss) ("OCI"), net of tax:

Foreign currency translation adjustment ( 6,181 ) ( 8,898 ) 4 1 ( 6,177 ) ( 8,897 )

Pension plans and other postretirement benefits ( 27 ) 2,255 — — ( 27 ) 2,255

Unrecognized gain on derivatives:

Net change from periodic revaluation 3,538 2,088 — — 3,538 2,088

Net amount reclassified to earnings 554 567 — — 554 567

Net change in unrecognized gain on derivatives 4,092 2,655 — — 4,092 2,655

OCI, net of tax ( 2,116 ) ( 3,988 ) 4 1 ( 2,112 ) ( 3,987 )

Comprehensive (loss) income $ ( 4,021 ) $ 1,001 $ ( 27 ) $ 164 $ ( 4,048 ) $ 1,165

Six Months Ended March 31,

Matthews Noncontrolling Interest Total

2022 2021 2022 2021 2022 2021

Net (loss) income:

$ ( 21,708 ) $ 3,231 $ ( 38 ) $ ( 71 ) $ ( 21,746 ) $ 3,160

OCI, net of tax:

Foreign currency translation adjustment ( 8,170 ) 8,157 8 ( 2 ) ( 8,162 ) 8,155

9 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

for the three months ended December 31, 2021 and 2020 (Unaudited)

for the three and six months ended March 31, 2022 and 2021 (Unaudited)

(Dollar amounts in thousands, except per share data)

22 unchanged sentences

December 31, 2021 $ 36,334 $ 148,425 $ 807,581 $ ( 159,114 ) $ ( 188,406 ) $ ( 148 ) $ 644,672

Net loss — — ( 1,905 ) — — ( 31 ) ( 1,936 )

Minimum pension liability — — — ( 27 ) — — ( 27 )

Translation adjustment — — — ( 6,181 ) — 4 ( 6,177 )

Fair value of derivatives — — — 4,092 — — 4,092

Total comprehensive loss ( 4,048 )

Stock-based compensation — 5,222 — — — — 5,222

Purchase of 289,184 shares of treasury stock

— — — — ( 9,703 ) — ( 9,703 )

Issuance of 45,096 shares of treasury stock

— ( 1,761 ) — — 1,761 — —

Cancellations of 80 shares of treasury stock

— 5 — — ( 5 ) — —

Dividends, $ 0.22 per share

— — ( 7,128 ) — — — ( 7,128 )

March 31, 2022 $ 36,334 $ 151,891 $ 798,548 $ ( 161,230 ) $ ( 196,353 ) $ ( 175 ) $ 629,015

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, Continued

for the three and six months ended March 31, 2022 and 2021 (Unaudited)

(Dollar amounts in thousands, except per share data)

Shareholders' Equity

21 unchanged sentences

December 31, 2020 $ 36,334 $ 140,008 $ 850,436 $ ( 220,505 ) $ ( 184,809 ) $ 389 $ 621,853

Net income — — 4,989 — — 163 5,152

Minimum pension liability — — — 2,255 — — 2,255

Translation adjustment — — — ( 8,898 ) — 1 ( 8,897 )

Fair value of derivatives — — — 2,655 — — 2,655

Total comprehensive income 1,165

Stock-based compensation — 4,001 — — — — 4,001

Purchase of 6,000 shares of treasury stock

— — — — ( 249 ) — ( 249 )

Issuance of 17,357 shares of treasury stock

— ( 685 ) — — 685 — —

Dividends, $ 0.215 per share

— — ( 7,171 ) — — — ( 7,171 )

March 31, 2021 $ 36,334 $ 143,324 $ 848,254 $ ( 224,493 ) $ ( 184,373 ) $ 553 $ 619,599

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(Dollar amounts in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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

Adjustments to reconcile net loss to net cash provided by operating activities:

Net (loss) income $ ( 21,746 ) $ 3,160

Adjustments to reconcile net (loss) income to net cash flows from operating activities:

Depreciation and amortization 57,225 62,530

Stock-based compensation expense 8,931 7,247

Deferred tax provision 47 707

Deferred tax (benefit) provision ( 16 ) 930

Gain on sale of assets, net ( 528 ) ( 511 )

1 unchanged sentence

Pension settlement loss 30,856 —

Asset write-downs 10,486 —

Changes in working capital items 18,842 2,730

2 unchanged sentences

Other operating activities, net 4,607 1,422

Net cash (used in) provided by operating activities ( 27,156 ) 35,326

Net cash provided by operating activities 72,723 92,182

Cash flows from investing activities:

Capital expenditures ( 28,096 ) ( 15,819 )

Acquisitions, net of cash acquired — ( 13,100 )

Proceeds from sale of assets 360 2,065

Proceeds from sale of investments 3,127 15,000

Investments and advances ( 130 ) —

7 unchanged sentences

Other financing activities ( 1,434 ) ( 1,484 )

Net cash provided by (used in) financing activities 62,361 ( 31,375 )

Net cash used in financing activities ( 38,675 ) ( 75,453 )

Effect of exchange rate changes on cash ( 1,580 ) 771

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2021

March 31, 2022

(Dollar amounts in thousands, except per share data)

15 unchanged sentences

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.

Operating results for the six months ended March 31, 2022 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.

The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control and any variable interest entities for which the Company is the primary beneficiary.

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.

12 unchanged sentences

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:

Disaggregated sales by segment and region for the three and six months ended March 31, 2022 and 2021 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,

Three Months Ended

March 31, Three Months Ended

2022 2021 2022 2021 2022 2021 2022 2021

5 unchanged sentences

Total Sales $ 146,820 $ 146,415 $ 220,004 $ 205,457 $ 78,154 $ 65,282 $ 444,978 $ 417,154

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.

SGK Brand Solutions Memorialization Industrial Technologies Consolidated

Six Months Ended March 31, Six Months Ended March 31, Six Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021 2022 2021 2022 2021

North America $ 143,270 $ 136,684 $ 402,406 $ 360,577 $ 71,133 $ 59,895 $ 616,809 $ 557,156

Central and South America 2,143 2,694 — — — — 2,143 2,694

Europe 121,854 128,209 23,438 23,102 78,166 55,794 223,458 207,105

Australia 5,555 6,937 4,866 5,052 — — 10,421 11,989

Asia 27,540 21,850 — — 3,186 3,017 30,726 24,867

Total Sales $ 300,362 $ 296,374 $ 430,710 $ 388,731 $ 152,485 $ 118,706 $ 883,557 $ 803,811

Revenue from products or services provided to customers over time accounted for approximately 9 % of revenue for both the three months ended March 31, 2022 and 2021, and 11 % and 8 % of revenue for the six months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022 and September 30, 2021, the Company had contract assets of $ 22,896 and $ 23,998 , respectively, that were recorded in other current assets within the Consolidated Balance Sheets.

As of March 31, 2022 and September 30, 2021, the Company had contract liabilities of $ 12,701 and $ 19,752 , respectively, that were recorded in other current liabilities within the Consolidated Balance Sheets.

Fair Value Measurements

4 unchanged sentences

Unobservable inputs for the asset or liability.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Fair Value Measurements (continued)

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

March 31, 2022 September 30, 2021

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

8 unchanged sentences

(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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

The carrying values for other financial assets and liabilities approximated fair value at March 31, 2022 and September 30, 2021.

Inventories consisted of the following:

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

Raw materials $ 46,485 $ 37,673

3 unchanged sentences

Non-current investments consisted of the following:

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

Equity and fixed income mutual funds $ — $ 6,936

3 unchanged sentences

$ 23,697 $ 30,438

Long-term debt at December 31, 2021 and September 30, 2021 consisted of the following:

December 31, 2021 September 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Debt and Financing Arrangements

Long-term debt at March 31, 2022 and September 30, 2021 consisted of the following:

March 31, 2022 September 30, 2021

Revolving credit facilities $ 389,216 $ 350,597

8 unchanged sentences

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.

Borrowings under the revolving credit facility bear interest at LIBOR plus a factor ranging from 0.75 % to 2.00 % ( 1.00 % at March 31, 2022) 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 $ 2,004 and $ 2,182 at December 31, 2021 and September 30, 2021, respectively.

Unamortized costs were $ 1,826 and $ 2,182 at March 31, 2022 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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Debt (continued)

dollar denominated borrowings on the revolving credit facility at March 31, 2022 and September 30, 2021 were $ 380,540 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 March 31, 2022 and 2021 was 1.89 % and 2.17 %, respectively.

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's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned 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.

Unamortized costs were $ 1,935 and $ 2,204 at March 31, 2022 and September 30, 2021, respectively.

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.

In March 2022, Matthews RFC entered into a receivables purchase agreement (“RPA”) to sell up to $ 125,000 of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred.

The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables.

Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers.

Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin.

The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables.

The proceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows.

Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers.

Gross receivables sold and cash collections reinvested under the RPA program were $ 121,616 and $ 46,615 for the six months ended March 31, 2022, respectively.

The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded.

As of March 31, 2022, the amount sold to the Purchasers was $ 75,001 , which was derecognized from the Consolidated Balance Sheets.

As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $ 29,288 as of March 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Debt and Financing Arrangements (continued)

Previously, the Company had a $ 115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions that matured in March 2022.

The Securitization Facility did not qualify for sale treatment.

Accordingly, the trade receivables and related debt obligations remained on the Company's Consolidated Balance Sheet.

Borrowings under the Securitization Facility were based on LIBOR plus 0.75 % and the Company was 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 September 30, 2021 totaled $ 95,990 .

At March 31, 2021, the interest rate on borrowings under this facility was 0.86 %.

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

March 31, 2022 September 30, 2021

Pay fixed swaps - notional amount $ 225,000 $ 250,000

Net unrealized loss

$ ( 102 ) $ ( 2,062 )

Net unrealized gain (loss) $ 5,318 $ ( 2,062 )

Weighted-average maturity period (years) 1.9 2.2

4 unchanged sentences

Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

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

The fair value of the interest rate swaps reflected an unrealized gain net of unrealized losses of $ 5,318 ($ 4,015 after tax) at March 31, 2022 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 March 31, 2022, a gain (net of tax) of approximately $ 839 included in AOCI is expected to be recognized in earnings over the next twelve months.

At March 31, 2022 and September 30, 2021, the interest rate swap contracts were reflected on a gross-basis in the Consolidated Balance Sheets as follows:

Derivatives March 31, 2022 September 30, 2021

Current assets:

7 unchanged sentences

Total derivatives $ 5,318 $ ( 2,062 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

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

Derivatives in Cash Flow Hedging Relationships Location of Loss Recognized in Income on Derivatives Amount of Loss Recognized in Income on Derivatives Amount of Loss Recognized in Income on Derivatives

Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

Interest rate swaps Interest expense $ ( 735 ) $ ( 751 ) $ ( 1,536 ) $ ( 1,654 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Debt and Financing Arrangements (continued)

The Company recognized the following gains (losses) in AOCI:

4 unchanged sentences

(Effective Portion*)

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021

Interest rate swaps $ 4,413 $ 2,441 Interest expense $ ( 1,160 ) $ ( 1,249 )

3 unchanged sentences

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.

Outstanding borrowings under the credit facility totaled € 7.8 million ($ 8,676 ) and € 0.7 million ($ 817 ) at March 31, 2022 and September 30, 2021, respectively.

The weighted-average interest rate on outstanding borrowings under this facility was 2.25 % at March 31, 2022 and 2021.

Other borrowings totaled $ 58,522 and $ 10,150 at March 31, 2022 and September 30, 2021, respectively.

Other borrowings at March 31, 2022 included $ 37,789 of collateralized borrowings in connection with the RPA arrangement discussed above.

The weighted-average interest rate on all other borrowings was 1.92 % and 2.18 % at March 31, 2022 and 2021, 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.

Dollar/Euro cross currency swap with a notional amount of $ 94,464 as of March 31, 2022, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

A gain of $ 2,893 (net of income taxes of $ 939 ) 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 March 31, 2022 and September 30, 2021, respectively.

Income of $ 420 and $ 785 , 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 and six months ended March 31, 2022, respectively.

At March 31, 2022 and September 30, 2021, the swap, which is included in other assets in the Consolidated Balance Sheets, totaled $ 3,832 and $ 39 , respectively.

As of March 31, 2022 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 March 31, 2022.

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.

The Company maintains an equity incentive plan (as amended, 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 3,450,000 , following the amendment and restatement of the 2017 Equity Incentive Plan at the Company's 2022 Annual Shareholder Meeting.

At March 31, 2022, 211,788 shares have been issued under the 2017 Equity Incentive Plan.

769,698 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.

1,477,525 of these share-based awards are outstanding as of March 31, 2022.

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.

The number of shares issued under performance-based restricted share units may be up to 200 % of the number of performance-based restricted share units, based on the satisfaction of specific criteria established by the plan administrator.

For the three-month periods ended March 31, 2022 and 2021, stock-based compensation cost totaled $ 5,222 and $ 4,001 , respectively.

For the six-month periods ended March 31, 2022 and 2021, stock-based compensation cost totaled $ 8,931 and $ 7,247 , respectively.

The associated future income tax benefit recognized for stock-based compensation was $ 1,278 and $ 738 for the three-month periods ended March 31, 2022 and 2021, respectively, and $ 1,688 and $ 976 for the six-month periods ended March 31, 2022 and 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Share-Based Payments (continued)

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.

7 unchanged sentences

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:

The transactions for restricted shares and restricted share units for the six months ended March 31, 2022 were as follows:

Shares /Units Weighted-

3 unchanged sentences

Expired or forfeited ( 119,448 ) 48.06

Non-vested at December 31, 2021 1,440,596 $ 33.81

Non-vested at March 31, 2022 1,438,716 $ 33.82

During the third quarter of fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan.

3 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Share-Based Payments (continued)

As of March 31, 2022, the total unrecognized compensation cost related to all unvested stock-based awards was $ 25,764 and is expected to be recognized over a weighted average period of 2.6 years.

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").

5 unchanged sentences

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.

A total of 44,943 shares and share units had been deferred under the Director Fee Plans as of March 31, 2022.

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.

As of March 31, 2022, 305,911 restricted shares and restricted share units have been granted under the Director Fee Plans and are outstanding as of March 31, 2022, 132,682 of which were issued under the 2019 Director Fee Plan.

58,008 restricted shares and restricted share units are unvested at March 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Earnings Per Share Attributable to Matthews' Shareholders

1 unchanged sentence

Three Months Ended

Net loss attributable to Matthews shareholders $ ( 19,803 ) $ ( 1,758 )

March 31, Six Months Ended

2022 2021 2022 2021

Net (loss) income attributable to Matthews shareholders $ ( 1,905 ) $ 4,989 $ ( 21,708 ) $ 3,231

Weighted-average shares outstanding (in thousands):

2 unchanged sentences

Diluted shares 31,692 32,083 31,695 32,034

Anti-dilutive securities excluded from the dilution calculation were insignificant for the three months ended December 31, 2021.

Anti-dilutive securities excluded from the dilution calculation were insignificant for the three and six months ended March 31, 2022.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Pension and Other Postretirement Benefit Plans

1 unchanged sentence

Net periodic pension and other postretirement benefit cost for the plans included the following:

Three months ended December 31,

Three months ended March 31,

Pension Other Postretirement

4 unchanged sentences

Amortization:

Prior service cost (credit) 47 ( 17 ) ( 91 ) ( 91 )

Prior service credit ( 66 ) ( 41 ) ( 91 ) ( 91 )

Net actuarial loss * 91 3,023 — —

Net benefit cost $ 78 $ 3,749 $ 53 $ 53

Six months ended March 31,

Pension Other Postretirement

2022 2021 2022 2021

Service cost $ 385 $ 4,196 $ 82 $ 100

Interest cost * 1,038 3,094 206 188

Expected return on plan assets * ( 1,042 ) ( 5,525 ) — —

Amortization:

Prior service credit ( 19 ) ( 58 ) ( 182 ) ( 182 )

Net actuarial loss * 292 6,044 — —

Settlement loss * 30,856 — — —

1 unchanged sentence

* 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Pension and Other Postretirement Benefit Plans (continued)

Benefit payments under the Company's principal defined benefit retirement plan ("DB Plan") were 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.

1 unchanged sentence

Contributions Pension Other Postretirement

Contributions during the three months ended December 31, 2021:

Contributions during the six months ended March 31, 2022:

Principal defined benefit retirement plan $ 35,706 $ —

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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:

The changes in AOCI by component, net of tax, for the three-month periods ended March 31, 2022 and 2021 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 )

Balance, December 31, 2021 $ ( 1,797 ) $ ( 157,240 ) $ ( 77 ) $ ( 159,114 )

OCI before reclassification 23 ( 6,181 ) 3,538 ( 2,620 )

1 unchanged sentence

Net current-period OCI ( 27 )

4,092 ( 2,116 )

Balance, March 31, 2022 $ ( 1,824 ) $ ( 163,421 ) $ 4,015 $ ( 161,230 )

Attributable to noncontrolling interest:

Balance, December 31, 2021 $ — $ 245 $ — $ 245

OCI before reclassification — 4 — 4

Net current-period OCI — 4 — 4

Balance, March 31, 2022 $ — $ 249 $ — $ 249

Post-retirement benefit plans Currency translation adjustment Derivatives Total

Attributable to Matthews:

Balance, December 31, 2020 $ ( 80,830 ) $ ( 134,826 ) $ ( 4,849 ) $ ( 220,505 )

OCI before reclassification — ( 8,898 ) 2,088 ( 6,810 )

Amounts reclassified from AOCI 2,255 (a)

Net current-period OCI 2,255 ( 8,898 ) 2,655 ( 3,988 )

Balance, March 31, 2021 $ ( 78,575 ) $ ( 143,724 ) $ ( 2,194 ) $ ( 224,493 )

Attributable to noncontrolling interest:

Balance, December 31, 2020 $ — $ 365 $ — $ 365

OCI before reclassification — 1

Net current-period OCI — 1 — 1

Balance, March 31, 2021 $ — $ 366

(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).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Accumulated Other Comprehensive Income (continued)

The changes in AOCI by component, net of tax, for the six-month periods ended March 31, 2022 and 2021 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 10,741 ( 8,170 ) 4,413 6,984

Amounts reclassified from AOCI 23,365 (a)

Net current-period OCI 34,106

Balance, December 31, 2021 $ — $ 245 $ — $ 245

( 8,170 ) 5,573 31,509

Balance, March 31, 2022 $ ( 1,824 ) $ ( 163,421 ) $ 4,015 $ ( 161,230 )

Attributable to noncontrolling interest:

Balance, September 30, 2021 $ — $ 241 $ — $ 241

OCI before reclassification — 8 — 8

Net current-period OCI — 8 — 8

Balance, March 31, 2022 $ — $ 249 $ — $ 249

Post-retirement benefit plans Currency translation adjustment Derivatives Total

4 unchanged sentences

Net current-period OCI 4,379 8,157 3,690 16,226

Balance, December 31, 2020 $ ( 80,830 ) $ ( 134,826 ) $ ( 4,849 ) $ ( 220,505 )

Balance, March 31, 2021 $ ( 78,575 ) $ ( 143,724 ) $ ( 2,194 ) $ ( 224,493 )

Attributable to noncontrolling interest:

2 unchanged sentences

Net current-period OCI — ( 2 ) — ( 2 )

Balance, December 31, 2020 $ — $ 365

Balance, March 31, 2021 $ — $ 366

(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 10).

3 unchanged sentences

Accumulated Other Comprehensive Income (continued)

Reclassifications out of AOCI for the three-month periods ended December 31, 2021 and 2020 were as follows:

Reclassifications out of AOCI for the three and six-month periods ended March 31, 2022 and 2021 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

Details about AOCI Components Three Months Ended March 31, 2022 Six Months Ended March 31, 2022 Affected line item in the Statement of income

Postretirement benefit plans

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$ ( 554 ) $ ( 1,160 ) Net income

Details about AOCI Components Three Months Ended

March 31, 2021 Six Months Ended

March 31, 2021 Affected line item in the Statement of income

Postretirement benefit plans

Prior service credit (a)

Actuarial losses ( 3,023 ) ( 6,044 ) Other income (deductions), net

( 2,891 ) ( 5,804 ) Income before income tax (b)

1,425 Income taxes

$ ( 4,379 ) Net income

Interest rate swap contracts $ ( 751 )

$ ( 1,654 ) Interest expense

( 751 ) ( 1,654 ) Income before income tax (b)

405 Income taxes

$ ( 567 ) $ ( 1,249 ) 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.

1 unchanged sentence

(b) For pre-tax items, positive amounts represent income and negative amounts represent expense.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

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.

The Company's consolidated income taxes for the first six months of fiscal 2022 were a benefit of $ 3,351 , compared to an expense of $ 4,952 for the first six months of fiscal 2021.

The difference between the Company’s consolidated income taxes for the first six 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 non-tax deductible asset write-downs in Russia, due to the full valuation allowance for the Russian entity.

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.

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

statutory tax rate of 21.0% primarily due to the non-deductible asset write-downs in Russia, state taxes, foreign statutory rate differentials, and tax credits.

The Company’s fiscal 2021 six 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.

The Company had unrecognized tax benefits (excluding penalties and interest) of $ 3,231 and $ 2,807 on March 31, 2022 and September 30, 2021, respectively, which would impact the annual effective rate at March 31, 2022 and September 30, 2021, respectively.

It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $ 350 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.

Total penalties and interest accrued were $ 775 and $ 691 at March 31, 2022 and September 30, 2021, respectively.

These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

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:

As of March 31, 2022, the tax years that remain subject to examination by major jurisdictions generally are:

United States – Federal 2018 and forward

14 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Segment Information (continued)

The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA").

8 unchanged sentences

Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

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

March 31, Six Months Ended

2022 2021 2022 2021

SGK Brand Solutions $ 146,820 $ 146,415 $ 300,362 $ 296,374

12 unchanged sentences

( 1,213 ) ( 1,572 ) ( 1,903 ) ( 2,696 )

Defined benefit plan termination related costs (3)

Defined benefit plan termination related items (3)

79 — ( 347 ) —

Asset write-downs (4)

( 10,486 ) — ( 10,486 ) —

Stock-based compensation ( 5,222 ) ( 4,001 ) ( 8,931 ) ( 7,247 )

4 unchanged sentences

Interest expense ( 6,260 ) ( 7,233 ) ( 12,767 ) ( 14,961 )

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) income attributable to noncontrolling interests ( 31 ) 163 ( 38 ) ( 71 )

Income (loss) before income taxes 1,341 6,124 ( 25,097 ) 8,112

Income tax (provision) benefit ( 3,277 ) ( 972 ) 3,351 ( 4,952 )

Net loss $ ( 1,936 ) $ 5,152 $ ( 21,746 ) $ 3,160

5 unchanged sentences

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.

(3) Represents items 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) Represents asset write-downs within the SGK Brand Solutions segment (see Note 15, "Asset Write-Downs").

(5) 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.

3 unchanged sentences

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.

* Depreciation and amortization was $ 14,060 and $ 25,261 for the SGK Brand Solutions segment, $ 5,803 and $ 5,709 for the Memorialization segment, $ 2,531 and $ 2,880 for the Industrial Technologies segment, and $ 1,330 and $ 1,329 for Corporate and Non-Operating, for the three months ended March 31, 2022 and 2021, respectively.

Depreciation and amortization was $ 37,785 and $ 43,109 for the SGK Brand Solutions segment, $ 11,613 and $ 11,178 for the Memorialization segment, $ 5,184 and $ 5,620 for the Industrial Technologies segment, and $ 2,643 and $ 2,623 for Corporate and Non-Operating, for the six months ended March 31, 2022 and 2021, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 4,475 and $ 2,865 for the SGK Brand Solutions segment, charges of $ 516 and income of $ 335 for the Memorialization segment, charges of $ 161 and $ 126 for the Industrial Technologies segment, and $ 1,598 and $ 2,437 for Corporate and Non-Operating, for the three months ended March 31, 2022 and 2021, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 5,703 and $ 7,561 for the SGK Brand Solutions segment, $ 1,188 and $ 795 for the Memorialization segment, $ 193 and $ 2,785 for the Industrial Technologies segment, and $ 3,489 and $ 5,144 for Corporate and Non-Operating, for the six months ended March 31, 2022 and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $ 170 and $ 297 for the SGK Brand Solutions segment, $ 579 and $ 1,240 for the Memorialization segment, $ 1 and $ 12 for the Industrial Technologies segment, and $ 463 and $ 23 for Corporate and Non-Operating, for the three months ended March 31, 2022 and 2021, respectively.

Non-recurring/incremental COVID-19 costs were $ 390 and $ 706 for the SGK Brand Solutions segment, $ 1,043 and $ 1,890 for the Memorialization segment, $ 5 and $ 30 for the Industrial Technologies segment, and $ 465 and $ 70 for Corporate and Non-Operating, for the six months ended March 31, 2022 and 2021, respectively.

Goodwill and Other Intangible Assets

4 unchanged sentences

Translation and other adjustments ( 3,524 ) ( 1,010 ) ( 142 ) ( 4,676 )

Net goodwill at December 31, 2021

Net goodwill at March 31, 2022

$ 311,326 $ 365,350 $ 92,435 $ 769,111

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 net goodwill balances at March 31, 2022 and September 30, 2021 included $ 178,732 of accumulated impairment losses.

Accumulated impairment losses at March 31, 2022 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 2022 (January 1, 2022) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary.

4 unchanged sentences

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.

The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of March 31, 2022 and September 30, 2021, respectively.

Amount Accumulated

Amortization Net

December 31, 2021:

March 31, 2022:

Indefinite-lived trade names $ 30,540 $ — $ 30,540

9 unchanged sentences

$ 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.

The net change in intangible assets during the six months ended March 31, 2022 included the impact of foreign currency fluctuations during the period and additional amortization.

Amortization expense on intangible assets was $ 11,953 and $ 22,930 for the three-month periods ended March 31, 2022 and 2021, respectively.

For the six month period ended March 31, 2022 and 2021, amortization expense was $ 33,499 and $ 38,151 , respectively.

Amortization expense is estimated to be $ 23,976 for the remainder of fiscal 2022, $ 41,064 in 2023, $ 35,505 in 2024, $ 19,684 in 2025 and $ 14,686 in 2026.

Asset Write-Downs

The Company has certain operations in Russia within its SGK Brand Solutions segment.

In light of the current war between Russia and Ukraine, and the resulting regional instability and evolving political and economic conditions within the region, the Company evaluated certain of its assets for recoverability and impairment.

As a result of this assessment, and due to the uncertainty in projecting future cash flows for the Company's operations in Russia, the Company recorded asset write-downs totaling $ 10,486 during the second quarter of fiscal 2022 to reduce the carrying value of these assets to zero.

Asset write-downs (primarily related to property, plant and equipment) totaling $ 9,686 and $ 800 were reported within cost of sales and administrative expense, respectively, for the three and six months ended March 31, 2022.

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

4 unchanged sentences

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.

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, the impact of global conflicts, such as the current war between Russia and Ukraine, 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.

25 unchanged sentences

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.

The following table sets forth the sales and adjusted EBITDA for the Company's three reporting segments for the three and six-month periods ended March 31, 2022 and 2021.

Refer to Note 13, "Segment Information" in Item 1 - "Financial Statements" for the Company's financial information by segment.

Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

(Dollar amounts in thousands)

12 unchanged sentences

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.

Sales for the six months ended March 31, 2022 were $883.6 million, compared to $803.8 million for the six months ended March 31, 2021, representing an increase of $79.7 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.

Recent impacts have included higher sales volumes for memorialization products and services.

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.

On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $15.2 million on fiscal 2022 sales compared to the prior year.

In the SGK Brand Solutions segment, sales for the first six months of fiscal 2022 were $300.4 million, compared to $296.4 million for the first six months of fiscal 2021.

The increase primarily resulted from higher retail-based sales (principally merchandising solutions), higher brand sales in the Asia-Pacific market, and increased sales volume for cylinder (primarily packaging) products.

These increases were partially offset by lower brand sales in the U.S.

Changes in foreign currency exchange rates had an unfavorable impact of $9.4 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

Memorialization segment sales for the first six months of fiscal 2022 were $430.7 million, compared to $388.7 million for the first six months of fiscal 2021.

The increase in sales predominantly resulted from increased unit sales of caskets and bronze and granite memorial products, primarily due to COVID-19.

The segment also 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

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

small cemetery products business.

Changes in foreign currency exchange rates had an unfavorable impact of $1.2 million on the segment's sales compared to the prior year.

Industrial Technologies segment sales were $152.5 million for the first six months of fiscal 2022, compared to $118.7 million for the first six 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), increased sales of warehouse automation solutions, and higher product identification sales.

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

Changes in foreign currency exchange rates had an unfavorable impact of $4.6 million on the segment's sales compared to the prior year.

Gross profit for the six months ended March 31, 2022 was $256.2 million, compared to $266.5 million for the same period a year ago.

Consolidated gross profit as a percent of sales was 29.0% and 33.2% for the first six months of fiscal 2022 and fiscal 2021, respectively.

The decrease in gross profit primarily reflected the impact of higher material (steel, lumber and bronze ingot), labor and transportation costs, particularly in the Memorialization segment, production inefficiencies related to onsite/remote-work transitions and unfavorable changes in sales mix within the SGK Brand Solutions segment.

Fiscal 2022 gross profit also included $9.7 million of asset write-downs related to the current war between Russia and Ukraine (see below for further details).

These decreases in gross profit were partially offset by the impact of 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.

Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $6.4 million and $10.7 million for the six months ended March 31, 2022 and 2021, respectively.

Selling and administrative expenses for the six months ended March 31, 2022 were $204.5 million, compared to $203.0 million for the first six months of fiscal 2021.

Consolidated selling and administrative expenses, as a percent of sales, were 23.1% for the six months ended March 31, 2022, compared to 25.3% 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 offset by the impacts of higher salaries and wage rates and higher travel and entertainment ("T&E") costs.

Fiscal 2022 selling and administrative expenses included $800,000 of asset write-downs related to the current war between Russia and Ukraine (see below).

Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $6.5 million in fiscal 2022, compared to $8.3 million in fiscal 2021.

Intangible amortization for the six months ended March 31, 2022 was $33.5 million, compared to $38.2 million for the six months ended March 31, 2021.

Fiscal 2022 intangible amortization included $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 related to certain trade names that have been discontinued.

Amortization for these trade names totaled $9.5 million and $16.5 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Adjusted EBITDA was $108.5 million for the six months ended March 31, 2022 and $115.7 million for the six months ended March 31, 2021.

Adjusted EBITDA for the SGK Brand Solutions segment was $28.9 million for the first six months of fiscal 2022 compared to $40.2 million for the same period a year ago.

The decrease in segment adjusted EBITDA primarily reflected the impact of production inefficiencies related to onsite/remote-work transitions, unfavorable changes in sales mix, and higher T&E costs.

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 $2.1 million on the segment's adjusted EBITDA compared to the prior year.

Memorialization segment adjusted EBITDA was $86.3 million for the first six months of fiscal 2022 compared to $95.7 million for the first six 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 $21.6 million for the six months ended March 31, 2022 compared to $11.3 million for the six months ended March 31, 2021.

Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales, improved margins for surfaces and engineered products and benefits from cost-reduction initiatives, which were partially offset by the impact of higher T&E costs.

Changes in foreign currency exchange rates had an unfavorable impact of $1.0 million on the segment's adjusted EBITDA compared to the prior year.

Investment income was $676,000 for the six months ended March 31, 2022 and $2.0 million for the six months ended March 31, 2021.

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 six months of fiscal 2022 was $12.8 million, compared to $15.0 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 six months ended March 31, 2022 represented a decrease in pre-tax income of $31.2 million, compared to a decrease in pre-tax income of $4.3 million for the same period last year.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $31.4 million and $3.8 million for the six months ended

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

March 31, 2022 and 2021, 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 first six months of fiscal 2022 were a benefit of $3.4 million, compared to an expense of $5.0 million for the first six months of fiscal 2021.

Additionally, fiscal 2022 included discrete tax expenses related to non-tax deductible asset write-downs in Russia, due to the full valuation allowance for the Russian entity.

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

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

statutory tax rate of 21.0% primarily due to the non-deductible asset write-downs in Russia, state taxes, foreign statutory rate differentials, and tax credits.

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

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

Net losses attributable to noncontrolling interests were $38,000 for the six months ended March 31, 2022 and $71,000 for the six months ended March 31, 2021.

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

Asset Write-Downs:

The Company has certain operations in Russia within its SGK Brand Solutions segment.

As a result of this assessment, and due to the uncertainty in projecting future cash flows for the Company's operations in Russia, the Company recorded asset write-downs totaling $10.5 million during the second quarter of fiscal 2022 to reduce the carrying value of these assets to zero.

Asset write-downs (primarily related to property, plant and equipment) totaling $9.7 million and $800,000 were reported within cost of sales and administrative expense, respectively, for the three and six months ended March 31, 2022.

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

NON-GAAP FINANCIAL MEASURES:

Included in this report are measures of financial performance that are not defined by GAAP.

The Company uses non-GAAP financial measures to assist in comparing its 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 including acquisition costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense.

Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results.

The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures.

The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business.

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.

Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations.

This measure may be useful to an investor in evaluating operating performance.

It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance.

Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity.

The Company's definition of adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

The reconciliation of net income to adjusted EBITDA is as follows:

Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

(Dollar amounts in thousands)

Net (loss) income $ (1,936) $ 5,152 $ (21,746) $ 3,160

Income tax provision (benefit) 3,277 972 (3,351) 4,952

Income (loss) before income taxes 1,341 6,124 (25,097) 8,112

Net loss (income) attributable to noncontrolling interests 31 (163) 38 71

Interest expense 6,260 7,233 12,767 14,961

Depreciation and amortization *

23,724 35,179 57,225 62,530

Strategic initiatives and other charges (1)**

6,750 5,093 10,573 16,285

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

1,213 1,572 1,903 2,696

Defined benefit plan termination related items (3)

Asset write-downs (4)

10,486 — 10,486 —

Stock-based compensation 5,222 4,001 8,931 7,247

Non-service pension and postretirement expense (5)

242 1,901 31,350 3,801

Total Adjusted EBITDA $ 55,190 $ 60,940 $ 108,523 $ 115,703

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 1. Financial Statements