What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 66 added, 59 removed, 119 unchanged (51% of the section changed)

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

(1) Includes certain non-recurring items associated with recent acquisition activities, costs associated with global ERP system integration efforts, certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels, and exchange losses associated with highly inflationary accounting (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements").

(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.

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(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" in Item 1 - "Financial Statements").

(4) Represents asset write-downs, net of recoveries within the SGK Brand Solutions segment (see Note 15, "Asset Write-Downs" in Item 1 - "Financial Statements").

(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.

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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 $14.1 million and $25.3 million for the SGK Brand Solutions segment, $5.8 million and $5.7 million for the Memorialization segment, $2.5 million and $2.9 million for the Industrial Technologies segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended March 31, 2022 and 2021, respectively.

Depreciation and amortization was $37.8 million and $43.1 million for the SGK Brand Solutions segment, $11.6 million and $11.2 million for the Memorialization segment, $5.2 million and $5.6 million for the Industrial Technologies segment, and $2.6 million and $2.6 million 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 $4.5 million and $2.9 million for the SGK Brand Solutions segment, charges of $516,000 and income of $335,000 for the Memorialization segment, charges of $161,000 and $126,000 for the Industrial Technologies segment, and $1.6 million and $2.4 million 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 $5.7 million and $7.6 million for the SGK Brand Solutions segment, $1.2 million and $795,000 for the Memorialization segment, $193,000 and $2.8 million for the Industrial Technologies segment, and $3.5 million and $5.1 million for Corporate and Non-Operating, for the six months ended March 31, 2022 and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $170,000 and $297,000 for the SGK Brand Solutions segment, $579,000 and $1.2 million for the Memorialization segment, $1,000 and $12,000 for the Industrial Technologies segment, and $463,000 and $23,000 for Corporate and Non-Operating, for the three months ended March 31, 2022 and 2021, respectively.

Non-recurring/incremental COVID-19 costs were $390,000 and $706,000 for the SGK Brand Solutions segment, $1.0 million and $1.9 million for the Memorialization segment, $5,000 and $30,000 for the Industrial Technologies segment, and $465,000 and $70,000 for Corporate and Non-Operating, for the six months ended March 31, 2022 and 2021, respectively.

* Depreciation and amortization was $5.8 million and $5.8 million for the Memorialization segment, $2.5 million and $2.8 million for the Industrial Technologies segment, $13.3 million and $25.4 million for the SGK Brand Solutions segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended June 30, 2022 and 2021, respectively.

Depreciation and amortization was $17.4 million and $17.0 million for the Memorialization segment, $7.6 million and $8.4 million for the Industrial Technologies segment, $51.1 million and $68.5 million for the SGK Brand Solutions segment, and $4.0 million and $4.0 million for Corporate and Non-Operating, for the nine months ended June 30, 2022 and 2021, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $902,000 and $484,000 for the Memorialization segment, $1.2 million and $881,000 for the Industrial Technologies segment, $2.0 million and $2.9 million for the SGK Brand Solutions segment, and $3.2 million and $2.9 million for Corporate and Non-Operating, for the three months ended June 30, 2022 and 2021, respectively.

Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $2.1 million and $1.3 million for the Memorialization segment, $1.4 million and $3.7 million for the Industrial Technologies segment, $7.7 million and $10.5 million for the SGK Brand Solutions segment, and $6.7 million and $8.1 million for Corporate and Non-Operating, for the nine months ended June 30, 2022 and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $225,000 and $1.3 million for the Memorialization segment, $1,000 and $6,000 for the Industrial Technologies segment, $74,000 and $638,000 for the SGK Brand Solutions segment, and $1,000 and $16,000 for Corporate and Non-Operating, for the three months ended June 30, 2022 and 2021, respectively.

Non-recurring/incremental COVID-19 costs were $1.3 million and $3.2 million for the Memorialization segment, $6,000 and $36,000 for the Industrial Technologies segment, $464,000 and $1.3 million for the SGK Brand Solutions segment, and $466,000 and $86,000 for Corporate and Non-Operating, for the nine months ended June 30, 2022 and 2021, respectively.

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $72.7 million for the first six months of fiscal 2022, compared to net cash provided by operating activities of $92.2 million for the first six months of fiscal 2021.

Net cash provided by operating activities was $84.4 million for the first nine months of fiscal 2022, compared to $106.9 million for the first nine months of fiscal 2021.

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

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

Net changes in working capital items increased operating cash flow by $18.8 million and $2.7 million in fiscal 2022 and fiscal 2021, respectively.

The fiscal 2022 change in working capital principally reflected proceeds from the sale of receivables under a receivables purchase agreement (see below for further discussion), increased fiscal year-end compensation-related payments, higher inventory levels reflecting increased commodity costs, and changes in other accounts (primarily income taxes).

Cash used in investing activities was $24.7 million for the six months ended March 31, 2022, compared to $11.9 million for the six months ended March 31, 2021.

Investing activities for the first six months of fiscal 2022 primarily reflected capital expenditures of $28.1 million and proceeds from the sale of investments of $3.1 million.

Investing activities for the first six months of fiscal 2021 reflected capital expenditures of $15.8 million, acquisitions payments (net of cash acquired) totaling $13.1 million, proceeds from the sale of investments of $15.0 million and proceeds from the sale of assets of $2.1 million.

Net changes in working capital items decreased operating cash flow by $8.4 million and $7.5 million in fiscal 2022 and fiscal 2021, respectively.

The fiscal 2022 change in working capital principally reflected proceeds from the sale of receivables under a receivables purchase agreement (see below for further discussion), offset by increased fiscal year-end compensation-related payments, higher inventory levels reflecting increased commodity costs, and changes in other accounts.

Cash used in investing activities was $38.9 million for the nine months ended June 30, 2022, compared to $22.9 million for the nine months ended June 30, 2021.

Investing activities for the first nine months of fiscal 2022 primarily reflected capital expenditures of $40.6 million, proceeds from the sale of investments of $3.1 million, and purchases of investments of $2.2 million.

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

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

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

Cash used in financing activities for the six months ended March 31, 2022 was $38.7 million, primarily reflecting repayments, net of proceeds, on long-term debt of $10.5 million, treasury stock purchases of $12.1 million, dividends of $14.0 million to the Company's shareholders, and $613,000 of holdback and deferred payments related to acquisitions from prior years.

Cash used in financing activities for the nine months ended June 30, 2022 was $43.8 million, primarily reflecting proceeds, net of repayments, on long-term debt of $13.8 million, treasury stock purchases of $34.0 million, dividends of $20.8 million to the Company's shareholders, and $613,000 of holdback and deferred payments related to acquisitions from prior years.

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

in financing activities for the six months ended March 31, 2021 was $75.5 million, primarily reflecting repayments, net of proceeds, on long-term debt of $53.9 million, treasury stock purchases of $4.5 million, dividends of $14.0 million to the Company's shareholders, and $1.6 million of holdback and deferred payments related to acquisitions from prior years.

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

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

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

Borrowings under the revolving credit facility bear interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.00% at March 31, 2022) 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 June 30, 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.

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

Unamortized costs were $1.8 million and $2.2 million at March 31, 2022 and September 30, 2021, respectively.

Unamortized costs were $1.7 million and $2.2 million at June 30, 2022 and September 30, 2021, respectively.

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

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Outstanding U.S.

dollar denominated borrowings on the revolving credit facility at March 31, 2022 and September 30, 2021 were $380.5 million and $349.8 million, respectively.

The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at March 31, 2022 and 2021 was 1.89% and 2.17%, respectively.

dollar denominated borrowings on the revolving credit facility at June 30, 2022 and September 30, 2021 were $436.3 million and $349.8 million, respectively.

The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at June 30, 2022 and 2021 was 1.92% and 1.94%, respectively.

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

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

Unamortized costs were $1.9 million and $2.2 million at March 31, 2022 and September 30, 2021, respectively.

Unamortized costs were $1.8 million and $2.2 million at June 30, 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.

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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 $121.6 million and $46.6 million for the six months ended March 31, 2022, respectively.

Gross receivables sold and cash collections reinvested under the RPA program were $247.2 million and $147.2 million for the nine months ended June 30, 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 $75.0 million, which was derecognized from the Consolidated Balance Sheets.

As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $29.3 million as of March 31, 2022.

As of June 30, 2022, the amount sold to the Purchasers was $100.0 million, which was derecognized from the Consolidated Balance Sheets.

As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $39.7 million as of June 30, 2022.

Previously, the Company had a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions that matured in March 2022.

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Outstanding borrowings under the Securitization Facility at September 30, 2021 totaled $96.0 million.

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

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

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

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

March 31, 2022 September 30, 2021

June 30, 2022 September 30, 2021

Pay fixed swaps - notional amount $ 125,000 $ 250,000

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

The fair value of the interest rate swaps reflected an unrealized gain net of unrealized losses of $5.3 million ($4.0 million after tax) at March 31, 2022 and an unrealized loss net of unrealized gains of $2.1 million ($1.6 million after tax) at September 30, 2021, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Assuming market rates remain constant with the rates at March 31, 2022, a gain (net of tax) of approximately $839,000 included in AOCI is expected to be recognized in earnings over the next twelve months.

The fair value of the interest rate swaps reflected an unrealized gain net of unrealized losses of $7.4 million ($5.6 million after tax) at June 30, 2022 and an unrealized loss net of unrealized gains of $2.1 million ($1.6 million after tax) at September 30, 2021, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Assuming market rates remain constant with the rates at June 30, 2022, a gain (net of tax) of approximately $1.6 million included in AOCI is expected to be recognized in earnings over the next twelve months.

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

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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.

March 31, 2022.

Outstanding borrowings under the credit facility totaled €7.8 million ($8.7 million) and €704,000 ($817,000) 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 March 31, 2021 .

Other borrowings totaled $58.5 million and $10.2 million at March 31, 2022 and September 30, 2021, respectively.

Other borrowings at March 31, 2022 included $37.8 million of collateralized borrowings in connection with the RPA arrangement discussed above.

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

Outstanding borrowings under the credit facility totaled €10.5 million ($11.0 million) and €704,000 ($817,000) at June 30, 2022 and September 30, 2021, respectively.

The weighted-average interest rate on outstanding borrowings under this facility was 2.25% at June 30, 2022 and June 30, 2021.

Other borrowings totaled $24.4 million and $10.2 million at June 30, 2022 and September 30, 2021, respectively.

Other borrowings at June 30, 2022 included $3.4 million of collateralized borrowings in connection with the RPA arrangement discussed above.

The weighted-average interest rate on these borrowings was 1.90% and 2.19% at June 30, 2022 and 2021, respectively.

The Company has a U.S.

Dollar/Euro cross currency swap with a notional amount of $94.5 million as of March 31, 2022, which has been designated as a net investment hedge of foreign operations.

Dollar/Euro cross currency swap with a notional amount of $94.5 million as of June 30, 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 $2.9 million (net of income taxes of $939,000) and a gain of $29,000 (net of income taxes of $10,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at March 31, 2022 and September 30, 2021, respectively.

Income of $420,000 and $785,000, which represented the recognized portion of the fair value excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for the three 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 $3.8 million and $39,000, respectively.

A gain of $8.7 million (net of income taxes of $2.8 million) and a gain of $29,000 (net of income taxes of $10,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30, 2022 and September 30, 2021, respectively.

Income of $428,000 and $1.2 million, 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 nine months ended June 30, 2022, respectively.

At June 30, 2022 and September 30, 2021, the swap, which is included in other assets in the Consolidated Balance Sheets, totaled $11.5 million and $39,000, respectively.

The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting but which have the economic impact of largely mitigating foreign currency exposure.

Changes in the fair value of these economic hedges are recorded in current period earnings as a component of other income (deductions), net.

During the third quarter of fiscal 2022, the Company entered into a three-year U.S.

Dollar/Euro cross currency swap with a notional amount of $52.8 million, which did not meet the criteria for hedge accounting.

An unrealized gain of $495,000 related to this swap was included in other assets in the Consolidated Balance Sheet at June 30, 2022.

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

The Company has a stock repurchase program.

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

Under the current authorization, 2,306,697 shares remain available for repurchase as of March 31, 2022.

Consolidated working capital of the Company was $273.7 million at March 31, 2022, compared to $269.9 million at September 30, 2021.

Cash and cash equivalents were $53.8 million at March 31, 2022, compared to $49.2 million at September 30, 2021.

The Company's current ratio was 1.8 at March 31, 2022 and September 30, 2021.

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

Under the current authorization, 1,602,166 shares remain available for repurchase as of June 30, 2022.

Consolidated working capital of the Company was $288.8 million at June 30, 2022, compared to $269.9 million at September 30, 2021.

Cash and cash equivalents were $45.8 million at June 30, 2022, compared to $49.2 million at September 30, 2021.

The Company's current ratio was 1.9 at June 30, 2022 and 1.8 at September 30, 2021.

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at March 31, 2022, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

The following table summarizes the Company's contractual obligations at June 30, 2022, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

Payments due in fiscal year:

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79,927 6,637 42,371 24,192 6,727

Acquisition (3)

44,940 44,940 — — —

Other 52,972 1,637 40,005 2,088 9,242

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

(3) During the third quarter of fiscal 2022, the Company signed an agreement to acquire German based engineering firms, OLBRICH GmbH (“OLBRICH”) and R+S Automotive GmbH (“R+S Automotive”), for €43 million.

The closing of the transaction is expected in the fourth quarter of fiscal 2022.

Benefit payments under the Company's DB Plan were made from plan assets, while benefit payments under the supplemental retirement plan ("SERP") and postretirement benefit plan are made from the Company's operating funds.

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

The settlement of the DB Plan obligations resulted in the recognition of a non-cash charge of $30.9 million, which has been presented as a component of other income (deductions), net for the six months ended March 31, 2022.

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

During the six months ended March 31, 2022 contributions of $387,000 and $340,000 were made under the SERP and postretirement benefit plan, respectively.

During the nine months ended June 30, 2022 contributions of $575,000 and $472,000 were made under the SERP and postretirement benefit plan, respectively.

The Company currently anticipates contributing an additional $185,000 and $412,000 under the SERP and postretirement benefit plan, respectively, for the remainder of fiscal 2022.

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

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

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

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

As of March 31, 2022, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.2 million.

As of June 30, 2022, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.0 million.

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

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

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

FORWARD-LOOKING INFORMATION:

The Company's current strategy to attain annual operating growth primarily consists of the following:

internal growth - which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products - and acquisitions and related integration activities to achieve strategic and synergy benefits.

The significant factors (excluding acquisitions) influencing sales growth in the SGK Brand Solutions segment are global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation.

internal growth - which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products - and investments (including acquisitions and related integration activities) to achieve strategic and synergy benefits.

The significant factors (excluding acquisitions) influencing sales growth in the Industrial Technologies segment include economic/industrial market conditions, new product development, and the e-commerce trend.

Order rates for the Company's Industrial Technologies businesses remained strong through the fiscal 2022 third quarter and, as a result, are currently expected to support the segment’s organic growth objectives for the balance of fiscal 2022 and into next year.

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

For the SGK Brand Solutions segment, sales growth will be influenced by global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation.

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

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

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

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES:

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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.

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 10%.

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.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk during the three and six months ended March 31, 2022.

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

The estimated fair value of the Company's SGK Brand Solutions reporting unit (formerly the Graphics Imaging reporting unit) exceeded the carrying value (expressed as a percentage of carrying value) by approximately 10%.

The SGK Brand Solutions reporting unit has experienced recent declines, primarily resulting from weakened economic conditions (particularly in Europe) and unfavorable changes in foreign exchange rates.

Additionally, recent increases in the cost of certain materials, labor, and other inflationary pressures have had an unfavorable impact on the reporting unit's results of operations.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis