MATTHEWS INTERNATIONAL CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Description Pages Management's Report to Shareholders 37 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 38 Report of Independent Registered Public Accounting Firm 40 Financial Statements: Consolidated Balance Sheets as of September 30, 2022 and 2021 42 Consolidated Statements of Income (Loss) for the years ended September 30, 2022, 2021 and 2020 44 Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2022, 2021 and 2020 45 Consolidated Statements of Shareholders' Equity for the years ended September 30, 2022, 2021 and 2020 46 Consolidated Statements of Cash Flows for the years ended September 30, 2022, 2021 and 2020 47 Notes to Consolidated Financial Statements 48 Financial Statement Schedule – Schedule II-Valuation and Qualifying Accounts for the years ended September 30, 2022, 2021 and 2020 79 36 MANAGEMENT'S REPORT TO SHAREHOLDERS To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Management's Report on Financial Statements The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the "Company") were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial statements. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a-15f. In order to evaluate the effectiveness of internal control over financial reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Internal controls over financial reporting is a process under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the Company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. OLBRICH GmbH (“OLBRICH”) and R+S Automotive GmbH (“R+S Automotive”) have been excluded from management's assessment of internal control over financial reporting as of September 30, 2022, because they were acquired by the Company in a purchase business combination in August 2022. Total assets and total sales for these subsidiaries represent approximately 5% and 1%, respectively, of the related consolidated financial statement amounts of the Company as of and for the year ended September 30, 2022. Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting based on criteria in Internal Control – Integrated Framework (2013) issued by the COSO, and has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2022. The effectiveness of the Company's internal control over financial reporting as of September 30, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein. Management's Certifications The certifications of the Company's Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in this Annual Report on Form 10-K. 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Opinion on Internal Control over Financial Reporting We have audited Matthews International Corporation and Subsidiaries’ internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Matthews International Corporation and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on the COSO criteria. As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting as of September 30, 2022 did not include the internal controls of OLBRICH GmbH (“OLBRICH”) and R+S Automotive GmbH (“R+S Automotive”), which are included in the 2022 consolidated financial statements of the Company and constituted 5% of total assets as of September 30, 2022 and 1% of total sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of OLBRICH and R+S Automotive. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated November 18, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 38 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania November 18, 2022 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Matthews International Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Matthews International Corporation and Subsidiaries (the Company) as of September 30, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 18, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 40 Valuation of SGK Brand Solutions Reporting Unit Goodwill Description of the Matter As more fully described in Note 22 to the consolidated financial statements, during 2022, the Company recorded an $82.5 million impairment charge attributable to its SGK Brand Solutions reporting unit within the SGK Brand Solutions segment. Weakened economic conditions (particularly in Europe), unfavorable changes in foreign exchange rates, and recent increases in the cost of certain materials, labor, and other inflation-related pressures unfavorably impacted the financial results for this reporting unit. Because of these challenging market conditions, as of September 1, 2022, the Company evaluated the goodwill attributable to this reporting unit, determining that the reporting unit’s carrying value exceeded its estimated fair value and, therefore, goodwill was impaired. Significant assumptions used in the Company’s fair value estimate included revenue growth, EBITDA contribution, market participant assumptions, and the discount rate. Auditing the goodwill impairment charge was complex, as it included estimating the fair value of the reporting unit. In particular, the fair value estimates are sensitive to the significant assumptions named above, which are affected by expected future market or economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process. These controls include management’s assessment of indicators of impairment, management's review of the assumptions utilized to develop the estimate, and management’s verification of the completeness and accuracy of the underlying data utilized to project future operating results for the reporting unit. To test the fair value of the reporting unit, our audit procedures included, among others, involving our valuation specialists to assist in assessing the valuation methodologies utilized by the Company and its valuation expert and testing the significant assumptions and underlying data used by the Company. We compared the significant assumptions used by management to current industry and economic trends, changes in the Company’s business model, and other relevant factors. We also assessed the historical accuracy of management’s estimates. We reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company and assessed the resulting control premium. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Pittsburgh, Pennsylvania November 18, 2022 41 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2022 and 2021 (Dollar amounts in thousands, except per share data) ASSETS 2022 2021 Current assets: Cash and cash equivalents $ 69,016 $ 49,176 Accounts receivable, net of allowance for doubtful accounts of $ 10,138 and $ 10,654 , respectively 221,015 309,818 Inventories 225,440 189,088 Restricted cash, current 2,398 — Other current assets 110,747 76,083 Total current assets 628,616 624,165 Restricted cash, non-current — 19,167 Investments 25,976 30,438 Property, plant and equipment, net 256,065 223,707 Operating lease right-of-use-assets 71,974 80,262 Deferred income taxes 3,610 3,489 Goodwill 675,421 773,787 Other intangible assets, net 202,154 261,542 Other assets 18,955 15,521 Total assets $ 1,882,771 $ 2,032,078 The accompanying notes are an integral part of these consolidated financial statements. 42 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, continued September 30, 2022 and 2021 (Dollar amounts in thousands, except per share data) LIABILITIES AND SHAREHOLDERS' EQUITY 2022 2021 Current liabilities: Long-term debt, current maturities $ 3,277 $ 4,624 Current portion of operating lease liabilities 22,869 25,151 Trade accounts payable 121,359 112,722 Accrued compensation 58,272 68,938 Accrued income taxes 9,277 4,235 Other current liabilities 196,321 138,555 Total current liabilities 411,375 354,225 Long-term debt 795,291 759,086 Operating lease liabilities 51,445 57,272 Accrued pension 12,437 84,803 Postretirement benefits 11,983 17,958 Deferred income taxes 92,589 97,416 Other liabilities 20,575 24,915 Total liabilities 1,395,695 1,395,675 Shareholders' equity-Matthews: Class A common stock, $ 1.00 par value; authorized 70,000,000 shares; 36,333,992 shares issued 36,334 36,334 Preferred stock, $ 100 par value, authorized 10,000 shares, none issued — — Additional paid-in capital 160,255 149,484 Retained earnings 706,749 834,208 Accumulated other comprehensive loss ( 190,191 ) ( 192,739 ) Treasury stock, 6,035,940 and 4,863,879 shares, respectively, at cost ( 225,795 ) ( 190,739 ) Total shareholders' equity-Matthews 487,352 636,548 Noncontrolling interests ( 276 ) ( 145 ) Total shareholders' equity 487,076 636,403 Total liabilities and shareholders' equity $ 1,882,771 $ 2,032,078 The accompanying notes are an integral part of these consolidated financial statements. 43 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) for the years ended September 30, 2022, 2021 and 2020 (Dollar amounts in thousands, except per share data) 2022 2021 2020 Sales $ 1,762,403 $ 1,671,030 $ 1,498,306 Cost of sales ( 1,240,125 ) ( 1,129,198 ) ( 1,000,537 ) Gross profit 522,278 541,832 497,769 Selling expense ( 128,362 ) ( 130,199 ) ( 125,117 ) Administrative expense ( 298,315 ) ( 285,366 ) ( 274,923 ) Intangible amortization ( 57,084 ) ( 84,233 ) ( 71,514 ) Goodwill write-downs ( 82,454 ) — ( 90,408 ) Operating (loss) profit ( 43,937 ) 42,034 ( 64,193 ) Investment income 1,036 2,645 1,962 Interest expense ( 27,725 ) ( 28,684 ) ( 34,885 ) Other income (deductions), net ( 33,593 ) ( 6,762 ) ( 9,221 ) (Loss) income before income taxes ( 104,219 ) 9,233 ( 106,337 ) Income tax benefit (provision) 4,391 ( 6,375 ) 18,685 Net (loss) income ( 99,828 ) 2,858 ( 87,652 ) Net loss attributable to noncontrolling interests 54 52 497 Net (loss) income attributable to Matthews shareholders $ ( 99,774 ) $ 2,910 $ ( 87,155 ) (Loss) earnings per share attributable to Matthews shareholders: Basic $ ( 3.18 ) $ 0.09 $ ( 2.79 ) Diluted $ ( 3.18 ) $ 0.09 $ ( 2.79 ) The accompanying notes are an integral part of these consolidated financial statements. 44 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the years ended September 30, 2022, 2021 and 2020 (Dollar amounts in thousands) Year Ended September 30, 2022 Matthews Noncontrolling Interest Total Net loss $ ( 99,774 ) $ ( 54 ) $ ( 99,828 ) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment ( 48,059 ) 14 ( 48,045 ) Pension plans and other postretirement benefits 41,112 — 41,112 Unrecognized gain on cash flow hedges: Net change from periodic revaluation 8,148 — 8,148 Net amount reclassified to earnings 1,347 — 1,347 Net change in unrecognized gain on cash flow hedges 9,495 — 9,495 Other comprehensive income, net of tax 2,548 14 2,562 Comprehensive loss $ ( 97,226 ) $ ( 40 ) $ ( 97,266 ) Year Ended September 30, 2021 Matthews Noncontrolling Interest Total Net income (loss) $ 2,910 $ ( 52 ) $ 2,858 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 3,370 ) ( 127 ) ( 3,497 ) Pension plans and other postretirement benefits 47,024 — 47,024 Unrecognized gain on cash flow hedges: Net change from periodic revaluation 1,873 — 1,873 Net amount reclassified to earnings 2,453 — 2,453 Net change in unrecognized gain on cash flow hedges 4,326 — 4,326 Other comprehensive income (loss), net of tax 47,980 ( 127 ) 47,853 Comprehensive income (loss) $ 50,890 $ ( 179 ) $ 50,711 Year Ended September 30, 2020 Matthews Noncontrolling Interest Total Net loss $ ( 87,155 ) $ ( 497 ) $ ( 87,652 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 4,333 ( 7 ) 4,326 Pension plans and other postretirement benefits ( 11,211 ) — ( 11,211 ) Unrecognized (loss) gain on cash flow hedges: Net change from periodic revaluation ( 6,130 ) — ( 6,130 ) Net amount reclassified to earnings 650 — 650 Net change in unrecognized loss on cash flow hedges ( 5,480 ) — ( 5,480 ) Other comprehensive loss, net of tax ( 12,358 ) ( 7 ) ( 12,365 ) Comprehensive loss $ ( 99,513 ) $ ( 504 ) $ ( 100,017 ) The accompanying notes are an integral part of these consolidated financial statements. 45 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended September 30, 2022, 2021 and 2020 (Dollar amounts in thousands, except per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income (net of tax) Treasury Stock Non- controlling Interests Total Balance, September 30, 2019 $ 36,334 $ 137,774 $ 972,594 $ ( 228,361 ) $ ( 200,235 ) $ 1,130 $ 719,236 Net loss — — ( 87,155 ) — — ( 497 ) ( 87,652 ) Pension plans and other postretirement benefits — — — ( 11,211 ) — — ( 11,211 ) Translation adjustment — — — 4,333 — ( 7 ) 4,326 Fair value of cash flow hedges — — — ( 5,480 ) — — ( 5,480 ) Total comprehensive loss ( 100,017 ) Stock-based compensation — 8,096 — — — — 8,096 Purchase of 173,576 shares of treasury stock — — — — ( 4,428 ) — ( 4,428 ) Issuance of 12,125 shares of treasury stock — ( 486 ) — — 486 — — Cancellation of 23,461 shares of treasury stock — 1,527 — — ( 1,527 ) — — Dividends — — ( 26,437 ) — — — ( 26,437 ) Pension contribution of 668,000 shares of treasury stock — ( 11,724 ) — — 26,707 — 14,983 Balance, September 30, 2020 $ 36,334 $ 135,187 $ 859,002 $ ( 240,719 ) $ ( 178,997 ) $ 626 $ 611,433 Net income (loss) — — 2,910 — — ( 52 ) 2,858 Pension plans and other postretirement benefits — — — 47,024 — — 47,024 Translation adjustment — — — ( 3,370 ) — ( 127 ) ( 3,497 ) Fair value of cash flow hedges — — — 4,326 — — 4,326 Total comprehensive income 50,711 Stock-based compensation — 15,581 — — — — 15,581 Purchase of 380,109 shares of treasury stock — — — — ( 11,858 ) — ( 11,858 ) Issuance of 53,377 shares of treasury stock — ( 2,097 ) — — 2,097 — — Cancellation of 34,727 shares of treasury stock — 1,981 — — ( 1,981 ) — — Dividends — — ( 27,704 ) — — — ( 27,704 ) Transactions with noncontrolling interests — ( 1,168 ) — — — ( 592 ) ( 1,760 ) Balance, September 30, 2021 $ 36,334 $ 149,484 $ 834,208 $ ( 192,739 ) $ ( 190,739 ) $ ( 145 ) $ 636,403 Net loss — — ( 99,774 ) — — ( 54 ) ( 99,828 ) Pension plans and other postretirement benefits — — — 41,112 — — 41,112 Translation adjustment — — — ( 48,059 ) — 14 ( 48,045 ) Fair value of cash flow hedges — — — 9,495 — — 9,495 Total comprehensive loss ( 97,266 ) Stock-based compensation — 17,432 — — — — 17,432 Purchase of 1,363,785 shares of treasury stock — — — — ( 41,717 ) — ( 41,717 ) Issuance of 223,033 shares of treasury stock — ( 8,767 ) — — 8,767 — — Cancellation of 31,309 shares of treasury stock — 2,106 — — ( 2,106 ) — — Dividends — — ( 27,685 ) — — — ( 27,685 ) Divestiture — — — — — ( 91 ) ( 91 ) Balance, September 30, 2022 $ 36,334 $ 160,255 $ 706,749 $ ( 190,191 ) $ ( 225,795 ) $ ( 276 ) $ 487,076 The accompanying notes are an integral part of these consolidated financial statements. 46 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 2022, 2021 and 2020 (Dollar amounts in thousands) 2022 2021 2020 Cash flows from operating activities: Net (loss) income $ ( 99,828 ) $ 2,858 $ ( 87,652 ) Adjustments to reconcile net (loss) income to net cash flows from operating activities: Depreciation and amortization 104,056 133,512 119,058 Stock-based compensation expense 17,432 15,581 8,096 Deferred tax (benefit) provision ( 32,962 ) 4,158 ( 16,607 ) Gain on sale of assets, net ( 3,194 ) ( 412 ) ( 348 ) Gain on sale of ownership interests in subsidiaries ( 196 ) — ( 11,208 ) Losses from equity-method investments — — 3,498 Other investment losses (gains) 14 ( 1,364 ) ( 2,066 ) Pension settlement loss 30,856 — — Asset write-downs 10,050 — — Goodwill write-downs 82,454 — 90,408 Changes in working capital items 29,590 12,982 46,367 Decrease in other assets 20,093 15,115 16,392 (Decrease) increase in other liabilities ( 45,405 ) ( 16,346 ) 4,886 Other operating activities, net 13,900 ( 3,273 ) 9,623 Net cash provided by operating activities 126,860 162,811 180,447 Cash flows from investing activities: Capital expenditures ( 61,321 ) ( 34,313 ) ( 34,849 ) Acquisitions, net of cash acquired ( 44,469 ) ( 15,623 ) ( 1,000 ) Purchases of investments ( 2,198 ) — ( 9,703 ) Proceeds from sale of assets 4,955 2,776 624 Proceeds from sale of ownership interests in subsidiaries 344 — 42,210 Proceeds from sale of investments 8,771 34,167 — Proceeds from the settlement of net investment hedges 13,066 — — Net cash used in investing activities ( 80,852 ) ( 12,993 ) ( 2,718 ) Cash flows from financing activities: Proceeds from long-term debt 777,809 625,628 1,154,809 Payments on long-term debt ( 742,121 ) ( 702,395 ) ( 1,281,092 ) Purchases of treasury stock ( 41,717 ) ( 11,858 ) ( 4,428 ) Dividends ( 27,685 ) ( 27,704 ) ( 26,437 ) Acquisition holdback and contingent consideration payments ( 725 ) ( 1,781 ) ( 10,215 ) Transactions with noncontrolling interests — ( 1,760 ) — Other financing activities ( 2,774 ) ( 2,982 ) ( 4,889 ) Net cash used in financing activities ( 37,213 ) ( 122,852 ) ( 172,252 ) Effect of exchange rate changes on cash ( 5,724 ) 43 555 Net change in cash, cash equivalents and restricted cash 3,071 27,009 6,032 Cash, cash equivalents and restricted cash at beginning of year 68,343 41,334 35,302 Cash, cash equivalents and restricted cash at end of year $ 71,414 $ 68,343 $ 41,334 Cash paid during the year for: Interest $ 27,411 $ 28,824 $ 35,269 Income taxes 13,647 9,166 20,734 Non-cash investing and financing activities: Contribution of treasury stock to the Company's principal defined benefit retirement plan ("DB Plan") $ — $ — $ 14,983 The accompanying notes are an integral part of these consolidated financial statements. 47 MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) 1. NATURE OF OPERATIONS: Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of memorialization products, industrial technologies and brand solutions. The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand Solutions. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022. Prior periods were revised to reflect retrospective application of this segment realignment. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial technologies includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions, product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. Brand solutions consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Company has facilities in North America, Europe, Asia, Australia, and Central and South America. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: 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. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost-method investments. All intercompany accounts and transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications are not material to the prior year presentation. Cash, Cash Equivalents and Restricted Cash: The Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. Restricted cash represents amounts held for specific purposes, which are not available for general business use. The carrying amount of cash, cash equivalents and restricted cash approximates fair value due to the short-term maturities of these instruments. Trade Receivables and Allowance for Doubtful Accounts: Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days past due. The allowance for doubtful accounts is based on an evaluation of historical collection experience, the aging of 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) accounts receivable, and economic trends and forecasts, and also reflects adjustments for specific customer accounts for which available facts and circumstances indicate collectability may be uncertain. Inventories: Inventories are stated at the lower of cost or net realizable value with cost generally determined under the average cost method. Inventory costs include material, labor, and applicable manufacturing overhead (including depreciation) and other direct costs. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Property, Plant and Equipment: Property, plant and equipment are carried at cost. Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment. Gains or losses from the disposition of assets are reflected in operating profit. The cost of maintenance and repairs is charged to expense as incurred. Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during the years presented, except as disclosed in Note 23, “Asset Write-Downs." Leases: A lease exists at contract inception if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset. If a contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use ("ROU") asset. As a majority of the Company’s leases do not provide an implicit interest rate within the lease, an incremental borrowing rate is used to determine the ROU asset and lease liability which is based on information available at the commencement date. Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain an option will be exercised. Renewal options are most prevalent in the Company’s real estate leases. In general, the Company has not included renewal options for leases in the ROU asset and lease liability because the likelihood of renewal is not considered to be reasonably certain. In addition, leases may include variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense. The Company applies the practical expedient to not separate lease components from non-lease components for all asset classes. In addition, the Company applies the practical expedient to utilize a portfolio approach for certain equipment asset classes, primarily information technology, as the application of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases within the portfolio. There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. Leases not meeting the finance lease criteria are classified as operating leases. ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. ROU assets for operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance Sheet. For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the Consolidated Balance Sheet. Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Goodwill and Other Intangible Assets: Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from 2 to 15 years, and are reviewed when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may exist. In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets. For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including discounted cash flows and other market indicators. For purposes of testing indefinite-lived intangible assets, the Company generally uses a relief from royalty method. Pension and Other Postretirement Plans: Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost. Differences between actual and expected results or changes in the value of the obligations and plan assets are initially recognized through other comprehensive income and subsequently amortized to the Consolidated Statement of Income. Environmental: Costs that mitigate or prevent future environmental issues or extend the life or improve equipment utilized in current operations are capitalized and depreciated on a straight-line basis over the estimated useful lives of the related assets. Costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company's obligation is probable and reasonably estimable. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. Derivatives and Hedging: Derivatives are generally held as part of a formal documented hedging program. All derivatives are held for purposes other than trading. Matthews measures effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or future cash flows of the hedged item. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains and losses on the derivative will be recorded in other income (deductions) at that time. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) ("OCI"), net of tax, and are reclassified to earnings in a manner consistent with the underlying hedged item. The cash flows from hedging activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item. Foreign Currency: The functional currency of the Company's foreign subsidiaries is generally the local currency. Balance sheet accounts for foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date. Gains or losses that result from this process are recorded in accumulated other comprehensive income (loss). The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Realized gains and losses from foreign currency transactions are presented in the Statement of Income in a consistent manner with the underlying transaction based upon the provisions of Accounting Standards Codification ("ASC") 830 "Foreign Currency Matters." The Company applies highly inflationary accounting for subsidiaries when the cumulative inflation rate for a three-year period meets or exceeds 100 percent. Under highly inflationary accounting, the financial statements of these subsidiaries are remeasured into the Company's reporting currency (U.S. dollar) and exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than accumulated other comprehensive loss on the Consolidated Balance Sheets , until such time as the applicable economy is no longer considered highly inflationary. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Effective April 1, 2022, the Company applies highly inflationary accounting to its Turkish subsidiaries. As of September 30, 2022, the Company had net monetary assets related to its Turkish subsidiaries of $ 5,022 . Exchange losses related to highly inflationary accounting totaled $ 1,473 in fiscal 2022 and were included in the Consolidated Statements of Income within other income (deductions), net. Comprehensive Income (Loss): Comprehensive income (loss) consists of net income adjusted for changes, net of any related income tax effect, in cumulative foreign currency translation, the fair value of cash flow hedges, unrealized investment gains and losses and remeasurement of pension and other postretirement liabilities. Treasury Stock: Treasury stock is carried at cost. The cost of treasury shares sold is determined under the average cost method. Revenue Recognition: Revenue is recognized when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. For substantially all transactions, control passes in accordance with agreed upon delivery terms, including in certain circumstances, customer acceptance. Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the stand alone selling price for goods and services, as well as warranties. Transaction price also reflects estimates of rebates, other sales or contract renewal incentives, cash discounts and sales returns ("Variable Consideration"). Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied. Each product or service delivered to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. Certain revenue related to mausoleum construction and significant engineering projects, including purpose-built engineered products (primarily in support of the electric vehicle and energy storage solutions industries), cremation and incineration projects, and product identification and warehouse automation projects, are recognized over time using the input method measuring progress toward completion of such projects. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates. Refer to Note 4, “Revenue Recognition,” for a further discussion. Shipping and Handling Fees and Costs: All fees billed to the customer for shipping and handling are classified as a component of net revenues. All costs associated with shipping and handling are classified as a component of cost of sales or selling expense. Research and Development Expenses: Research and development costs are expensed as incurred and were approximately $ 15,536 , $ 13,206 and $ 13,363 for the years ended September 30, 2022, 2021 and 2020, respectively. Stock-Based Compensation: Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. Income Taxes: Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are exempt from tax, and such earnings are considered to be reinvested indefinitely in foreign operations. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Earnings Per Share: Basic earnings per share is computed by dividing net income by the average number of common shares outstanding. Diluted earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive securities. 3. ACCOUNTING PRONOUNCEMENTS: Issued In October 2021, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805) which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract asset/liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU is effective for the Company beginning in interim periods starting in fiscal 2024. While the impact of this ASU is dependent on the nature of any future transactions, the Company currently does not expect this ASU to have a significant impact on its consolidated financial statements. Adopted In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which simplifies the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 and also simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted this ASU in the quarter ended March 31, 2020. The adoption of this ASU had no significant impact on the Company's consolidated financial statements, but modifies the methodology to assess certain tax principles in Topic 740 prospectively. In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) , which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The adoption of this ASU in the first quarter ended December 31, 2020 had no material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements including the consideration of costs and benefits. The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) , which provides new guidance intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The adoption of this ASU in the first quarter ended December 31, 2019 had no impact on the Company's consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) , which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date. Subsequently, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) , that provide certain amendments to the new guidance. The adoption of these ASUs in the first quarter ended December 31, 2020 had no material impact on the Company's consolidated financial statements. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 3. ACCOUNTING PRONOUNCEMENTS, (continued) The following table summarizes the activity for the accounts receivable allowance for doubtful accounts for the years ended September 30, 2022 and 2021. Description Balance at Beginning of Period Charged to Expense Deductions (1) Balance at End of Period Allowance for Doubtful Accounts: Fiscal Year Ended: September 30, 2022 $ 10,654 $ 1,368 $ ( 1,884 ) $ 10,138 September 30, 2021 9,618 2,182 ( 1,146 ) 10,654 (1) Amounts determined not to be collectible (including direct write-offs), net of recoveries. 4. REVENUE RECOGNITION: The Company delivers a variety of products and services through its business segments. The Memorialization segment produces and delivers bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment designs, manufactures, services and distributes high-tech custom energy storage solutions, product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The 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 years ended September 30, 2022, 2021 and 2020 were as follows: North America Central and South America Europe Australia Asia Consolidated Memorialization: 2022 $ 788,791 $ — $ 41,184 $ 10,149 $ — $ 840,124 2021 710,926 — 47,858 10,232 — 769,016 2020 611,496 — 35,557 8,982 — 656,035 Industrial Technologies: 2022 $ 155,977 $ — $ 172,985 $ — $ 6,561 $ 335,523 2021 142,516 — 135,612 — 6,367 284,495 2020 120,682 — 104,773 — 2,998 228,453 SGK Brand Solutions: 2022 $ 285,499 $ 4,729 $ 230,437 $ 11,057 $ 55,034 $ 586,756 2021 287,954 5,036 262,804 13,336 48,389 617,519 2020 305,527 6,304 247,501 12,097 42,389 613,818 Consolidated: 2022 $ 1,230,267 $ 4,729 $ 444,606 $ 21,206 $ 61,595 $ 1,762,403 2021 1,141,396 5,036 446,274 23,568 54,756 1,671,030 2020 1,037,705 6,304 387,831 21,079 45,387 1,498,306 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 4. REVENUE RECOGNITION, (continued): Revenue from products or services provided to customers over time accounted for approximately 12 %, 11 %, and less than 5 % of revenue for the years ended September 30, 2022, 2021, and 2020, respectively. As of September 30, 2022 and 2021, the Company had contract assets of $ 48,210 and $ 23,998 , respectively, that were recorded in other current assets within the Consolidated Balance Sheets. As of September 30, 2022 and 2021, the Company had contract liabilities of $ 31,871 and $ 19,752 , respectively, that were recorded in other current liabilities within the Consolidated Balance Sheets. The increase in contract assets and contract liabilities in fiscal 2022 reflects the acquisition of OLBRICH and R+S Automotive. 5. FAIR VALUE MEASUREMENTS: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below: Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. As of September 30, 2022 and 2021, the fair values of the Company's assets and liabilities measured on a recurring basis were categorized as follows: September 30, 2022 Level 1 Level 2 Level 3 Total Assets: Derivatives (1) $ — $ 14,421 $ — $ 14,421 Equity and fixed income mutual funds — — — — Life insurance policies — 4,439 — 4,439 Total assets at fair value $ — $ 18,860 $ — $ 18,860 September 30, 2021 Level 1 Level 2 Level 3 Total Assets: Derivatives (1) $ — $ 209 $ — $ 209 Equity and fixed income mutual funds — 6,936 — 6,936 Life insurance policies — 4,626 — 4,626 Total assets at fair value $ — $ 11,771 $ — $ 11,771 Liabilities: Derivatives (1) $ — $ 2,232 $ — $ 2,232 Total liabilities at fair value $ — $ 2,232 $ — $ 2,232 (1) Interest rate swaps and cross currency swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. The carrying values for other financial assets and liabilities approximated fair value for the years ended September 30, 2022 and 2021. 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 6. INVENTORIES: Inventories at September 30, 2022 and 2021 consisted of the following: 2022 2021 Raw materials $ 52,586 $ 37,673 Work in process 94,804 75,997 Finished goods 78,050 75,418 $ 225,440 $ 189,088 7. INVESTMENTS: At September 30, 2022 and 2021, non-current investments were as follows: 2022 2021 Equity and fixed income mutual funds $ — $ 6,936 Life insurance policies 4,439 4,626 Equity-method investments 2,729 458 Other (primarily cost-method) investments 18,808 18,418 $ 25,976 $ 30,438 Equity and fixed income mutual funds at September 30, 2021 represented investments held in trust for the Company's non-qualified Supplemental Retirement Plan ("SERP") and were classified as trading securities and recorded at fair value. During fiscal 2022, the Company sold these investments in anticipation of the planned settlement of the SERP obligations in fiscal 2023. Realized and unrealized gains and losses are recorded in investment income. 8. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment and the related accumulated depreciation at September 30, 2022 and 2021 were as follows: 2022 2021 Buildings $ 137,827 $ 109,912 Machinery, equipment and other 477,004 485,691 614,831 595,603 Less accumulated depreciation ( 404,548 ) ( 400,281 ) 210,283 195,322 Land 20,209 16,619 Construction in progress 25,573 11,766 $ 256,065 $ 223,707 Depreciation expense, including amortization of assets under finance lease, was $ 46,972 , $ 49,279 and $ 47,544 for each of the three years ended September 30, 2022, 2021 and 2020, respectively. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. DEBT AND FINANCING ARRANGEMENTS: Long-term debt at September 30, 2022 and 2021 consisted of the following: 2022 2021 Revolving credit facilities $ 480,107 $ 350,597 Securitization facility — 95,990 2025 Senior Notes (1) 297,961 297,796 Other borrowings 13,434 10,150 Finance lease obligations 7,066 9,177 Total debt 798,568 763,710 Less current maturities ( 3,277 ) ( 4,624 ) Long-term debt $ 795,291 $ 759,086 (1) During fiscal 2022, the Company extinguished a small portion of the 2025 Senior Notes. The Company has a domestic credit facility with a syndicate of financial institutions that includes a $ 750,000 senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $ 350,000 ) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75 % to 2.00 % ( 1.25 % at September 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. The Company is required to pay an annual commitment fee ranging from 0.15 % to 0.30 % (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $ 1,522 and $ 2,182 at September 30, 2022 and September 30, 2021, respectively. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $ 55,000 ) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2022 and 2021 were $ 472,057 and $ 349,780 , 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 September 30, 2022 and 2021 was 3.13 % and 2.03 %, respectively. The Company has $ 299,625 of 5.25 % senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25 % per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $ 1,664 and $ 2,204 at September 30, 2022 and 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 $ 424,789 and $ 328,199 for the year ended September 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 September 30, 2022, the amount sold to the Purchasers was $ 96,590 , which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $ 44,262 as of September 30, 2022. 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. DEBT AND FINANCING ARRANGEMENTS, (continued) Previously, the Company had a $ 115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which 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 September 30, 2021, the interest rate on borrowings under this facility was 0.83 %. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowings available under this facility is € 25.0 million ($ 24,499 ), which includes € 8.0 million ($ 7,840 ) for bank guarantees. The credit facility matures in December 2022 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled € 8.2 million ($ 8,050 ) and € 0.7 million ($ 817 ) at September 30, 2022 and 2021, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 2.25 % at September 30, 2022 and 2021. Other borrowings totaled $ 13,434 and $ 10,150 at September 30, 2022 and 2021, respectively. The weighted-average interest rate on these borrowings was 1.85 % and 2.19 % at September 30, 2022 and 2021, respectively. In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £ 8,570,000 ($ 9,544 at September 30, 2022) with respect to a performance guarantee on an incineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.K. Court ruled completely in favor of Matthews following a trial on the merits. However, the dispute involved litigation in multiple foreign jurisdictions because the contract between the parties included a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment was required to be executed in Saudi Arabia. Thus, the Company pursued a trial on the merits in Saudi Arabia. On November 9, 2020, the judge in the Commercial Court of Saudi Arabia issued a final judgment against the customer in the amount of £ 10,450,000 (representing the full claim amount plus interest) in favor of Matthews and the customer did not appeal the ruling by the Commercial Court. As result, the judgment is now final and enforceable in Saudi Arabia. The Company is assessing options to enforce and collect upon the judgment and its level of success in recovering funds from the customer will depend upon several factors, including the availability of recoverable funds, and the level of support of the Saudi Arabian government to enforce the judgment against the customer. During fiscal 2020 and fiscal 2021, the Saudi Arabian government enforced restrictions on travel to Mecca due to the coronavirus disease 2019 ("COVID-19") pandemic. As a result, the Company was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the prior two (2) Hajj Pilgrimages. Consequently, the Company continues to have concerns regarding the level of anticipated support from the government in its collection efforts. As a result of these concerns and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of June 30, 2020, and has made no adjustments to the reserve since that time. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve. As of September 30, 2022 and 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 September 30, 2022 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 9. DEBT AND FINANCING ARRANGEMENTS, (continued) Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows: 2023 $ 9,043 (a) 2024 1,037 2025 473,091 2026 299,015 2027 1,101 Thereafter 8,215 791,502 Finance lease obligations 7,066 (b) $ 798,568 (a) The Company maintains certain debt facilities with current maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $ 8,050 . These balances have been classified as non-current on the Company's Consolidated Balance Sheet. (b) Aggregate maturities of finance lease obligations can be found in Note 10, "Leases." 10. LEASES: The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment. The following table presents the balance sheet and lease classification for the Company's lease portfolio as of September 30, 2022 and 2021, respectively: Balance Sheet Classification Lease Classification 2022 2021 Non-current assets: Property, plant and equipment, net Finance $ 10,727 $ 12,337 Other assets Operating 71,974 80,262 Total lease assets $ 82,701 $ 92,599 Current liabilities: Long-term debt, current maturities Finance $ 2,284 $ 3,674 Other current liabilities Operating 22,869 25,151 Non-current liabilities: Long-term debt Finance 4,782 5,503 Other liabilities Operating 51,445 57,272 Total lease liabilities $ 81,380 $ 91,600 The following table presents the components of lease cost for the years ended September 30, 2022, 2021 and 2020, respectively: 2022 2021 2020 Finance lease cost: Amortization of ROU assets $ 3,816 $ 4,016 $ 2,112 Interest on lease liabilities 205 248 206 Operating lease cost 21,675 21,716 23,735 Variable lease cost 10,486 6,752 5,298 Sublease income ( 279 ) ( 83 ) ( 732 ) Total lease cost $ 35,903 $ 32,649 $ 30,619 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 10. LEASES, (continued) Supplemental information regarding the Company's leases follows: For the Year Ended September 30, 2022 2021 2020 Cash paid for finance and operating lease liabilities: Operating cash flows from finance leases $ 211 $ 255 $ 207 Operating cash flows from operating leases 27,648 28,246 29,309 Financing cash flows from finance leases 3,691 4,134 2,064 ROU assets obtained in exchange for new finance lease liabilities 1,516 3,687 2,613 ROU assets obtained in exchange for new operating lease liabilities 10,365 16,341 12,442 September 30, 2022 2021 2020 Weighted-average remaining lease term - finance leases (years) 4.28 3.85 4.39 Weighted-average remaining lease term - operating leases (years) 3.62 3.82 3.52 Weighted-discount rate - finance leases 3.08 % 2.70 % 2.89 % Weighted-discount rate - operating leases 2.45 % 2.28 % 2.82 % Maturities of lease obligations by fiscal year were as follows as of September 30, 2022: Operating Leases Finance Leases 2023 $ 24,378 $ 2,499 2024 19,973 1,552 2025 14,755 899 2026 11,023 799 2027 4,538 711 Thereafter 3,311 1,262 Total future minimum lease payments 77,978 7,722 Less: Interest 3,664 656 Present value of lease liabilities: $ 74,314 $ 7,066 11. DERIVATIVES AND HEDGING ACTIVITIES: The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. At September 30, 2022 and 2021, derivative instruments were reflected on a gross-basis in the consolidated balance sheets as follows: Derivatives: September 30, 2022 September 30, 2021 Interest Rate Swaps Cross-Currency Swaps Interest Rate Swaps Cross-Currency Swaps Current assets: Other current assets $ 3,358 $ — $ 31 $ — Long-term assets: Other assets 7,341 3,722 139 39 Current liabilities: Other current liabilities — — ( 1,922 ) — Long-term liabilities: Other liabilities — — ( 310 ) — Total derivatives $ 10,699 $ 3,722 $ ( 2,062 ) $ 39 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 11. DERIVATIVES AND HEDGING ACTIVITIES, (continued) The following table presents information related to interest rate swaps entered into by the Company and designated as cash flow hedges: September 30, 2022 September 30, 2021 Notional amount $ 125,000 $ 250,000 Weighted-average maturity period (years) 3.1 2.2 Weighted-average received rate 3.14 % 0.08 % Weighted-average pay rate 1.04 % 1.34 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective. The fair value of the interest rate swaps reflected a net unrealized gain of $ 10,699 ($ 7,937 after tax) and a net unrealized loss of $ 2,062 ($ 1,558 after tax) at September 30, 2022 and 2021, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Assuming market rates remain constant with the rates at September 30, 2022, a gain (net of tax) of approximately $ 2,510 included in AOCI is expected to be recognized in earnings over the next twelve months. During fiscal 2021, the Company entered into a U.S. Dollar/Euro cross currency swap with a notional amount of $ 94,464 , which was designated as a net investment hedge of foreign operations. The swap was settled during fiscal 2022, resulting in cash proceeds of $ 13,066 . Concurrently, the Company entered into a new U.S. Dollar/Euro cross currency swap with a notional amount of $ 81,392 , which was also designated as a net investment hedge of foreign operations. The new swap contract matures in September 2027. The Company assesses hedge effectiveness for the swap contracts based on changes in fair value attributable to changes in spot prices. A gain of $ 2,782 (net of income taxes of $ 940 ) 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 September 30, 2022 and September 30, 2021, respectively. Income of $ 1,645 and $ 63 , which represented the recognized portion of the fair value excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for fiscal 2022 and fiscal 2021, respectively. At September 30, 2022 and September 30, 2021, the swaps totaled $ 3,722 and $ 39 , respectively, and were included in other assets in the Consolidated Balance Sheets. The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $ 5,370 (net of income taxes of $ 1,743 ), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2021. 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 fiscal 2022, net gains from economic hedges (which largely offset losses from underlying foreign currency exposures) totaled $ 4,677 . No such economic hedge contracts were outstanding as of September 30, 2022 or 2021. Refer to Note 16, "Accumulated Other Comprehensive Income" for further details regarding amounts recorded in AOCI and the Consolidated Statements of Income (Loss) related to derivatives. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 12. SHAREHOLDERS' EQUITY: The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $ 1.00 par value. The Company has a stock repurchase program. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation. Under the current authorization, 1,294,842 shares remain available for repurchase as of September 30, 2022. 13. SHARE-BASED PAYMENTS: The Company maintains an equity incentive plan (as amended and restated, 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 from the date the Company's Board of Directors approved of the 2017 Equity Incentive Plan, the maximum number of shares available for grants or awards is an aggregate of 3,450,000 (subject to adjustment upon certain events such as stock dividends or stock splits), following the amendment and restatement of the 2017 Equity Incentive Plan at the Company's 2022 Annual Shareholder Meeting. At September 30, 2022, 215,618 shares have been issued under the 2017 Equity Incentive Plan. 790,515 time-based restricted share units, 946,212 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan. 1,498,212 of these share-based awards are outstanding as of September 30, 2022. The 2017 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors (the "Committee"). 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 years ended September 30, 2022, 2021 and 2020, stock-based compensation cost totaled $ 17,432 , $ 15,581 and $ 8,096 , respectively. The associated future income tax benefit recognized was $ 3,821 , $ 3,247 and $ 1,665 for the years ended September 30, 2022, 2021 and 2020, respectively. With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares. With respect to the restricted share unit grants, units generally vest on the third anniversary of the grant date. The number of units that vest depend on certain time and performance thresholds. Such performance thresholds include adjusted earnings per share, return on invested capital, appreciation in the market value of the Company's Class A Common Stock, or other targets established by the Committee. Approximately 42 % of the outstanding share units vest based on time, while the remaining vest based on pre-defined performance thresholds. The Company issues common stock from treasury shares once vested. The transactions for restricted shares and restricted share units for the year ended September 30, 2022 were as follows: Shares Weighted- average Grant-date Fair Value Non-vested at September 30, 2021 1,083,365 $ 34.07 Granted 671,817 37.86 Vested ( 167,031 ) 41.76 Expired or forfeited ( 128,918 ) 47.11 Non-vested at September 30, 2022 1,459,233 $ 33.78 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 13. SHARE-BASED PAYMENTS, (continued) During fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan. The option price for each stock option granted was $ 41.70 , which was equal to the fair market value of the Company's Class A Common Stock on the date of grant. These options vest in one-third increments annually over three years from the grant date. Unvested stock options expire on the earlier of five years from the date of grant, or upon employment termination, retirement or death. The Company generally settles employee stock option exercises with treasury shares. As of September 30, 2022, the total unrecognized compensation cost related to all unvested stock-based awards was $ 21,753 which is expected to be recognized over a weighted-average period of 2.2 years. The fair value of certain restricted share units that are subject to performance conditions and the fair value of stock options are estimated on the date of grant using a binomial lattice valuation model. The following table indicates the assumptions used in estimating the fair value of certain stock-based awards granted during the year ended September 30, 2021. Restricted Share Units Stock Options Expected volatility 42.9 % 41.9 % Dividend yield 3.2 % 3.1 % Average risk-free interest rate 0.2 % 0.5 % Average expected term (years) 3.0 5.0 The risk-free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date. Expected volatilities are based on the historical volatility of the Company's stock price. The expected term for grants in the year ended September 30, 2021 represents an estimate of the average period of time for restricted share units and stock options to vest. The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans"). There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan. In November 2022, the Board of Directors approved the Amended and Restated 2019 Director Fee Plan, which increases the maximum number of shares available for grants or awards to an aggregate of 300,000 . The Amended and Restated 2019 Director Fee Plan is subject to shareholder approval at the February 2023 Annual Shareholder Meeting. Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2022, either cash or shares of the Company's Class A Common Stock with a value equal to $ 90 . The annual retainer fee for fiscal 2022 paid to a non-employee Chairman of the Board is $ 210 . Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits). The value of deferred shares is recorded in other liabilities. A total of 45,475 shares and share units had been deferred under the Director Fee Plans at September 30, 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 September 30, 2022, 305,911 restricted shares and restricted share units have been granted under the Director Fee Plans, 132,682 of which were issued under the 2019 Director Fee Plan. 58,008 restricted shares and restricted share units are unvested at September 30, 2022. 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 14. EARNINGS PER SHARE: The information used to compute (loss) earnings per share attributable to Matthews' common shareholders was as follows: 2022 2021 2020 Net (loss) income attributable to Matthews shareholders $ ( 99,774 ) $ 2,910 $ ( 87,155 ) Weighted-average shares outstanding (in thousands): Basic shares 31,367 31,696 31,190 Effect of dilutive securities — 291 — Diluted shares 31,367 31,987 31,190 Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal year ended September 30, 2021. During periods in which the Company incurs a net loss, diluted weighted-average shares outstanding are equal to basic weighted-average shares outstanding because the effect of all equity awards is anti-dilutive. 15. PENSION AND OTHER POSTRETIREMENT PLANS: The Company provides defined benefit pension and other postretirement plans to certain employees. Effective January 1, 2014, the Company's DB Plan was closed to new participants. As of September 30, 2022, all of the Company's defined benefit plans are unfunded. In April 2021, the Committee approved resolutions to freeze all future benefit accruals for all participants in the Company's SERP and the defined benefit portion of the Officers Retirement Restoration Plan (“ORRP”), effective April 30, 2021. In August 2021, the Committee approved the termination of the SERP and the defined benefit portion of the ORRP. In September 2021, the Company notified SERP and ORRP participants of its intention to fully settle the obligations of the SERP and ORRP in early fiscal 2023. In August 2021, the Company's Board of Directors approved the freeze of all future benefit accruals for the Company's DB Plan, effective September 30, 2021, and the planned termination of the DB Plan in early fiscal 2022. At such time, the Company notified all plan participants of the Company's intentions to terminate and fully settle the obligations of the DB Plan early in fiscal 2022. The freezing of the DB Plan, SERP, and ORRP triggered curtailments, which resulted in the remeasurement of the projected benefit obligations and the immediate recognition of prior service costs in earnings in fiscal 2021, which were previously included within AOCI. 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 year ended September 30, 2022. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan. 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 2022 and 2021: Pension Other Postretirement 2022 2021 2022 2021 Change in benefit obligation: Benefit obligation, beginning of year $ 293,926 $ 318,887 $ 18,841 $ 19,431 Acquisitions (1) 9,829 — — — Service cost 392 7,919 165 201 Interest cost 1,127 6,145 411 376 Actuarial gain ( 19,978 ) ( 8,045 ) ( 5,989 ) ( 660 ) Curtailment gain — ( 17,324 ) — — Special termination benefits — 315 — — Settlement ( 242,232 ) — — — Exchange gain ( 3,093 ) ( 133 ) — — Benefit payments ( 3,362 ) ( 13,838 ) ( 615 ) ( 507 ) Benefit obligation, end of year (2) 36,609 293,926 12,813 18,841 Change in plan assets: Fair value, beginning of year 208,344 168,134 — — Actual return 368 37,789 — — Benefit payments ( 3,362 ) ( 13,838 ) ( 615 ) ( 507 ) Employer contributions 36,882 16,259 615 507 Settlement ( 242,232 ) — — — Fair value, end of year — 208,344 — — Funded status ( 36,609 ) ( 85,582 ) ( 12,813 ) ( 18,841 ) Unrecognized actuarial loss (gain) 5,140 49,545 ( 5,973 ) 16 Unrecognized prior service (credit) cost ( 4,815 ) ( 309 ) ( 1,320 ) ( 1,684 ) Net amount recognized $ ( 36,284 ) $ ( 36,346 ) $ ( 20,106 ) $ ( 20,509 ) Amounts recognized in the consolidated balance sheet: Current liability $ ( 24,172 ) $ ( 779 ) $ ( 830 ) $ ( 883 ) Noncurrent benefit liability ( 12,437 ) ( 84,803 ) ( 11,983 ) ( 17,958 ) Accumulated other comprehensive loss (income) 325 49,236 ( 7,293 ) ( 1,668 ) Net amount recognized $ ( 36,284 ) $ ( 36,346 ) $ ( 20,106 ) $ ( 20,509 ) Amounts recognized in accumulated other comprehensive loss (income): Net actuarial loss (gain) $ 5,140 $ 49,545 $ ( 5,973 ) $ 16 Prior service (credit) cost ( 4,815 ) ( 309 ) ( 1,320 ) ( 1,684 ) Net amount recognized $ 325 $ 49,236 $ ( 7,293 ) $ ( 1,668 ) (1) Benefit obligations assumed in connection with the acquisition of OLBRICH and R+S Automotive. For additional information, see Note 21. (2) Gains and losses related to changes in assumptions (e.g., discount rate, mortality, etc.), asset, salary and other experience, and curtailments impacted benefit obligations. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) Based upon actuarial valuations performed as of September 30, 2022 and 2021, the accumulated benefit obligation for the Company's defined benefit pension plans was $ 36,609 and $ 293,926 at September 30, 2022 and 2021, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $ 36,609 and $ 293,926 at September 30, 2022 and 2021, respectively. Net periodic pension and other postretirement benefit cost for the plans included the following: Pension Other Postretirement 2022 2021 2020 2022 2021 2020 Service cost $ 392 $ 7,919 $ 8,679 $ 165 $ 201 $ 227 Interest cost * 1,127 6,145 7,735 411 376 501 Expected return on plan assets * ( 1,040 ) ( 10,809 ) ( 10,214 ) — — — Amortization: Prior service cost ( 152 ) ( 127 ) ( 186 ) ( 364 ) ( 364 ) ( 464 ) Net actuarial loss * 469 9,769 9,767 — — — Curtailment gain * — ( 220 ) — — — — Special termination benefits * — 315 — — — — Prior-service cost write-offs * — 261 — — — — Settlement* 30,856 — — — — — Net benefit cost $ 31,652 $ 13,253 $ 15,781 $ 212 $ 213 $ 264 * Non-service components of pension and postretirement expense are included in other income (deductions), net. Matthews has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Benefit payments under the Company's DB Plan were made from plan assets, while benefit payments under the SERP and postretirement benefit plan are made from the Company's operating funds. Contributions made in fiscal 2022 are as follows: Contributions Pension Other Postretirement Principal defined benefit retirement plan $ 35,706 $ — Supplemental retirement plan 760 — Other retirement plans 416 — Other postretirement plan — 615 In October 2022, subsequent to the date of the balance sheet, the Company made lump sum payments totaling $ 24,242 to fully settle the SERP and defined benefit portion of the ORRP obligations. The settlement of these plan obligations is expected to result in the recognition of a non-cash charge of approximately $ 1,271 in the first quarter of fiscal 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP, and is based on current estimates as of September 30, 2022. 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The measurement date of annual actuarial valuations for the Company's pension and other postretirement benefit plans was September 30, for fiscal 2022, 2021 and 2020. The weighted-average assumptions for those plans were: Pension Other Postretirement 2022 2021 2020 2022 2021 2020 Discount rate 4.01 % 2.79 % 2.62 % 5.37 % 2.83 % 2.63 % Return on plan assets — % 3.10 % 6.75 % — — — Compensation increase — % 3.50 % 3.50 % — — — In October 2014, the Society of Actuaries' Retirement Plans Experience Committee ("RPEC") released new mortality tables known as RP 2014. Each year, RPEC releases an update to the mortality improvement assumption that was released with the RP 2014 tables. The Company considered the RPEC mortality and mortality improvement tables and performed a review of its own mortality history to assess the appropriateness of the RPEC tables for use in generating financial results. In fiscal years 2022, 2021 and 2020, the Company elected to value its pension and other postretirement benefit plan liabilities using the base RP 2014 mortality table and a slightly modified fully generational mortality improvement assumption. The revised assumption uses the most recent RPEC mortality improvement table for all years where the RPEC tables are based on finalized data, and the most recently published Social Security Administration Intermediate mortality improvement for subsequent years. The Company's investment policy, as established by the Company's pension board, specifies the types of investments appropriate for the plans, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling plan fiduciaries to fulfill their responsibilities. The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2021 was as follows: Plan Assets at Asset Category 2021 Equity securities $ 4,075 Fixed income, cash and cash equivalents 189,958 Other investments 14,311 $ 208,344 The Company categorizes plan assets within a three level fair value hierarchy (see Note 5, "Fair Value Measurements" for a further discussion of the fair value hierarchy). The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value hierarchy in which each type of pension plan asset is classified as follows. Equity securities consist of direct investments in the stocks of publicly traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1. Mutual funds are valued at the closing price of shares held by the Plan at year end. As such, these mutual fund investments are classified as Level 1. Fixed income securities consist of publicly traded fixed interest obligations (primarily U.S. government notes and corporate and agency bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data. As such, U.S. government notes are included in Level 1, and the remainder of the fixed income securities are included in Level 2. Cash and cash equivalents consist of direct cash holdings and short-term money market mutual funds. These values are valued based on cost, which approximates fair value, and as such, are classified as Level 1. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued) Other investments consist primarily of real estate, commodities, private equity holdings and hedge fund investments. These holdings are valued by investment managers based on the most recent information available. The valuation information used by investment managers may not be readily observable. As such, these investments are classified as Level 3. The Company's defined benefit pension plans' asset categories at September 30, 2021 were as follows: September 30, 2021 Asset Category Level 1 Level 2 Level 3 Total Equity securities - stocks (1) $ 4,075 $ — $ — $ 4,075 Fixed income securities 10,403 101,133 — 111,536 Cash and cash equivalents 78,422 — — 78,422 Other investments — — 14,311 14,311 Total $ 92,900 $ 101,133 $ 14,311 $ 208,344 (1) Includes $ 4,075 of of Matthews Class A Common Stock in Level 1. Changes in the fair value of Level 3 assets at September 30, 2022 and 2021 are summarized as follows: Asset Category Fair Value, Beginning of Period Acquisitions Dispositions Realized Gains Unrealized Gains (Losses) Fair Value, End of Period Other investments: Fiscal Year Ended: September 30, 2022 $ 14,311 $ — $ ( 14,700 ) $ 139 $ 250 $ — September 30, 2021 15,273 236 ( 2,144 ) 272 674 14,311 Benefit payments expected to be paid are as follows: Years ending September 30: Pension Benefits * Other Postretirement Benefits 2023 $ 24,790 $ 830 2024 551 855 2025 560 870 2026 564 875 2027 573 859 2028-2032 3,067 4,206 $ 30,105 $ 8,495 * Pension benefit amounts include the settlement of the SERP and ORRP in fiscal 2023 (see above for further details). For measurement purposes, a rate of increase of 7.5 % in the per capita cost of health care benefits was assumed for 2023; the rate was assumed to decrease gradually to 4.0 % for 2070 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported. The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $ 12,442 , $ 9,186 , and $ 8,692 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively. 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 16. ACCUMULATED OTHER COMPREHENSIVE INCOME: The changes in AOCI by component, net of tax, for the years ended September 30, 2022, 2021, and 2020 were as follows: Postretirement Benefit Plans Currency Translation Adjustment Cash Flow Hedges Total Attributable to Matthews: Balance, September 30, 2019 $ ( 71,743 ) $ ( 156,214 ) $ ( 404 ) $ ( 228,361 ) OCI before reclassification ( 18,094 ) 4,333 ( 6,130 ) ( 19,891 ) Amounts reclassified from AOCI 6,883 (a) — 650 (b) 7,533 Net current-period OCI ( 11,211 ) 4,333 ( 5,480 ) ( 12,358 ) Balance, September 30, 2020 $ ( 82,954 ) $ ( 151,881 ) $ ( 5,884 ) $ ( 240,719 ) OCI before reclassification 39,822 ( 3,322 ) 1,873 38,373 Amounts reclassified from AOCI 7,202 (a) ( 48 ) (b) 2,453 (b) 9,607 Net current-period OCI 47,024 ( 3,370 ) 4,326 47,980 Balance, September 30, 2021 $ ( 35,930 ) $ ( 155,251 ) $ ( 1,558 ) $ ( 192,739 ) OCI before reclassification 17,851 ( 46,817 ) 8,148 ( 20,818 ) Amounts reclassified from AOCI 23,261 (a) ( 1,242 ) (b) 1,347 (b) 23,366 Net current-period OCI 41,112 ( 48,059 ) 9,495 2,548 Balance, September 30, 2022 $ 5,182 $ ( 203,310 ) $ 7,937 $ ( 190,191 ) Attributable to noncontrolling interest: Balance, September 30, 2019 $ — $ 375 $ — $ 375 OCI before reclassification — ( 7 ) — ( 7 ) Net current-period OCI — ( 7 ) — ( 7 ) Balance, September 30, 2020 $ — $ 368 $ — $ 368 OCI before reclassification — ( 127 ) — ( 127 ) Net current-period OCI — ( 127 ) — ( 127 ) Balance, September 30, 2021 $ — $ 241 $ — $ 241 OCI before reclassification — 14 — 14 Net current-period OCI — 14 — 14 Balance, September 30, 2022 $ — $ 255 $ — $ 255 (a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 15). (b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 11). Accumulated other comprehensive loss at September 30, 2022 and 2021 consisted of the following: 2022 2021 Cumulative foreign currency translation $ ( 203,310 ) $ ( 155,251 ) Fair value of cash flow hedges, net of tax of $ 2,762 and $ 504 , respectively 7,937 ( 1,558 ) Minimum pension liabilities, net of tax of $ 1,786 and $ 11,638 , respectively 5,182 ( 35,930 ) $ ( 190,191 ) $ ( 192,739 ) 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 16. ACCUMULATED OTHER COMPREHENSIVE INCOME, (continued) Reclassifications out of AOCI for the years ended September 30, 2022, 2021 and 2020 were as follows: Details about AOCI Components September 30, 2022 September 30, 2021 September 30, 2020 Affected line item in the Statement of Income Postretirement benefit plans Prior service (cost) credit (a) $ 516 $ 491 $ 650 Actuarial losses ( 469 ) ( 9,769 ) ( 9,767 ) Other income (deductions), net Prior service cost write-off — ( 261 ) — Other income (deductions), net Settlement loss ( 30,856 ) — — Other income (deductions), net ( 30,809 ) ( 9,539 ) ( 9,117 ) Income before income tax (b) 7,548 2,337 2,234 Income taxes $ ( 23,261 ) $ ( 7,202 ) $ ( 6,883 ) Net income Derivatives Cash flow hedges $ ( 1,786 ) $ ( 3,249 ) $ ( 861 ) Interest expense Net investment hedges 1,645 63 — Interest expense ( 141 ) ( 3,186 ) ( 861 ) Income before income tax (b) 36 781 211 Income taxes $ ( 105 ) $ ( 2,405 ) $ ( 650 ) Net income (a) Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. For additional information, see Note 15. (b) For pre-tax items, positive amounts represent income and negative amounts represent expense. 17. INCOME TAXES: The income tax (benefit) provision consisted of the following: 2022 2021 2020 Current: Federal $ 13,481 $ ( 3,741 ) $ ( 12,354 ) State 4,676 3,579 ( 1,030 ) Foreign 10,414 2,379 11,306 28,571 2,217 ( 2,078 ) Deferred: Federal ( 24,239 ) 5,829 4,710 State ( 3,895 ) 169 2,880 Foreign ( 4,828 ) ( 1,840 ) ( 24,197 ) ( 32,962 ) 4,158 ( 16,607 ) Total $ ( 4,391 ) $ 6,375 $ ( 18,685 ) 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 17. INCOME TAXES, (continued) The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows: 2022 2021 2020 Federal statutory tax rate 21.0 % 21.0 % 21.0 % Effect of state income taxes, net of federal deduction 0.2 % 37.5 % ( 1.9 ) % Foreign statutory taxes compared to federal statutory rate 1.6 % ( 18.6 ) % 3.4 % Share-based compensation ( 1.1 ) % 24.5 % ( 1.4 ) % Termination of SERP — % 28.6 % — % Tax credits 1.2 % ( 26.6 ) % 1.8 % Sale of SERP-related investments — % 23.8 % — % Goodwill write-down ( 11.2 ) % — % ( 9.4 ) % Tax rate differential on net operating loss carryback — % ( 21.4 ) % 4.2 % Other * ( 7.5 ) % 0.2 % ( 0.1 ) % Effective tax rate 4.2 % 69.0 % 17.6 % * In Fiscal 2022, "Other" primarily consists of foreign net operating losses that had a full valuation allowance. The Company's consolidated income taxes for the year ended September 30, 2022 were a benefit of $ 4,391 , compared to an expense of $ 6,375 for fiscal 2021, and a benefit of $ 18,685 for fiscal 2020. The difference between the Company's consolidated income taxes for fiscal 2022 compared to fiscal 2021 partially resulted from fiscal 2022 having a consolidated loss before income taxes compared to fiscal 2021 having consolidated income before incomes taxes. The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible. The fiscal 2022 effective tax rate benefited from research and development and foreign tax credits. The fiscal 2022 effective tax rate was negatively impacted by foreign net operating losses that had a full valuation allowance. The fiscal 2021 effective tax rate also benefited from research and development and foreign tax credits as well as the reduction of uncertain tax positions due to the expiration of the statute of limitations in certain jurisdictions, the completion of a state tax audit, and the tax benefit of the NOL carryback. The fiscal 2021 tax rate was negatively impacted by the termination of the Company's SERP, which resulted in certain expenses that are nondeductible for tax purposes. The difference between the Company's consolidated income tax provision for fiscal 2021 compared to fiscal 2020 primarily resulted from fiscal 2021 having consolidated income before income taxes, compared to fiscal 2020 having a consolidated loss, which reflected a goodwill write-down that was partially non-deductible. The Company’s fiscal 2020 effective tax rate was negatively affected by the non-deductible portion of a goodwill write-down along with certain other non-deductible expenses. The fiscal 2020 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the completion of a foreign tax audit, and the tax benefit of the NOL carryback. The Company's foreign subsidiaries had loss before income taxes for the year ended September 30, 2022 of approximately $ 47,653 , income before income taxes for the year ended September 30, 2021 of approximately $ 6,685 and loss before income taxes for the year ended September 30, 2020 of approximately $ 68,343 . Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations. At September 30, 2022, undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $ 346,298 . 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 17. INCOME TAXES, (continued) The components of deferred tax assets and liabilities at September 30, 2022 and 2021 are as follows: 2022 2021 Deferred tax assets: Pension and postretirement benefits $ 9,051 $ 11,832 Accruals and reserves not currently deductible 10,909 8,753 Income tax credit carryforward 5,796 5,206 Operating and capital loss carryforwards 54,875 51,438 Stock options 7,103 4,944 Other 50 1,320 Total deferred tax assets 87,784 83,493 Valuation allowances ( 27,552 ) ( 28,619 ) Net deferred tax assets 60,232 54,874 Deferred tax liabilities: Depreciation ( 27,317 ) ( 23,224 ) Unrealized gains and losses ( 2,793 ) ( 886 ) Goodwill and intangible assets ( 98,715 ) ( 113,476 ) Other ( 20,386 ) ( 11,215 ) Total deferred tax liabilities ( 149,211 ) ( 148,801 ) Net deferred tax liability $ ( 88,979 ) $ ( 93,927 ) At September 30, 2022, the Company had foreign net operating loss carryforwards of $ 249,216 . The Company has recorded deferred tax assets of $ 3,312 for state net operating loss carryforwards, which will be available to offset future income tax liabilities. The majority of the Company's foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business continuation. Therefore, the Company has established tax-effected valuation allowances against these tax benefits in the amount of $ 27,552 at September 30, 2022. Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows: 2022 2021 2020 Balance, beginning of year $ 2,807 $ 10,483 $ 15,526 Increases for tax positions of prior years 1,393 — 500 Decreases for tax positions of prior years ( 200 ) ( 288 ) ( 2,727 ) Increases based on tax positions related to the current year 551 628 939 Decreases due to lapse of statute of limitation ( 428 ) ( 8,016 ) ( 3,755 ) Balance, end of year $ 4,123 $ 2,807 $ 10,483 The Company had unrecognized tax benefits of $ 4,123 at September 30, 2022, which would impact the annual effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $ 1,425 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitation related to specific tax positions. The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $ 876 and $ 691 at September 30, 2022 and 2021, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions. 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 17. INCOME TAXES, (continued) The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions. As of September 30, 2022, the tax years that remain subject to examination by major jurisdiction generally are: United States - Federal 2019 and forward United States - State 2018 and forward Canada 2018 and forward Germany 2019 and forward United Kingdom 2021 and forward Australia 2017 and forward Singapore 2018 and forward 18. COMMITMENTS AND CONTINGENT LIABILITIES: The Company is party to various legal proceedings, the eventual outcome of which are not predictable. Although the ultimate disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows. The Company has employment agreements with certain employees, the terms of which expire at various dates between fiscal 2023 and 2025. The agreements generally provide for base salary and bonus levels and include non-compete provisions. The aggregate commitment for salaries under these agreements at September 30, 2022 was $ 4,768 . 19. SUPPLEMENTAL CASH FLOW INFORMATION: Changes in working capital items as presented in the Consolidated Statements of Cash Flows consisted of the following: 2022 2021 2020 Current assets: Accounts receivable $ 74,013 $ ( 13,423 ) $ 24,055 Inventories ( 23,459 ) ( 12,839 ) 5,976 Other current assets ( 15,770 ) ( 15,618 ) ( 14,803 ) 34,784 ( 41,880 ) 15,228 Current liabilities: Trade accounts payable 7,437 29,621 8,363 Accrued compensation ( 10,760 ) 10,791 15,512 Accrued income taxes 5,745 601 ( 2,384 ) Other current liabilities ( 7,616 ) 13,849 9,648 ( 5,194 ) 54,862 31,139 Net change $ 29,590 $ 12,982 $ 46,367 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 20. SEGMENT INFORMATION: The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand Solutions. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022. Prior periods were revised to reflect retrospective application of this segment realignment. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions, product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss. In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments. The accounting policies of the segments are the same as those described in Note 2 "Summary of Significant Accounting Policies". Intersegment sales are accounted for at negotiated prices. Segment assets include those assets that are used in the Company's operations within each segment. Assets classified under "Corporate and Non-Operating" principally consist of cash and cash equivalents, investments, deferred income taxes and corporate headquarters' assets. Long-lived assets include property, plant and equipment (net of accumulated depreciation), goodwill, and other intangible assets (net of accumulated amortization). 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 20. SEGMENT INFORMATION, (continued) Information about the Company's segments follows: Memorialization Industrial Technologies SGK Brand Solutions Corporate and Non-Operating Consolidated Sales to external customers: 2022 $ 840,124 $ 335,523 $ 586,756 $ — $ 1,762,403 2021 769,016 284,495 617,519 — 1,671,030 2020 656,035 228,453 613,818 — 1,498,306 Intersegment sales: 2022 — 1,057 1,295 — 2,352 2021 — 2,146 2,376 — 4,522 2020 4 3,629 2,621 — 6,254 Depreciation and amortization: 2022 23,228 11,387 64,173 5,268 104,056 2021 23,043 11,427 93,665 5,377 133,512 2020 20,527 11,923 81,445 5,163 119,058 Adjusted EBITDA: 2022 151,849 56,762 60,120 ( 58,323 ) 210,408 2021 165,653 34,889 91,435 ( 64,227 ) 227,750 2020 146,285 23,055 90,342 ( 56,602 ) 203,080 Total assets: 2022 800,666 414,019 631,291 36,795 1,882,771 2021 807,215 285,710 874,001 65,152 2,032,078 2020 779,886 255,512 951,533 85,702 2,072,633 Capital expenditures: 2022 28,899 13,646 14,287 4,489 61,321 2021 11,969 8,620 11,775 1,949 34,313 2020 11,282 14,058 7,790 1,719 34,849 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 20. SEGMENT INFORMATION, (continued) A reconciliation of adjusted EBITDA to net income follows: 2022 2021 2020 Total Adjusted EBITDA $ 210,408 $ 227,750 $ 203,080 RPA financing fees (1) ( 1,046 ) — — Strategic initiatives and other charges (2)** ( 37,431 ) ( 29,539 ) ( 40,686 ) Legal matter reserve (3) — — ( 10,566 ) Non-recurring / incremental COVID-19 costs (4)*** ( 2,985 ) ( 5,312 ) ( 3,908 ) Defined benefit plan termination related items (5) 429 — — Asset write-downs, net (6) ( 10,050 ) — — Goodwill write-downs (7) ( 82,454 ) — ( 90,408 ) Gain on sale of ownership interests in subsidiaries (8) — — 11,208 Joint Venture depreciation, amortization, interest expense and other charges (9) — — ( 4,732 ) Stock-based compensation ( 17,432 ) ( 15,581 ) ( 8,096 ) Non-service pension and postretirement expense (10) ( 31,823 ) ( 5,837 ) ( 7,789 ) Depreciation and amortization * ( 104,056 ) ( 133,512 ) ( 119,058 ) Interest expense ( 27,725 ) ( 28,684 ) ( 34,885 ) Net loss attributable to noncontrolling interests ( 54 ) ( 52 ) ( 497 ) (Loss) income before income taxes ( 104,219 ) 9,233 ( 106,337 ) Income tax benefit (provision) 4,391 ( 6,375 ) 18,685 Net (loss) income $ ( 99,828 ) $ 2,858 $ ( 87,652 ) (1) Represents fees for receivables sold under the Company's RPA agreement (see Note 9, "Debt and Financing Arrangements"). (2) 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, "Summary of Significant Accounting Policies"). (3) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 9, "Debt and Financing Arrangements"). (4) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19. (5) 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. (6) Represents asset write-downs, net of recoveries within the SGK Brand Solutions segment (see Note 23, "Asset Write-Downs"). (7) Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 22, "Goodwill and Other Intangible Assets"). (8) Represents the gain on the sale of ownership interests in subsidiaries within the Memorialization segment. (9) Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment. (10) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and losses, and settlement gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. Curtailment gains and losses and settlement gains and losses are excluded from adjusted EBITDA since they generally result from certain non-recurring events, such as plan amendments to modify future benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans. * Depreciation and amortization was $ 23,228 , $ 23,043 , and $ 20,527 for the Memorialization segment, $ 11,387 , $ 11,427 , and $ 11,923 for the Industrial Technologies segment, $ 64,173 , $ 93,665 , and $ 81,445 for the SGK Brand Solutions segment, and $ 5,268 , $ 5,377 , and $ 5,163 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively. ** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $ 3,517 , $ 1,923 , and $ 2,696 for the Memorialization segment, $ 5,631 , $ 4,026 , and $ 2,517 for the Industrial Technologies segment, $ 19,359 , $ 12,323 , and $ 12,488 for the SGK Brand Solutions segment, and $ 8,924 , $ 11,267 , and $ 22,985 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively. *** Non-recurring/incremental COVID-19 costs were $ 1,314 , $ 3,646 , and $ 1,819 for the Memorialization segment, $ 6 , $ 38 , and $ 32 for the Industrial Technologies segment, $ 1,199 , $ 1,539 , and $ 1,442 for the SGK Brand Solutions segment, and $ 466 , $ 89 , and $ 615 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020 respectively. 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 20. SEGMENT INFORMATION, (continued) Information about the Company's operations by geographic area follows: North America Central and South America Europe Australia Asia Consolidated Sales to external customers: 2022 $ 1,230,267 $ 4,729 $ 444,606 $ 21,206 $ 61,595 $ 1,762,403 2021 1,141,396 5,036 446,274 23,568 54,756 1,671,030 2020 1,037,705 6,304 387,831 21,079 45,387 1,498,306 Long-lived assets: 2022 822,566 10,787 242,614 14,895 42,778 1,133,640 2021 890,545 14,226 277,655 21,012 55,598 1,259,036 2020 957,393 14,063 286,990 21,746 55,482 1,335,674 21. ACQUISITIONS AND DIVESTITURES: Fiscal 2022: In August 2022, the Company acquired German-based engineering firms OLBRICH and R+S Automotive for a purchase price of approximately € 43,700 ($ 44,469 ) (net of cash acquired) within the Industrial Technologies segment. OLBRICH is a production and intelligent equipment manufacturer, specializing in purpose-built rotary processing equipment, including equipment used in the manufacturing of dry and wet electrodes for lithium-ion batteries used in electric vehicles and components for hydrogen fuel cells and electrolyzers, with additional strong positions in Specialty & Pharma, Packaging and Home & Décor. R+S Automotive is a specialty engineering services provider of automation, plant and tooling concepts for automotive manufacturing companies around the world. Annual sales for these businesses were approximately $ 140,000 prior to the acquisition. The preliminary purchase price allocation is not finalized as of September 30, 2022 and is subject to changes as the Company obtains additional information related to fixed assets, intangible assets, and other assets and liabilities. Fiscal 2021: In April 2021, the Company completed a small acquisition in the hydrogen fuel cell industry within the Industrial Technologies segment for a purchase price of $ 2,523 (net of cash acquired and holdback amounts). The Company finalized the allocation of the purchase price in the first quarter of fiscal 2022, resulting in an immaterial adjustment to certain working capital accounts. In January 2021, the Company acquired a memorialization business that produces and distributes cemetery products for a purchase price of $ 13,100 . The Company finalized the allocation of the purchase price in the fourth quarter of fiscal 2021, resulting in an immaterial adjustment to certain working capital accounts. Fiscal 2020: During fiscal 2020, the Company completed a small acquisition in the Memorialization segment for a purchase price of $ 1,000 (net of cash acquired and holdback amounts). The Company finalized the allocation of the purchase price in the fourth quarter of fiscal 2021, resulting in an immaterial adjustment to certain working capital accounts. During fiscal 2020, the Company sold its ownership interest in a non-consolidated Memorialization subsidiary for $ 42,210 of cash and $ 15,000 of senior preferred shares. In connection with this sale transaction, the Company recognized a pre-tax gain of $ 11,208 , which was recorded as a component of administrative expenses for the year ended September 30, 2020. Subsequently, the Company received $ 15,000 for the full redemption of the senior preferred shares during fiscal 2021. 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 22. GOODWILL AND OTHER INTANGIBLE ASSETS: Changes to goodwill during the years ended September 30, 2022 and 2021, follow. Memorialization Industrial Technologies SGK Brand Solutions Consolidated Net goodwill at September 30, 2020 $ 361,682 $ 91,969 $ 311,737 $ 765,388 Additions during period 4,775 — — 4,775 Translation and other adjustments ( 97 ) 608 3,113 3,624 Net goodwill at September 30, 2021 366,360 92,577 314,850 773,787 Additions during period — 17,013 — 17,013 Translation and other adjustments ( 4,578 ) ( 2,568 ) ( 25,779 ) ( 32,925 ) Goodwill write-down — — ( 82,454 ) ( 82,454 ) Net goodwill at September 30, 2022 $ 361,782 $ 107,022 $ 206,617 $ 675,421 The net goodwill balances at September 30, 2022 and 2021 included $ 261,186 and $ 178,732 of accumulated impairment losses, respectively. Accumulated impairment losses at September 30, 2022 were $ 5,000 , $ 23,946 , and $ 232,240 for the Memorialization, Industrial Technologies and SGK Brand Solutions segments, respectively. Accumulated impairment losses at September 30, 2021 were $ 5,000 , $ 23,946 , and $ 149,786 for the Memorialization, Industrial Technologies and SGK Brand Solutions segments, respectively. Fiscal 2022: In fiscal 2022, the additions to Industrial Technologies goodwill reflects the acquisition of OLBRICH and R+S Automotive. 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 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 inflation-related pressures have had an unfavorable impact on the reporting unit's results of operations. During the fourth quarter of fiscal 2022, in its assessment of these potential impacts, and in light of the limited excess fair value over carrying value for its SGK Brand Solutions reporting unit (discussed above), management determined a triggering event occurred, resulting in a re-evaluation of goodwill for the reporting unit, as of September 1, 2022. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $ 82,454 during the fiscal 2022 fourth quarter. Subsequent to this write-down, the fair value of the SGK Brand Solutions reporting unit approximated its carrying value at September 1, 2022. The fair value for the reporting unit was determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. 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, additional goodwill write-downs may be necessary in future periods. Fiscal 2021: In fiscal 2021, the additions to Memorialization goodwill and SGK Brand Solutions goodwill reflect acquisitions of small businesses within each segment. Fiscal 2020: In fiscal 2020, in its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values over carrying values for the segment's two reporting units, management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for the reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020. As a result of this interim assessment, the Company recorded a goodwill write- 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollar amounts in thousands, except per share data) 22. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued) down totaling $ 90,408 during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020. The fair values for these reporting units were determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of September 30, 2022 and 2021, respectively. Carrying Amount Accumulated Amortization Net September 30, 2022 Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 150,528 ( 117,572 ) 32,956 Customer relationships 380,593 ( 248,464 ) 132,129 Copyrights/patents/other 20,878 ( 14,349 ) 6,529 $ 582,539 $ ( 380,385 ) $ 202,154 September 30, 2021 Indefinite-lived trade names $ 30,540 $ — $ 30,540 Definite-lived trade names 148,867 ( 104,211 ) 44,656 Customer relationships 388,699 ( 210,361 ) 178,338 Copyrights/patents/other 23,584 ( 15,576 ) 8,008 $ 591,690 $ ( 330,148 ) $ 261,542 The net change in intangible assets during fiscal 2022 included the impact of foreign currency fluctuations during the period, additional amortization, and additions related to the acquisition of OLBRICH and R+S Automotive. During the second quarter of fiscal 2021, the Company reassessed the useful lives for certain of its customer relationships. As a result of this reassessment, the Company reduced the remaining useful lives for these customer relationships to reflect their estimated remaining duration, utilizing actual historical customer attrition rates. Amortization expense on intangible assets was $ 57,084 , $ 84,233 , and $ 71,514 in fiscal 2022, 2021 and 2020, respectively. Fiscal year amortization expense is estimated to be approximately $ 41,427 in 2023, $ 35,889 in 2024, $ 18,601 in 2025, $ 14,357 in 2026 and $ 13,364 in 2027. 23. 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 $ 10,050 (net of recoveries) during 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 $ 364 were reported within cost of sales and administrative expense, respectively, for the year ended September 30, 2022. 24. SUBSEQUENT EVENT: In October 2022, subsequent to the date of the balance sheet, the Company made lump sum payments totaling $ 24,242 to fully settle the SERP and defined benefit portion of the ORRP obligations. The settlement of these plan obligations is expected to result in the recognition of a non-cash charge of approximately $ 1,271 in the first quarter of fiscal 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP, and is based on current estimates as of September 30, 2022. See Note 15, "Pension and Other Postretirement Plans" for further discussion. 78 FINANCIAL STATEMENT SCHEDULE SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Description Balance at Beginning of Period Charged to Expense Charged to other Accounts (1) Deductions (2) Balance at End of Period (Dollar amounts in thousands) Allowance for Doubtful Accounts: Fiscal Year Ended: September 30, 2022 $ 10,654 $ 1,368 $ — $ ( 1,884 ) $ 10,138 September 30, 2021 9,618 2,182 — ( 1,146 ) 10,654 September 30, 2020 10,846 1,736 15 ( 2,979 ) 9,618 (1) Amount comprised principally of acquisitions and purchase accounting adjustments in connection with acquisitions, and amounts reclassified to other accounts. (2) Amounts determined not to be collectible (including direct write-offs), net of recoveries. Description Balance at Beginning of Period Provision Charged (Credited) To Expense (1, 3) Allowance Changes Other Additions (Deductions) (2) Balance at End of Period (Dollar amounts in thousands) Deferred Tax Asset Valuation Allowance: Fiscal Year Ended: September 30, 2022 $ 28,619 $ ( 1,300 ) $ — $ 233 $ 27,552 September 30, 2021 22,527 5,709 — 383 28,619 September 30, 2020 15,352 6,982 — 193 22,527 (1) Amounts relate primarily to adjustments in net operating loss carryforwards which are precluded from use. (2) Consists principally of adjustments related to foreign exchange. (3) Fiscal 2022 amount is comprised of a $ 5,004 benefit related to non-survivability of deferred tax assets with full valuation allowance due to entity dissolution and a $ 3,704 expense primarily related to adjustments in net operating loss carryforwards which are precluded from use. 79 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.