MATTHEWS INTERNATIONAL CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued on cylinder (packaging) products and U.K. cremation equipment projects. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $3.1 million and $6.4 million for the six months ended March 31, 2023 and 2022, respectively. Fiscal 2022 gross profit included $9.7 million of asset write-downs related to the war between Russia and Ukraine (see below for further details). Selling and administrative expenses for the six months ended March 31, 2023 were $227.4 million, compared to $204.5 million for the first six months of fiscal 2022. Consolidated selling and administrative expenses, as a percent of sales, were 24.5% for the six months ended March 31, 2023, compared to 23.1% for the same period last year. Fiscal 2023 selling and administrative expenses reflected the impact of higher salaries and wage rates, higher travel and entertainment ("T&E") costs, additional expenses from recently completed acquisitions, and fees associated with a receivables purchase agreement and factoring arrangement (see Liquidity and Capital Resources below). These increases in selling and administrative expenses were partially offset by benefits from ongoing cost-reduction initiatives. Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $7.8 million in fiscal 2023, compared to $6.5 million in fiscal 2022. Fiscal 2022 selling and administrative expenses included $800,000 of asset write-downs related to the war between Russia and Ukraine (see below). Intangible amortization for the six months ended March 31, 2023 was $20.9 million, compared to $33.5 million for the six months ended March 31, 2022. Fiscal 2022 intangible amortization included $9.5 million of amortization related to certain trade names that have been discontinued. Adjusted EBITDA was $107.7 million for the six months ended March 31, 2023 and $108.5 million for the six months ended March 31, 2022. Memorialization segment adjusted EBITDA was $87.2 million for the first six months of fiscal 2023 compared to $86.3 million for the first six months of fiscal 2022. Fiscal 2023 segment adjusted EBITDA reflected benefits from improved price realization and productivity initiatives, which were partially offset by the impact of lower unit sales of caskets, unfavorable changes in sales mix, higher material, labor, transportation and T&E costs, and lower margins on certain cremation equipment projects. Adjusted EBITDA for the Industrial Technologies segment was $27.8 million for the six months ended March 31, 2023 compared to $21.6 million for the six months ended March 31, 2022. The increase in segment adjusted EBITDA primarily reflected the impact of higher sales of engineered products, partially offset by the impact of higher material and labor costs, and unfavorable contributions from recent acquisitions. Changes in foreign currency exchange rates had an unfavorable impact of $2.3 million on the segment's adjusted EBITDA compared to the prior year. Adjusted EBITDA for the SGK Brand Solutions segment was $23.3 million for the first six months of fiscal 2023 compared to $28.9 million for the same period a year ago. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, higher material, labor and T&E costs, and lower margins on cylinder (packaging) products. These decreases were partially offset by benefits from cost-reduction initiatives and lower performance-based compensation compared to fiscal 2022. Changes in foreign currency exchange rates had an unfavorable impact of $1.3 million on the segment's adjusted EBITDA compared to the prior year. Interest expense for the first six months of fiscal 2023 was $22.3 million, compared to $12.8 million for the same period last year. The increase in interest expense reflected an increase in average borrowing levels and higher average interest rates in the current fiscal year. Other income (deductions), net, for the six months ended March 31, 2023 represented a decrease in pre-tax income of $551,000, compared to a decrease in pre-tax income of $30.5 million for the same period last year. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $1.5 million and $31.4 million for the six months ended March 31, 2023 and 2022, respectively. Fiscal 2023 non-service pension expense included a $1.3 million non-cash charge resulting from the settlement of the Company's supplemental retirement plan ("SERP") and defined benefit portion of the officers retirement restoration plan ("ORRP") obligations. Fiscal 2022 non-service pension expense included a $30.9 million non-cash charge resulting from the full settlement of the Company's principal defined benefit retirement plan ("DB Plan") obligations. Refer to Note 11, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" for further details. Other income (deductions), net also includes investment income, banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. Fiscal 2023 other income (deductions), net included $1.2 million of currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements"). Fiscal 2023 other income (deductions), net also included loss recoveries of $2.2 million related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the first six months of fiscal 2023 were an expense of $4.7 million, compared to a benefit of $3.4 million for the first six months of fiscal 2022. The difference between the Company’s consolidated income taxes for the first six months of fiscal 2023 compared to the same period for fiscal 2022 primarily resulted from consolidated pre-tax income in fiscal 2023 compared to a pre-tax loss in fiscal 2022. The Company’s fiscal 2023 six- 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, and non-tax benefited foreign losses. The Company’s fiscal 2022 six-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to the non-deductible asset write-downs in Russia, state taxes, foreign statutory rate differentials, and tax credits. Net losses attributable to noncontrolling interests were $58,000 for the six months ended March 31, 2023 and $38,000 for the six months ended March 31, 2022. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses. Asset Write-Downs: The Company has certain operations in Russia within its SGK Brand Solutions segment. During the second quarter of fiscal 2022, in light of the 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 $10.5 million to reduce the carrying value of these assets to zero during the second quarter of fiscal 2022. Asset write-downs (primarily related to property, plant and equipment) totaling $9.7 million and $800,000 were reported within cost of sales and administrative expense, respectively, for the three and six months ended March 31, 2022. NON-GAAP FINANCIAL MEASURES: Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition and divestiture costs, ERP integration costs, strategic initiatives and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense. Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures. The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business. Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges. Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and divestiture and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations. This measure may be useful to an investor in evaluating operating performance. It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance. Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. The Company's definition of adjusted EBITDA may not be comparable to similarly titled measures used by other companies. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The reconciliation of net income to adjusted EBITDA is as follows: Three Months Ended March 31, Six Months Ended March 31, 2023 2022 2023 2022 (Dollar amounts in thousands) Net income (loss) $ 9,125 $ (1,936) $ 12,772 $ (21,746) Income tax provision (benefit) 3,382 3,277 4,694 (3,351) Income (loss) before income taxes 12,507 1,341 17,466 (25,097) Net loss attributable to noncontrolling interests 2 31 58 38 Interest expense 12,047 6,260 22,262 12,767 Depreciation and amortization * 24,148 23,724 47,877 57,225 RPA and factoring financing fees (1) 1,090 — 1,546 — Acquisition and divestiture costs (2)** 2,852 — 4,137 — Strategic initiatives and other charges (3)** 1,280 6,750 3,040 10,573 Non-recurring / incremental COVID-19 costs (4)*** — 1,213 — 1,903 Exchange losses related to highly inflationary accounting (5) 160 — 1,248 — Defined benefit plan termination related items (6) — (79) 21 347 Asset write-downs (7) — 10,486 — 10,486 Stock-based compensation 4,278 5,222 8,612 8,931 Non-service pension and postretirement expense (8) 83 242 1,471 31,350 Total Adjusted EBITDA $ 58,447 $ 55,190 $ 107,738 $ 108,523 (1) Represents fees for receivables sold under the RPA and factoring arrangements (see "Liquidity and Capital Resources"). (2) Includes certain non-recurring costs associated with recent acquisition and divestiture activities. (3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels and costs associated with global ERP system integration efforts, net of loss recoveries related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. (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 exchange losses associated with highly inflationary accounting related to the Company's Turkish subsidiaries (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements and Supplementary Data"). (6) 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. (7) Represents asset write-downs within the SGK Brand Solutions segment. (8) 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 $5.7 million and $5.8 million for the Memorialization segment, $5.9 million and $2.5 million for the Industrial Technologies segment, $11.3 million and $14.1 million for the SGK Brand Solutions segment, and $1.2 million and $1.3 million for Corporate and Non-Operating, for the three months ended March 31, 2023 and 2022, respectively. Depreciation and amortization was $11.3 million and $11.6 million for the Memorialization segment, $11.8 million and $5.2 million for the Industrial Technologies segment, $22.4 million and $37.8 million for the SGK Brand Solutions segment, and $2.4 million and $2.6 million for Corporate and Non-Operating, for the six months ended March 31, 2023 and 2022, respectively. ** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $333,000 and $516,000 for the Memorialization segment, $2.4 million and $161,000 for the Industrial Technologies segment, $2.6 million and $4.5 million for the SGK Brand Solutions segment, and income of $1.2 million and charges of $1.6 million for Corporate and Non-Operating, for the three months ended March 31, 2023 and 2022, respectively. Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $711,000 and $1.2 million for the Memorialization segment, $3.4 million and $193,000 for the Industrial Technologies segment, $3.1 million and $5.7 million for the SGK Brand Solutions segment, and income of $39,000 and charges of $3.5 million for Corporate and Non-Operating, for the six months ended March 31, 2023 and 2022, respectively. *** Non-recurring/incremental COVID-19 costs were $579,000 for the Memorialization segment, $1,000 for the Industrial Technologies segment, $170,000 for the SGK Brand Solutions segment, and $463,000 for Corporate and Non-Operating, for the three months ended March 31, 2022. Non-recurring/incremental COVID-19 costs were $1.0 million for the Memorialization segment, $5,000 for the Industrial Technologies segment, $390,000 for the SGK Brand Solutions segment, and $465,000 for Corporate and Non-Operating, for the six months ended March 31, 2022. 30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued LIQUIDITY AND CAPITAL RESOURCES: Net cash provided by operating activities was $44.7 million for the first six months of fiscal 2023, compared to $72.7 million for the first six months of fiscal 2022. Operating cash flow for both periods principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, non-cash pension expense, other non-cash adjustments, and changes in working capital items. Fiscal 2023 operating cash flow also reflected $24.2 million of contributions to fund the settlement of the Company's SERP and ORRP obligations, and $10.5 million of proceeds from the settlement of cash flow hedges. Fiscal 2022 operating cash flow reflected $35.7 million of contributions to fully fund the settlement of the Company's DB Plan obligations. Net changes in working capital items decreased operating cash flow by $10.9 million and increased operating cash flow by $18.8 million in fiscal 2023 and fiscal 2022, respectively. The fiscal 2023 change in working capital principally reflected fiscal year-end compensation-related payments and higher inventory levels, partially offset by proceeds from the sale of receivables under a receivables purchase agreement and a non-recourse factoring arrangement (see below for further discussion), and changes in contract assets and liabilities related to products and services provided to customers over time. Cash used in investing activities was $31.2 million for the six months ended March 31, 2023, compared to $24.7 million for the six months ended March 31, 2022. Investing activities for the first six months of fiscal 2023 primarily reflected capital expenditures of $23.8 million and acquisitions, net of cash acquired, of $7.6 million . Investing activities for the first six months of fiscal 2022 primarily reflected capital expenditures of $28.1 million and proceeds from the sale of investments of $3.1 million. Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency and capacity, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $43.5 million for the last three fiscal years. Capital spending for fiscal 2023 is currently estimated to be approximately $70 million . Capital spending in fiscal 2023 reflects additional capital projects to support new production capabilities and increased efficiencies within the Memorialization and Industrial Technologies segments. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects. Cash used in financing activities for the six months ended March 31, 2023 was $44.9 million, primarily reflecting repayments, net of proceeds, on long-term debt of $27.1 million, treasury stock purchases of $2.7 million, and cash dividends of $14.1 million to the Company's shareholders. Cash used in financing activities for the six months ended March 31, 2022 was $38.7 million, primarily reflecting repayments, net of proceeds, on long-term debt of $10.5 million, treasury stock purchases of $12.1 million, dividends of $14.0 million to the Company's shareholders, and $613,000 of holdback and deferred payments related to acquisitions from prior years. The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750.0 million senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $350.0 million) can be drawn in foreign currencies. In March 2023, an amendment to the domestic credit facility implemented SOFR as the replacement of LIBOR as the benchmark interest rate under the facility. The Company accounted for the change in reference rate as a non-substantial modification. Borrowings under the revolving credit facility now bear interest at SOFR, plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 0.75% to 2.00% (1.25% at March 31, 2023) based on the Company's secured leverage ratio. Previously, borrowings under the revolving credit facility bore interest at LIBOR plus a factor ranging from 0.75% to 2.00% 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 $1.2 million and $1.5 million at March 31, 2023 and September 30, 2022, respectively. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $55.0 million) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at March 31, 2023 and September 30, 2022 were $451.5 million and $472.1 million, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at March 31, 2023 and 2022 was 5.17% and 1.89%, respectively. 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company has $299.6 million 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 subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $1.4 million and $1.7 million at March 31, 2023 and September 30, 2022, 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 $125.0 million 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. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. As of March 31, 2023 and September 30, 2022, the amount sold to the Purchasers was $108.6 million and $96.6 million, respectively, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $41.8 million and $44.3 million as of March 31, 2023 and September 30, 2022, respectively. The following table sets forth a summary of receivables sold as part of the RPA: Six Months Ended March 31, 2023 Six Months Ended March 31, 2022 (Dollar amounts in thousands) Gross receivables sold $ 201,115 $ 121,616 Cash collections reinvested (189,105) (46,615) Net cash proceeds received $ 12,010 $ 75,001 During the second quarter of fiscal 2023, the Company, through its U.K. subsidiary, entered into a non-recourse factoring arrangement. In connection with this arrangement, the Company periodically sells trade receivables to a third-party purchaser in exchange for cash. These transfers of financial assets are recorded at the time the Company surrenders control of the assets. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are de-recognized from the Company's Consolidated Balance Sheets upon transfer. The principal amount of receivables sold under this arrangement was $17.0 million during the six months ended March 31, 2023. The discounts on the trade receivables sold are included within administrative expense in the Consolidated Statements of Income. The proceeds from the sale of receivables are classified as operating activities in the Company's Consolidated Statements of Cash Flows. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €10.0 million ($10.9 million). The facility also provides €16.0 million ($17.4 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €0.9 million ($1.0 million) and €8.2 million ($8.1 million) at March 31, 2023 and September 30, 2022, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 5.17% and 2.25% at March 31, 2023 and 2022, respectively. Other borrowings totaled $21.1 million and $13.4 million at March 31, 2023 and September 30, 2022, respectively. The weighted-average interest rate on these borrowings was 3.01% and 1.92% at March 31, 2023 and 2022, respectively. 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. The following table presents information related to interest rate swaps entered into by the Company and designated as cash flow hedges: March 31, 2023 September 30, 2022 (Dollar amounts in thousands) Notional amount $ 175,000 $ 125,000 Weighted-average maturity period (years) 4.9 3.1 Weighted-average received rate 4.81 % 3.14 % Weighted-average pay rate 3.83 % 1.04 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. In order to transition the Company's swaps from LIBOR-based to SOFR-based rates, the LIBOR-based swaps were settled during the second quarter of fiscal 2023, resulting in cash proceeds of $10.5 million. Concurrently, the Company entered into new interest rate swaps with SOFR-based rates with a notional amount of $175.0 million. 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 loss of $3.4 million ($2.5 million after tax) at March 31, 2023 and an unrealized gain of $10.7 million ($7.9 million after tax) at September 30, 2022, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Unrecognized gains of $10.5 million ($7.8 million after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of March 31, 2023. Assuming market rates remain constant with the rates at March 31, 2023, a gain (net of tax) of approximately $3.0 million included in AOCI is expected to be recognized in earnings over the next twelve months. The Company has a U.S. Dollar/Euro cross currency swap with a notional amount of $81.4 million as of March 31, 2023 and September 30, 2022, which has been designated as a net investment hedge of foreign operations. The swap contract matures in September 2027. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A loss of $2.3 million (net of income taxes of $784,000) and a gain of $2.8 million (net of income taxes of $940,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at March 31, 2023 and September 30, 2022, respectively. Income of $309,000 and $581,000, which represented the recognized portion of the fair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for the three and six months ended March 31, 2023, respectively. Income of $420,000 and $785,000, which represented the recognized portion of the fair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for the three and six months ended March 31, 2022, respectively. At March 31, 2023 and September 30, 2022, the swaps totaled $3.1 million and $3.7 million, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively. 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, 1,198,211 shares remain available for repurchase as of March 31, 2023. Refer to Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds" in Part II - "Other Information" for further details on the Company's repurchases in fiscal 2023. Consolidated working capital of the Company was $223.8 million at March 31, 2023, compared to $217.2 million at September 30, 2022. Cash and cash equivalents were $41.9 million at March 31, 2023, compared to $69.0 million at September 30, 2022. The Company's current ratio was 1.6 at March 31, 2023 and 1.5 at September 30, 2022, respectively. 33 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Long-Term Contractual Obligations: The following table summarizes the Company's contractual obligations at March 31, 2023, and the effect such obligations are expected to have on its liquidity and cash flows in future periods. Payments due in fiscal year: Total 2023 Remainder 2024 to 2025 2026 to 2027 After 2027 Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facilities $ 452,471 $ — $ 451,501 $ — $ 970 2025 Senior Notes 345,481 7,875 31,500 306,106 — Finance lease obligations (1) 6,871 1,151 2,771 1,674 1,275 Non-cancelable operating leases (1) 82,856 12,862 42,280 21,127 6,587 Other (2) 38,741 8,431 15,892 5,963 8,455 Total contractual cash obligations $ 926,420 $ 30,319 $ 543,944 $ 334,870 $ 17,287 (1) Lease obligations have not been discounted to their present value. (2) Includes future expected acquisition related payments (see Acquisitions below). Benefit payments under the Company's postretirement benefit plan are made from the Company's operating funds. In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24.2 million to fully settle the SERP and defined benefit portion of the ORRP obligations. The settlement of these plan obligations resulted in the recognition of a non-cash charge of $1.3 million, which has been presented as a component of other income (deductions), net for the six months ended March 31, 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP. During the second quarter of fiscal 2023, the remaining funds held in a rabbi trust associated with the SERP were transferred to the Company. Consequently, these amounts are no longer classified as restricted cash. Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of March 31, 2023, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.5 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future. REGULATORY MATTERS: The Company’s operations are subject to various federal, state and local laws and regulations requiring strict compliance, including, but not limited to, the protection of the environment. The Company has established numerous internal compliance programs to further ensure lawful satisfaction of the applicable regulations. In addition, the Company is party to specific environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at operating and non-operating sites. The Company is currently performing environmental assessments and remediation at certain sites, as applicable. ACQUISITIONS: Refer to Note 15, "Acquisitions" in Item 1 - "Financial Statements" for further details on the Company's acquisitions. FORWARD-LOOKING INFORMATION: The Company's current strategy to attain annual operating growth primarily consists of the following: internal growth - which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products - and acquisitions and related integration activities to achieve synergy benefits. 34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The significant factors (excluding acquisitions) influencing sales growth in the Industrial Technologies segment include economic/industrial market conditions, new product development, and the electric vehicles ("EV") and e-commerce trends. The Industrial Technologies segment received over $200 million of new orders during the fiscal 2023 first quarter for its energy storage solutions business. The orders have been received from multiple EV, fuel cell, and battery manufacturers and are expected to impact the segment’s sales through mid-fiscal 2024. For the Memorialization segment, sales growth will be influenced by North America death rates, and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products. For the SGK Brand Solutions segment, sales growth will be influenced by global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation. Due to the global footprint of the Company’s businesses, particularly the Industrial Technologies and SGK Brand Solutions segments, currency fluctuations can also be a significant factor. Recent labor cost increases, supply chain challenges, and other inflation-related impacts are expected to impact the Company's results for the near future. The Company expects to partially mitigate these cost increases through price realization and cost-reduction initiatives. CRITICAL ACCOUNTING POLICIES: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022. A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2022. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition. The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2023 (January 1, 2023) 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 exceeded the carrying value (expressed as a percentage of carrying value) by approximately 9%. 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.