What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-02 compared with 2023-07-28 · 117 added, 138 removed, 140 unchanged (65% of the section changed)

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

recent acquisitions), and benefits from the realization of productivity improvements and other cost-reduction initiatives.

These increases in gross profit were partially offset by the impact of higher material and labor costs, and lower margins on cylinder (packaging) products.

Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $6.1 million and $8.3 million for the nine months ended June 30, 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 nine months ended June 30, 2023 were $333.6 million, compared to $302.6 million for the first nine months of fiscal 2022.

Consolidated selling and administrative expenses, as a percent of sales, were 23.8% for the nine months ended June 30, 2023, compared to 23.2% 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 $10.8 million in fiscal 2023, compared to $11.0 million in fiscal 2022.

Intangible amortization for the nine months ended June 30, 2023 was $31.5 million, compared to $45.3 million for the nine months ended June 30, 2022.

Fiscal 2022 intangible amortization included $9.5 million of amortization related to certain trade names that have been discontinued.

Adjusted EBITDA was $163.9 million for the nine months ended June 30, 2023 and $154.5 million for the nine months ended June 30, 2022.

Memorialization segment adjusted EBITDA was $127.1 million for the first nine months of fiscal 2023 compared to $118.4 million for the first nine months of fiscal 2022.

The increase in segment adjusted EBITDA reflected the impact of higher sales and benefits from productivity initiatives, which were partially offset by the impact of higher material, labor and T&E costs.

Adjusted EBITDA for the Industrial Technologies segment was $42.8 million for the nine months ended June 30, 2023 compared to $33.4 million for the nine months ended June 30, 2022.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales of engineered products, partially offset by the impact of higher labor and T&E costs, and unfavorable contributions from recent acquisitions.

Changes in foreign currency exchange rates had an unfavorable impact of $2.1 million on the segment's adjusted EBITDA compared to the prior year.

Adjusted EBITDA for the SGK Brand Solutions segment was $39.6 million for the first nine months of fiscal 2023 compared to $43.4 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.

Changes in foreign currency exchange rates had an unfavorable impact of $1.8 million on the segment's adjusted EBITDA compared to the prior year.

Interest expense for the first nine months of fiscal 2023 was $33.2 million, compared to $19.4 million for the same period last year.

The decrease in sales primarily reflected lower retail-based sales, partially offset by improved price realization.

Changes in foreign currency exchange rates had a favorable impact of $1.0 million on the segment's sales compared to the prior year.

Gross profit for the three months ended December 31, 2023 was $132.4 million, compared to $138.9 million for the same period a year ago.

Consolidated gross profit as a percent of sales was 29.4% and 30.9% for the first three months of fiscal 2024 and fiscal 2023, respectively.

The decrease in gross profit primarily reflected the impact of unfavorable changes in sales mix in Memorialization (lower sales of caskets and higher sales of granite memorial products), lower margins on engineered products and cremation products, and higher material and labor costs.

These decreases were partially offset by improved margins on cylinder (packaging) products and benefits from the realization of productivity improvements and other cost-reduction initiatives.

Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $3.9 million and $855,000 for the three months ended December 31, 2023 and 2022, respectively.

Selling and administrative expenses for the three months ended December 31, 2023 were $113.1 million, compared to $111.4 million for the first three months of fiscal 2023.

Consolidated selling and administrative expenses, as a percent of sales, were 25.1% for the three months ended December 31, 2023, compared to 24.8% for the same period last year.

Fiscal 2024 selling and administrative expenses reflected the impact of higher compensation, 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 certain commercial, operational and cost-reduction initiatives totaling $4.6 million in fiscal 2024, compared to $2.7 million in fiscal 2023.

Intangible amortization for the three months ended December 31, 2023 was $9.8 million, compared to $10.3 million for the three months ended December 31, 2022.

Adjusted EBITDA was $45.5 million for the three months ended December 31, 2023 and $49.3 million for the three months ended December 31, 2022.

Memorialization segment adjusted EBITDA was $36.7 million for the first three months of fiscal 2024 compared to $39.1 million for the first three months of fiscal 2023.

The decrease in segment adjusted EBITDA reflected the impact of higher material and labor costs, lower margins on cremation products, and unfavorable changes in sales mix.

These decreases were partially offset by the impact of benefits from productivity initiatives and lower performance-based compensation compared to fiscal 2023.

Adjusted EBITDA for the Industrial Technologies segment was $9.6 million for the three months ended December 31, 2023 compared to $12.2 million for the three months ended December 31, 2022.

The decrease in segment adjusted EBITDA primarily reflected the impact of higher labor costs and lower margins on engineered products.

Adjusted EBITDA for the SGK Brand Solutions segment was $12.9 million for the first three months of fiscal 2024 compared to $12.2 million for the same period a year ago.

The increase in segment adjusted EBITDA primarily reflected the impact of benefits from cost-reduction initiatives and improved margins on cylinder (packaging) products, partially offset by the impact of lower sales and higher labor costs.

Interest expense for the first three months of fiscal 2024 was $11.6 million, compared to $10.2 million for the same period last year.

The increase in interest expense primarily reflected higher average interest rates in the current fiscal year.

Other income (deductions), net, for the nine months ended June 30, 2023 represented a decrease in pre-tax income of $3.0 million, compared to a decrease in pre-tax income of $30.9 million for the same period last year.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $1.6 million and $31.6 million for the nine months ended June 30, 2023 and 2022, respectively.

Other income (deductions), net, for the three months ended December 31, 2023 represented a decrease in pre-tax income of $880,000, compared to a decrease in pre-tax income of $2.1 million for the same period last year.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $109,000 and $1.4 million for the three months ended December 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 $3.1 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").

Other income (deductions), net included $320,000 and $1.1 million of currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey for the three months ended December 31, 2023 and 2022, respectively (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements").

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 nine months of fiscal 2023 were an expense of $4.1 million, compared to a benefit of $2.3 million for the first nine months of fiscal 2022.

The difference between the Company’s consolidated income taxes for the first nine 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 nine-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 nine-month effective tax rate varied from the U.S.

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

The Company's consolidated income taxes for the first three months of fiscal 2024 were a benefit of $726,000, compared to an expense of $1.3 million for the first three months of fiscal 2023.

The difference between the Company’s consolidated income taxes for the first three months of fiscal 2024 compared to the same period for fiscal 2023 resulted from a consolidated pre-tax loss in fiscal 2024 compared to pre-tax income in fiscal 2023 as well as a net tax benefit from discrete items.

The Company’s fiscal 2024 three-month effective tax rate varied from the U.S.

statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, and a net discrete tax benefit.

The Company’s fiscal 2023 three-month effective tax rate varied from the U.S.

statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits.

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

Net losses attributable to noncontrolling interests were $125,000 for the nine months ended June 30, 2023 and $56,000 for the nine months ended June 30, 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 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 $10.0 million (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 $9.7 million and $331,000 were reported within cost of sales and administrative expense, respectively, for the nine months ended June 30, 2022.

Net losses attributable to noncontrolling interests were $56,000 for the three months ended December 31, 2022, reflecting losses in less than wholly-owned businesses.

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.

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 certain commercial and 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.

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Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

(Dollar amounts in thousands)

Net income (loss) $ 8,671 $ 2,875 $ 21,443 $ (18,871)

Net (loss) income $ (2,303) $ 3,647

Income tax (benefit) provision (726) 1,312

Income (loss) before income taxes 8,113 3,915 25,579 (21,182)

(Loss) income before income taxes (3,029) 4,959

Net loss attributable to noncontrolling interests — 56

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23,523 23,729

Acquisition and divestiture costs (2)**

308 951 4,445 951

Acquisition and divestiture related items (2)**

Strategic initiatives and other charges (3)**

4,694 6,339 7,734 16,912

Non-recurring / incremental COVID-19 costs (4)***

— 301 — 2,204

Highly inflationary accounting losses (primarily non-cash) (4)

1,826 — 3,074 —

Defined benefit plan termination related items (6)

— (63) 21 284

Asset write-downs (7)

— (469) — 10,017

Stock-based compensation 4,651 4,334

Non-service pension and postretirement expense (5)

85 238 1,556 31,588

Total Adjusted EBITDA $ 45,482 $ 49,291

(1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $1.2 million and $2.8 million for the three and nine months ended June 30, 2023, respectively.

(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 of $2.2 million 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.

(1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $1,175 and $456 for the three months ended December 31, 2023 and 2022, respectively.

(2) Includes certain non-recurring items associated with recent acquisition and divestiture activities.

(3) Includes certain non-recurring costs associated with commercial, operational and cost-reduction initiatives, and costs associated with global ERP system integration efforts.

(4) 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.

(5) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and losses, and settlement gains and losses.

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Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.

* Depreciation and amortization was $5.8 million and $5.8 million for the Memorialization segment, $5.8 million and $2.5 million for the Industrial Technologies segment, $11.2 million and $13.3 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 June 30, 2023 and 2022, respectively.

Depreciation and amortization was $17.1 million and $17.4 million for the Memorialization segment, $17.6 million and $7.6 million for the Industrial Technologies segment, $33.5 million and $51.1 million for the SGK Brand Solutions segment, and $3.6 million and $4.0 million for Corporate and Non-Operating, for the nine months ended June 30, 2023 and 2022, respectively.

** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $270,000 and $902,000 for the Memorialization segment, $120,000 and $1.2 million for the Industrial Technologies segment, $3.9 million and $2.0 million for the SGK Brand Solutions segment, and $715,000 and $3.2 million for Corporate and Non-Operating, for the three months ended June 30, 2023 and 2022, respectively.

Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $981,000 and $2.1 million for the Memorialization segment, $3.5 million and $1.4 million for the Industrial Technologies segment, $7.0 million and $7.7 million for the SGK Brand Solutions segment, and $676,000 and $6.7 million for Corporate and Non-Operating, for the nine months ended June 30, 2023 and 2022, respectively.

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

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

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

* Depreciation and amortization was $6.4 million and $5.6 million for the Memorialization segment, $6.4 million and $5.9 million for the Industrial Technologies segment, $9.6 million and $11.1 million for the SGK Brand Solutions segment, and $1.2 million and $1.2 million for Corporate and Non-Operating, for the three months ended December 31, 2023 and 2022, respectively.

** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $60,000 and $378,000 for the Memorialization segment, $5.4 million and $937,000 for the Industrial Technologies segment, $863,000 and $521,000 for the SGK Brand Solutions segment, and $867,000 and $1.2 million for Corporate and Non-Operating, for the three months ended December 31, 2023 and 2022, respectively.

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $76.9 million for the first nine months of fiscal 2023, compared to $84.4 million for the first nine 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 cash used in operating activities was $27.3 million for the first three months of fiscal 2024, compared to $36.2 million for the first three months of fiscal 2023.

Operating cash flow for both periods principally included net (loss) income 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.

Net changes in working capital items decreased operating cash flow by $51.6 million and $43.2 million in fiscal 2024 and fiscal 2023, respectively.

The fiscal 2023 change in working capital principally reflected incentive compensation-related payments, higher inventory levels and lower trade accounts payables, 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 $53.7 million for the nine months ended June 30, 2023, compared to $38.9 million for the nine months ended June 30, 2022.

Investing activities for the first nine months of fiscal 2023 primarily reflected capital expenditures of $37.1 million, acquisitions, net of cash acquired, of $15.3 million, and purchases of investments of $1.5 million.

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

The fiscal 2024 change in working capital principally reflected incentive compensation-related payments, higher accounts receivable, lower trade accounts payables, and changes in contract assets and liabilities related to products and services provided to customers over time.

Cash used in investing activities was $14.2 million for the three months ended December 31, 2023 and the three months ended December 31, 2022.

Investing activities for the first three months of fiscal 2024 primarily reflected capital expenditures of $14.1 million.

Investing activities for the first three months of fiscal 2023 primarily reflected capital expenditures of $12.4 million, and acquisitions, net of cash acquired, of $1.8 million.

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

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.

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Capital spending for fiscal 2024 is currently estimated to be approximately $65 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.

Capital spending in fiscal 2023 and 2024 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 nine months ended June 30, 2023 was $56.4 million, primarily reflecting repayments, net of proceeds, on long-term debt of $31.4 million, treasury stock purchases of $2.8 million, and cash dividends of $21.2 million to the Company's shareholders.

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

Cash provided by financing activities for the three months ended December 31, 2023 was $36.1 million, primarily reflecting proceeds, net of repayments, on long-term debt of $62.6 million, treasury stock purchases of $17.2 million, and dividends of $9.3 million.

Cash provided by financing activities for the three months ended December 31, 2022 was $22.3 million, primarily reflecting proceeds, net of repayments, on long-term debt of $32.7 million, treasury stock purchases of $2.5 million and dividends of $7.0 million.

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 June 30, 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.

Borrowings under the revolving credit facility bear interest at the Secured Overnight Financing Rate ("SOFR"), plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 0.75% to 2.00% (1.25% at December 31, 2023) based on the Company's secured leverage ratio.

The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement.

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

Unamortized costs were $1.1 million and $1.5 million at June 30, 2023 and September 30, 2022, respectively.

Unamortized costs were $795,000 and $949,000 at December 31, 2023 and September 30, 2023, respectively.

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

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Outstanding U.S.

dollar denominated borrowings on the revolving credit facility at June 30, 2023 and September 30, 2022 were $450.3 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 June 30, 2023 and 2022 was 5.59% and 1.92%, respectively.

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

dollar denominated borrowings on the revolving credit facility at December 31, 2023 and September 30, 2023 were $454.4 million and $405.0 million, respectively.

Outstanding Euro denominated borrowings on the revolving credit facility at December 31, 2023 and September 30, 2023 were €55.0 million ($60.7 million) and €55.0 million ($58.2 million), respectively.

The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at December 31, 2023 and 2022 was 5.32% and 4.24%, respectively.

The Company amended the domestic credit facility in January 2024.

Refer to “Subsequent Event” below.

The Company has $299.6 million of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes").

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

Unamortized costs were $1.3 million and $1.7 million at June 30, 2023 and September 30, 2022, respectively.

Unamortized costs were $1.0 million and $1.1 million at December 31, 2023 and September 30, 2023, respectively.

The Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company.

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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 June 30, 2023 and September 30, 2022, the amount sold to the Purchasers was $113.2 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 $48.5 million and $44.3 million as of June 30, 2023 and September 30, 2022, respectively.

As of December 31, 2023 and September 30, 2023, the amount sold to the Purchasers was $101.9 million and $101.8 million, respectively, which was derecognized from the Consolidated Balance Sheets.

As collateral against sold receivables, Matthews

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

RFC maintains a certain level of unsold receivables, which was $57.5 million and $57.9 million as of December 31, 2023 and September 30, 2023, respectively.

The following table sets forth a summary of receivables sold as part of the RPA:

Nine Months Ended

June 30, 2023 Nine Months Ended

June 30, 2022

Three Months Ended

December 31, 2023 Three Months Ended

December 31, 2022

(Dollar amounts in thousands)

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Net cash proceeds received $ 100 $ 17,410

During the second quarter of fiscal 2023, the Company, through its U.K.

In March 2023, the Company, through its U.K.

subsidiary, entered into a non-recourse factoring arrangement.

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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 $36.0 million during the nine months ended June 30, 2023.

The principal amount of receivables sold under this arrangement was $17.1 million during the three months ended December 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.

As of June 30, 2023, the amount of factored receivables that remained outstanding was $15.7 million.

As of December 31, 2023 and September 30, 2023, the amount of factored receivables that remained outstanding was $16.4 million and $18.0 million, respectively.

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

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This facility has no stated maturity date and is available until terminated.

Outstanding borrowings under the credit facility totaled €2.2 million ($2.4 million) and €8.2 million ($8.1 million) at June 30, 2023 and September 30, 2022, respectively.

The weighted-average interest rate on outstanding borrowings under this facility was 5.65% and 2.25% at June 30, 2023 and 2022, respectively.

Other borrowings totaled $17.3 million and $13.4 million at June 30, 2023 and September 30, 2022, respectively.

The weighted-average interest rate on these borrowings was 2.44% and 1.90% at June 30, 2023 and 2022, respectively.

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

Outstanding borrowings under the credit facility totaled €5.4 million ($6.0 million) at December 31, 2023.

There were no outstanding borrowings under the credit facility at September 30, 2023.

The weighted-average interest rate on outstanding borrowings under this facility was 6.11% and 3.96% at December 31, 2023 and 2022, respectively.

Other borrowings totaled $28.1 million and $19.2 million at December 31, 2023 and September 30, 2023, respectively.

The weighted-average interest rate on these borrowings was 4.20% and 3.09% at December 31, 2023 and 2022, respectively.

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:

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

(Dollar amounts in thousands)

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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 gain of $1.2 million ($876,000 after tax) at June 30, 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 $9.3 million ($6.9 million after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of June 30, 2023.

Assuming market rates remain constant with the rates at June 30, 2023, a gain (net of tax) of approximately $3.6 million included in AOCI is expected to be recognized in earnings over the next twelve months.

The fair value of the interest rate swaps reflected a net unrealized loss of $1.3 million ($1.0 million after tax) at December 31, 2023 and a net unrealized gain of $4.0 million ($3.0 million after tax) at September 30, 2023, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").

Unrecognized gains of $6.9 million ($5.2 million after tax) and $8.1 million ($6.0 million after tax) related to previously terminated LIBOR-based swaps were also included in AOCI as of December 31, 2023 and September 30, 2023, respectively.

Assuming market rates remain constant with the rates at

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

December 31, 2023, a gain (net of tax) of approximately $2.6 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 June 30, 2023 and September 30, 2022, which has been designated as a net investment hedge of foreign operations.

Dollar/Euro cross currency swap with a notional amount of $81.4 million as of December 31, 2023 and September 30, 2023, 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 $3.3 million (net of income taxes of $1.1 million) 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 June 30, 2023 and September 30, 2022, respectively.

Income of $284,000 and $866,000, 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 nine months ended June 30, 2023, respectively.

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

At June 30, 2023 and September 30, 2022, the swaps totaled $4.4 million and $3.7 million, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.

A loss of $5.1 million (net of income taxes of $1.7 million) and a loss of $2.1 million (net of income taxes of $701,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at December 31, 2023 and September 30, 2023, respectively.

Income of $259,000 and $272,000, 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 months ended December 31, 2023 and 2022, respectively.

At December 31, 2023 and September 30, 2023, the swap totaled $6.8 million and $2.8 million, respectively, and was included in other accrued liabilities in the Consolidated Balance Sheets.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations with a notional amount of €55.0 million ($60.7 million) as of December 31, 2023.

Currency losses of $1.1 million (net of income taxes of $383,000), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at December 31, 2023.

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.

The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its Class A 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, 1,196,143 shares remain available for repurchase as of June 30, 2023.

Under the current authorization, 729,060 shares remain available for repurchase as of December 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 2024.

Consolidated working capital of the Company was $239.5 million at June 30, 2023, compared to $217.2 million at September 30, 2022.

Cash and cash equivalents were $39.3 million at June 30, 2023, compared to $69.0 million at September 30, 2022.

The Company's current ratio was 1.6 at June 30, 2023 and 1.5 at September 30, 2022, respectively.

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

Consolidated working capital of the Company was $308.9 million at December 31, 2023, compared to $253.7 million at September 30, 2023.

Cash and cash equivalents were $37.9 million at December 31, 2023, compared to $42.1 million at September 30, 2023.

The Company's current ratio was 1.9 at December 31, 2023 and 1.6 at September 30, 2023, respectively.

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at June 30, 2023, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

The following table summarizes the Company's contractual obligations at December 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:

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

(2) Subsequent to the balance sheet date, the Company amended its domestic credit facility and extended its maturity date to February 2029.

Refer to Note 17, "Subsequent Event" in Item 1 - "Financial Statements and Supplementary Data" for further details.

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 nine months ended June 30, 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.

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

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

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

As of June 30, 2023, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.6 million.

As of December 31, 2023, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.2 million.

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

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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.

The Company has established numerous internal compliance programs to further enhance measures meant to 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.

ACQUISITIONS AND DIVESTITURES:

Refer to Note 15, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures.

SUBSEQUENT EVENT:

Refer to Note 17, "Subsequent Event" in Item 1 - "Financial Statements" for further details on the Company's subsequent event.

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.

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

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

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.

Management routinely develops and reviews with the Company’s Board of Directors strategic plans with the primary objective of continuous improvement in the Company’s consolidated sales and operating results.

Strategic plans are developed at the business segment level and generally contain strategies for organic growth and acquisitions.

Organic growth primarily reflects the Company’s internal efforts to grow its businesses including commercial activities, cost structure and productivity improvements, new product development, and the expansion into new markets with existing products.

Growth through acquisitions reflects the benefits from acquired businesses and also includes related integration activities to achieve commercial and cost synergy benefits.

The significant factors influencing organic 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 the timing of execution for these orders is expected to impact the segment’s sales in fiscal 2024.

For the Memorialization segment, the Company expects that 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, the Company expects that 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 on Company’s U.S.

dollar reported results.

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.

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

CRITICAL ACCOUNTING POLICIES:

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The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 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%.

The Company performed an interim assessment of its SGK Brand Solutions goodwill reporting unit as of September 1, 2023.

The results of this review indicated that 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 4%.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis