MATTHEWS INTERNATIONAL CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Solutions segment, sales for the first nine months of fiscal 2024 were $396.9 million, which was relatively unchanged from $397.4 million for the first nine months of fiscal 2023. Lower retail-based sales, lower brand sales in Europe, and the impact of unfavorable changes in foreign exchange rates were substantially offset by higher brand sales in the Asia-Pacific region, increased sales of cylinder (packaging) products in Europe, and improved price realization. Changes in foreign currency exchange rates had an unfavorable impact of $2.9 million on the segment's sales compared to the prior year. Gross profit for the nine months ended June 30, 2024 was $412.4 million, compared to $426.9 million for the same period a year ago. Consolidated gross profit as a percent of sales was 30.6% and 30.5% for the first nine months of fiscal 2024 and fiscal 2023, respectively. The decrease in gross profit reflected the impact of lower sales, lower margins on engineered products, and higher material and labor costs. These decreases were partially offset by improved margins on product identification sales and 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 $9.2 million and $6.1 million for the nine months ended June 30, 2024 and 2023, respectively. Selling and administrative expenses for the nine months ended June 30, 2024 were $347.1 million, compared to $333.6 million for the first nine months of fiscal 2023. Consolidated selling and administrative expenses, as a percent of sales, were 25.7% for the nine months ended June 30, 2024, compared to 23.8% for the same period last year. Selling and administrative expenses included acquisition integration and related systems-integration costs, and other charges primarily in connection with certain commercial, operational and cost-reduction initiatives totaling $9.1 million in fiscal 2024, compared to $10.8 million in fiscal 2023. Fiscal 2024 selling and administrative expenses also included $8.1 million of legal costs related to an ongoing dispute in the Company's energy storage business (see Legal Matter below). Selling and administrative expenses in fiscal 2024 also reflected the impact of higher compensation, partially offset by benefits from ongoing cost-reduction initiatives. Intangible amortization for the nine months ended June 30, 2024 was $27.8 million, compared to $31.5 million for the nine months ended June 30, 2023. Adjusted EBITDA was $147.0 million for the nine months ended June 30, 2024 and $163.9 million for the nine months ended June 30, 2023. Memorialization segment adjusted EBITDA was $122.1 million for the first nine months of fiscal 2024 compared to $127.1 million for the first nine months of fiscal 2023. The decrease in segment adjusted EBITDA reflected the impact of lower unit sales, higher material and labor costs, and lower margins on cremation equipment. These decreases were partially offset by the impact of improved price realization, benefits from productivity initiatives, lower transportation costs, and lower performance-based compensation compared to fiscal 2023. Adjusted EBITDA for the Industrial Technologies segment was $23.8 million for the nine months ended June 30, 2024 compared to $42.8 million for the nine months ended June 30, 2023. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, higher labor costs, and lower margins on engineered products. These decreases were partially offset by improved margins on product identification sales, benefits from cost-reduction initiatives, and lower performance-based compensation compared to fiscal 2023. Adjusted EBITDA for the SGK Brand Solutions segment was $44.3 million for the first nine months of fiscal 2024 compared to $39.6 million for the same period a year ago. The increase in segment adjusted EBITDA primarily reflected the impact of improved price realization, benefits from cost-reduction initiatives and improved margins on cylinder (packaging) products, partially offset by the impact of higher labor costs and higher performance-based compensation compared to fiscal 2023. Interest expense for the first nine months of fiscal 2024 was $36.9 million, compared to $33.2 million for the same period last year. The increase in interest expense reflected higher average interest rates and an increase in average borrowing levels in the current fiscal year. Other income (deductions), net, for the nine months ended June 30, 2024 represented a decrease in pre-tax income of $2.7 million, compared to a decrease in pre-tax income of $3.0 million for the same period last year. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $327,000 and $1.6 million for the nine months ended June 30, 2024 and 2023, 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. 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. Other income (deductions), net included $895,000 and $3.1 million of currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey for the nine months ended June 30, 2024 and 2023, 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 2024 represented a benefit of $10.7 million, compared to an expense of $4.1 million for the first nine months of fiscal 2023. The difference between the Company’s consolidated income taxes for the first nine months of fiscal 2024 compared to the same period for fiscal 2023 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued 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 in fiscal 2024. The Company’s fiscal 2024 nine month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to tax credits, jurisdictional tax rate netting, recognition of certain previously unrecognized deferred tax assets and other net discrete tax benefits. 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. Net losses attributable to noncontrolling interests were $125,000 for the nine months ended June 30, 2023, reflecting losses in less than wholly-owned businesses. Legal Matter Refer to Note 17, "Legal Matter" in Item 1 - "Financial Statements" for details related to an ongoing dispute with Tesla. 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 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. 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 June 30, Nine Months Ended June 30, 2024 2023 2024 2023 (Dollar amounts in thousands) Net income $ 1,777 $ 8,671 $ 8,501 $ 21,443 Income tax (benefit) provision (8,829) (558) (10,677) 4,136 (Loss) income before income taxes (7,052) 8,113 (2,176) 25,579 Net loss attributable to noncontrolling interests — 67 — 125 Interest expense, including RPA and factoring financing fees (1) 14,005 12,136 40,539 35,944 Depreciation and amortization * 23,657 23,936 70,441 71,813 Acquisition and divestiture related items (2)** 2,266 308 5,565 4,445 Strategic initiatives and other charges (3)** 6,246 4,694 17,128 7,755 Highly inflationary accounting losses (primarily non-cash) (4) 185 1,826 895 3,074 Stock-based compensation 5,331 5,023 14,309 13,635 Non-service pension and postretirement expense (5) 108 85 327 1,556 Total Adjusted EBITDA $ 44,746 $ 56,188 $ 147,028 $ 163,926 (1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $1.2 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively, and $3.6 million and $2.8 million for the nine months ended June 30, 2024 and 2023, 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. Fiscal 2024 also includes legal costs related to an ongoing dispute with Tesla, which totaled $3.2 million and $8.1 million for the three and nine months ended June 30, 2024, respectively (see Note 17, "Legal Matter" in Item 1 - "Financial Statements and Supplementary Data"). Fiscal 2023 includes loss recoveries totaling $2.2 million for the nine months ended June 30, 2023, which were related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. (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"). (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. 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 $7.1 million and $5.8 million for the Memorialization segment, $5.8 million and $5.8 million for the Industrial Technologies segment, $9.7 million and $11.2 million for the SGK Brand Solutions segment, and $1.1 million and $1.2 million for Corporate and Non-Operating, for the three months ended June 30, 2024 and 2023, respectively. Depreciation and amortization was $20.4 million and $17.1 million for the Memorialization segment, $17.7 million and $17.6 million for the Industrial Technologies segment, $28.9 million and $33.5 million for the SGK Brand Solutions segment, and $3.4 million and $3.6 million for Corporate and Non-Operating, for the nine months ended June 30, 2024 and 2023, respectively. ** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.1 million and $270,000 for the Memorialization segment, $4.5 million and $120,000 for the Industrial Technologies segment, $1.5 million and $3.9 million for the SGK Brand Solutions segment, and $1.4 million and $715,000 for Corporate and Non-Operating, for the three months ended June 30, 2024 and 2023, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $2.2 million and $981,000 for the Memorialization segment, $14.3 million and $3.5 million for the Industrial Technologies segment, $2.7 million and $7.0 million for the SGK Brand Solutions segment, and $3.5 million and $697,000 for Corporate and Non-Operating, for the nine months ended June 30, 2024 and 2023, respectively. 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 $43.3 million for the first nine months of fiscal 2024, compared to $76.9 million for the first nine months of fiscal 2023. Operating cash flow for both periods principally included net 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, and $10.5 million of proceeds from the settlement of cash flow hedges. Net changes in working capital items decreased operating cash flow by $29.2 million and $16.1 million in fiscal 2024 and fiscal 2023, respectively. The fiscal 2024 change in working capital principally reflected lower accounts receivable and inventory, changes in contract assets and liabilities related to products and services provided to customers over time, lower performance-based compensation accruals, and changes in other accounts. Cash used in investing activities was $38.6 million for the nine months ended June 30, 2024, compared to $53.7 million for the nine months ended June 30, 2023. Investing activities for the first nine months of fiscal 2024 primarily reflected capital expenditures of $33.2 million, acquisitions, net of cash acquired, of $5.8 million, and purchases of investments of $825,000. 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. 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 $48.7 million for the last three fiscal years. Capital spending for fiscal 2024 is currently estimated to be approximately $50 million. Capital spending in fiscal 2024 and 2023 reflects additional capital projects to support new production capabilities and increased efficiencies, particularly 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, 2024 was $4.1 million, primarily reflecting proceeds, net of repayments, on long-term debt of $27.8 million, treasury stock purchases of $20.5 million, dividends of $24.1 million, payments of debt issuance costs of $4.7 million (see below), and proceeds from a net investment hedge of $17.4 million (see below). 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 dividends of $21.2 million. The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in January 2024. The amended and restated loan agreement includes a $750.0 million senior secured revolving credit facility, which matures in January 2029, subject to the terms and conditions of the amended facility. A portion of the revolving credit facility (not to exceed $350.0 million) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at the Secured Overnight Financing Rate ("SOFR"), plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 1.00% to 2.00% (1.50% at June 30, 2024) based on the Company's leverage ratio. The leverage ratio is defined as total 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 new debt issuance costs of $4.7 million in connection with the amended and restated agreement, which were deferred and are being amortized over the term of the facility. Unamortized costs were $5.1 million and $949,000 at June 30, 2024 and September 30, 2023, 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 June 30, 2024 and September 30, 2023 were $436.6 million and $405.0 million, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2024 and September 30, 2023 were €55.0 million ($58.9 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 June 30, 2024 and 2023 was 4.61% and 5.59%, respectively. 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company has $299.2 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 $720,000 and $1.1 million at June 30, 2024 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. Matthews RFC has 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, 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 RPA, which had a maturity date of March 2024, was amended in March 2024 to extend the maturity date to March 2026. 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 June 30, 2024 and September 30, 2023, the amount sold to the Purchasers was $105.1 million and $101.8 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 $52.5 million and $57.9 million as of June 30, 2024 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, 2024 Nine Months Ended June 30, 2023 (Dollar amounts in thousands) Gross receivables sold $ 291,189 $ 301,045 Cash collections reinvested (287,889) (284,435) Net cash proceeds received $ 3,300 $ 16,610 In March 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 $53.1 million and $36.0 million during the nine months ended June 30, 2024 and 2023, respectively. 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, 2024 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. The maximum amount of borrowing available under this facility is €10.0 million ($10.7 million). The facility also provides €18.5 million ($19.8 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €2.9 million ($3.1 million) at June 30, 2024. 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 5.88% and 5.65% at June 30, 2024 and 2023, respectively. 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Other borrowings totaled $16.7 million and $19.2 million at June 30, 2024 and September 30, 2023, respectively. The weighted-average interest rate on these borrowings was 2.61% and 2.44% at June 30, 2024 and 2023, 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, 2024 September 30, 2023 (Dollar amounts in thousands) Notional amount $ 175,000 $ 175,000 Weighted-average maturity period (years) 3.4 4.1 Weighted-average received rate 5.34 % 5.32 % Weighted-average pay rate 3.83 % 3.83 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective. The fair value of the interest rate swaps reflected a net unrealized gain of $2.3 million ($1.7 million after tax) at June 30, 2024 and $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 $4.8 million ($3.5 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 June 30, 2024 and September 30, 2023, respectively. Assuming market rates remain constant with the rates at June 30, 2024, 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, 2024 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 $2.9 million (net of income taxes of $1.0 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 June 30, 2024 and September 30, 2023, respectively. Income of $306,000 and $891,000, 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, 2024, 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. At June 30, 2024 and September 30, 2023, the swap totaled $3.9 million and $2.8 million, respectively, and was included in other accrued liabilities in the Consolidated Balance Sheets. During the third quarter of fiscal 2024, the Company entered into a U.S. Dollar/SEK cross currency swap with a notional amount of SEK 212.7 million ($20.0 million), which was designated as a net investment hedge of foreign operations. The swap contract matures in June 2025. In connection with this transaction, the Company received $17.4 million from the counterparty, representing partial advance payment of amounts due under the U.S. Dollar leg of the swap. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. At June 30, 2024, the swap totaled $17.4 million and was included in other current liabilities in the Consolidated Balance Sheet. The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations with a notional amount of €55.0 million ($58.9 million) as of June 30, 2024. Currency losses of $1.7 million (net of income taxes of $574,000), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30, 2024. 33 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company has a stock repurchase program. 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, 613,365 shares remain available for repurchase as of June 30, 2024. 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 $255.9 million at June 30, 2024, compared to $253.7 million at September 30, 2023. Cash and cash equivalents were $42.7 million at June 30, 2024, compared to $42.1 million at September 30, 2023. The Company's current ratio was 1.7 at June 30, 2024 and 1.6 at September 30, 2023, respectively. Long-Term Contractual Obligations: The following table summarizes the Company's contractual obligations at June 30, 2024, and the effect such obligations are expected to have on its liquidity and cash flows in future periods. Payments due in fiscal year: Total 2024 Remainder 2025 to 2026 2027 to 2028 After 2028 Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facilities $ 498,668 $ — $ 3,088 $ — $ 495,580 2025 Senior Notes 322,122 — 322,122 — — Finance lease obligations (1) 18,007 1,441 9,585 5,688 1,293 Non-cancelable operating leases (1) 71,413 6,923 42,852 16,110 5,528 Other 49,501 257 35,394 6,135 7,715 Total contractual cash obligations $ 959,711 $ 8,621 $ 413,041 $ 27,933 $ 510,116 (1) Lease obligations have not been discounted to their present value. 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. 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, 2024, 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 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 AND DIVESTITURES: Refer to Note 15, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures. 34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued FORWARD-LOOKING INFORMATION: 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. Sales within this segment may also be influenced by the timing of work with the Company's largest energy storage customer, as well as the level of advancement by existing and potential new customers towards adopting new production solutions. 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 the 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. The Company plans to initiate cost reduction programs during the fourth quarter of fiscal 2024, which are primarily focused on the Company's engineering and tooling operations in Europe. These initiatives are designed to position these businesses to capitalize on future growth opportunities. CRITICAL ACCOUNTING ESTIMATES AND 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, 2023. 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, 2023. 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 2024 (January 1, 2024) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary. 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 7%. 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. 35 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.