What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-11-22 compared with 2023-11-17 · 103 added, 131 removed, 182 unchanged (56% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

profit included $9.7 million of asset write-downs related to the war between Russia and Ukraine (see Note 23, "Asset Write-downs" in Item 8 - "Financial Statements and Supplementary Data" for further details).

Selling and administrative expenses for the year ended September 30, 2023 were $447.5 million, compared to $426.7 million for fiscal 2022.

Consolidated selling and administrative expenses, as a percent of sales, were 23.8% for fiscal 2023, compared to 24.2% in fiscal 2022.

Fiscal 2023 selling and administrative expenses reflected the impact of higher salaries and wage rates, higher travel and entertainment ("T&E") costs, increased performance-based compensation compared to fiscal 2022, 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 $12.5 million in fiscal 2023, compared to $27.1 million in fiscal 2022.

Intangible amortization for the year ended September 30, 2023 was $42.1 million, compared to $57.1 million for fiscal 2022.

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

In the fiscal 2022 fourth quarter, the Company recorded a goodwill write-down of $82.5 million related to the SGK Brand Solutions reporting unit (formerly the Graphics Imaging reporting unit).

Refer to Note 22, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary Data" for further details.

Adjusted EBITDA for fiscal 2023 was $225.8 million, compared to $210.4 million for fiscal 2022.

Memorialization segment adjusted EBITDA for fiscal 2023 was $164.0 million, compared to $151.8 million for fiscal 2022.

The increase in segment adjusted EBITDA reflected the impact of higher sales, lower transportation costs, benefits from the acquisition of Eagle Granite Company, and benefits from productivity initiatives.

These increases were partially offset by the impact of higher material, labor and T&E costs, and increased performance-based compensation compared to fiscal 2022.

Adjusted EBITDA for the Industrial Technologies segment for fiscal 2023 was $66.3 million, compared to $56.8 million in fiscal 2022.

The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, partially offset by the impact of higher labor and T&E costs, increased performance-based compensation compared to fiscal 2022, and unfavorable contributions from recent acquisitions.

Changes in foreign currency exchange rates had an unfavorable impact of $1.3 million on the segment's adjusted EBITDA compared to the prior year.

Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2023 was $57.1 million, compared to $60.1 million for fiscal 2022.

The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales and higher material, labor and T&E costs, partially offset by benefits from cost reduction initiatives.

Changes in foreign currency exchange rates had an unfavorable impact of $2.0 million on the segment's adjusted EBITDA compared to the prior year.

Interest expense for fiscal 2023 was $44.6 million, compared to $27.7 million in fiscal 2022.

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

Other income (deductions), net for the year ended September 30, 2023 represented a decrease in pre-tax income of $2.6 million, compared to a decrease in pre-tax income of $32.6 million in fiscal 2022.

Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $1.6 million and $31.8 million in fiscal years 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 15, "Pension and Other Postretirement Plans" in Item 8 - "Financial Statements and Supplementary Data" 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 currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey totaling $1.4 million and $1.5 million in fiscal years 2023 and 2022, respectively (see Note 2, "Summary of Significant Accounting Policies" in Item 8 - "Financial Statements and Supplementary Data" for further details).

The Company's consolidated income taxes for the year ended September 30, 2023 were an expense of $1.8 million, compared to a benefit of $4.4 million for fiscal 2022.

The difference between the Company's consolidated income taxes for fiscal 2023 compared to fiscal 2022 partially resulted from fiscal 2023 having consolidated income before income taxes compared to fiscal 2022 having a consolidated loss before income taxes.

The fiscal 2023 tax rate was negatively impacted by share-based compensation.

Additionally, the fiscal 2023 tax rate benefited from research and development and foreign tax credits and the utilization of foreign tax net operating losses with a valuation allowance.

The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible.

The fiscal 2022 effective tax rate also benefited from research and development and foreign tax credits.

The fiscal 2022 effective tax rate was negatively impacted by foreign net operating losses requiring a full valuation allowance.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Net losses attributable to noncontrolling interests were $155,000 in fiscal 2023, compared to $54,000 in fiscal 2022.

The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.

Comparison of Fiscal 2022 and Fiscal 2021:

For a comparison of the Company's results of operations for the fiscal years ended September 30, 2022 and September 30, 2021, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation" of the Company's annual report on Form 10-K for the fiscal year ended September 30, 2022 filed with the SEC on November 18, 2022.

NON-GAAP FINANCIAL MEASURES:

Included in this report are measures of financial performance that are not defined by GAAP.

The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition and divestiture costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense.

Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results.

The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures.

The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business.

Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results.

These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges.

Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and divestiture costs, 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The reconciliation of net income to adjusted EBITDA is as follows:

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(Dollar amounts in thousands)

Net income (loss) $ 39,136 $ (99,828) $ 2,858

Income tax provision (benefit) 1,774 (4,391) 6,375

Income (loss) before income taxes 40,910 (104,219) 9,233

Net (loss) income $ (59,660) $ 39,136 $ (99,828)

Income tax (benefit) provision (9,997) 1,774 (4,391)

(Loss) income before income taxes (69,657) 40,910 (104,219)

Net loss attributable to noncontrolling interests — 155 54

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

— 2,985 5,312

Highly inflationary accounting losses (primarily non-cash) (5)

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Defined benefit plan termination related items (6)

Asset write-downs, net (7)

Goodwill write-downs (8)

Goodwill and asset write-downs (7)

33,574 — 92,504

Stock-based compensation 18,478 17,308 17,432

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Total Adjusted EBITDA $ 205,157 $ 225,809 $ 210,408

(1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $4.0 million and $1.0 million for the fiscal years ended September 30, 2023 and 2022, respectively.

(1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $4.8 million, $4.0 million and $1.0 million for the fiscal years ended September 30, 2024, 2023 and 2022, respectively.

(2) Includes certain non-recurring costs associated with recent acquisition and divestiture activities, and also includes a gain of $1.8 million in fiscal year 2023 related to the divestiture of a business in the Industrial Technologies segment.

(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 in fiscal year 2023 related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015.

(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 $12.4 million (See Note 19, "Commitments and Contingent Liabilities" in Item 8 - "Financial Statements and Supplementary Data").

Fiscal 2023 includes loss recoveries totaling $2.2 million which were 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.

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(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, net of recoveries within the SGK Brand Solutions segment (see Note 23, "Asset Write-Downs" in Item 8 - “Financial Statements and Supplementary Data”).

(8) Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 22, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data”).

(7) Fiscal 2024 includes goodwill write-downs within the Industrial Technologies segment of $16.7 million (see Note 23, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data"), asset write-downs within the Memorialization segment of $13.7 million (see Note 24, "Asset Write-Downs" in Item 8 - “Financial Statements and Supplementary Data"), and investment write-downs within Corporate and Non-operating of $3.1 million (see Note 8, "Investments" in Item 8 - “Financial Statements and Supplementary Data").

Fiscal 2022 includes goodwill write-downs within the SGK Brand Solutions segment of $82.5 million (see Note 23, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data"), and asset write-downs net of recoveries within the SGK Brand Solutions segment of $10.1 million (see Note 24, "Asset Write-Downs" in Item 8 - “Financial Statements and Supplementary Data").

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

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** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $3.5 million, $1.0 million, and $3.5 million for the Memorialization segment, $54.4 million, $4.1 million, and $5.6 million for the Industrial Technologies segment, $3.0 million, $10.9 million, and $19.4 million for the SGK Brand Solutions segment, and $10.3 million, $3.2 million, and $7.5 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

*** Non-recurring/incremental COVID-19 costs were $1.3 million.

and $3.6 million for the Memorialization segment, $6,000, and $38,000 for the Industrial Technologies segment, $1.2 million, and $1.5 million for the SGK Brand Solutions segment, $466,000, and $89,000 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $1.3 million for the Memorialization segment, $6,000 for the Industrial Technologies segment, $1.2 million for the SGK Brand Solutions segment, and $466,000 for Corporate and Non-Operating, for the fiscal year ended September 30, 2022.

† Strategic initiatives and other charges includes charges for exit and disposal activities (including severance and other employee termination benefits) totaling $45.7 million, $13.2 million and $14.6 million in fiscal years 2024, 2023 and 2022, respectively.

Fiscal 2024 amounts totaling $32.5 million, $1.4 million and $11.8 million were presented in cost of sales, selling expense, and administrative expense, respectively.

Fiscal 2023 amounts totaling $9.0 million, $1.9 million and $2.3 million were presented in cost of sales, selling expense, and administrative expense, respectively.

Fiscal 2022 amounts totaling $1.8 million, $267,000 and $12.6 million were presented in cost of sales, selling expense, and administrative expense, respectively.

Accrued severance and other employee termination benefits totaled $42.2 million and $7.3 million as of September 30, 2024 and 2023, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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Net cash provided by operating activities was $79.3 million for the year ended September 30, 2024, compared to $79.5 million and $126.9 million for fiscal years 2023 and 2022, respectively.

Operating cash flow for fiscal 2024 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, goodwill and other asset write-downs, non-cash pension expense, gain on divestitures and sale of assets, and other non-cash adjustments, and changes in working capital items.

The change in working capital in fiscal 2024 primarily reflected lower inventory levels, higher accrued compensation related to severance and other employee termination benefits, changes in contract assets and liabilities related to products and services provided to customers over time, lower trade accounts payable, lower performance-based compensation accruals, and changes in other accounts.

Operating cash flow for fiscal 2023 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, non-cash pension expense, gain on divestitures and sale of assets, and other non-cash adjustments, and changes in working capital items.

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The favorable movements in working capital in fiscal 2022 primarily reflected proceeds from the sale of receivables under a receivables purchase agreement, partially offset by higher inventory levels reflecting increased commodity costs, lower performance-based compensation accruals, and changes in other accounts.

Operating cash flow for fiscal 2021 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains related to investments, and non-cash pension expense, and changes in working capital items.

Fiscal 2021 operating cash flow also reflected a $15.0 million discretionary contribution to fund the DB Plan.

The favorable movements in working capital in fiscal 2021 primarily reflected increased trade accounts payable.

Cash used in investing activities was $47.0 million for the year ended September 30, 2024, compared to $58.7 million and $80.9 million for fiscal years 2023 and 2022, respectively.

Investing activities for fiscal 2024 primarily reflected capital expenditures of $45.2 million, acquisition payments (net of cash acquired or received from sellers) of $5.8 million, purchases of investments of $825,000, and proceeds from the sale of assets of $4.2 million .

Investing activities for fiscal 2023 primarily reflected capital expenditures of $50.6 million, acquisition payments (net of cash acquired or received from sellers) of $15.3 million, purchases of investments of $1.6 million, proceeds from the sale of assets of $2.1 million, and proceeds from divestitures of $6.7 million .

Investing activities for fiscal 2022 primarily reflected capital expenditures of $61.3 million, acquisition payments (net of cash acquired or received from sellers) of $44.5 million , purchases of investments of $2.2 million, proceeds from the sale of assets of $5.0 million, proceeds from the sale of investments of $8.8 million, and proceeds from the settlement of net investment hedges of $13.1 million .

Investing activities for fiscal 2021 primarily reflected capital expenditures of $34.3 million, acquisition payments (net of cash acquired or received from sellers) of $15.6 million, proceeds from the sale of assets of $2.8 million , and proceeds from the sale of investments of $34.2 million.

Capital expenditures were $45.2 million for the year ended September 30, 2024, compared to $50.6 million and $61.3 million for fiscal years 2023 and 2022, respectively.

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Capital expenditures for the last three fiscal years were primarily financed through operating cash.

Capital spending for fiscal 2024 is currently estimated to be approximately $75 million.

Capital spending in fiscal years 2022 through 2024 reflects additional capital projects to support new production capabilities and increased efficiencies within the Memorialization and Industrial Technologies segments.

Capital spending for fiscal 2025 is currently estimated to be in the range of approximately $50 million to $60 million.

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

Cash used in financing activities for the year ended September 30, 2023 was $50.2 million, and principally reflected repayments, net of proceeds, on long-term debt of $18.2 million, purchases of treasury stock of $2.9 million, and payment of dividends to the Company's shareholders of $28.2 million ($0.92 per share).

Cash used in financing activities for the year ended September 30, 2022 was $37.2 million, and principally reflected proceeds, net of repayments, on long-term debt of $35.7 million, purchases of treasury stock of $41.7 million, payment of dividends to the Company's shareholders of $27.7 million ($0.88 per share), and $725,000 of holdback and contingent consideration payments related to acquisitions from prior years.

Cash used in financing activities for the year ended September 30, 2021 was $122.9 million, and principally reflected repayments, net of proceeds, on long-term debt of $76.8 million, purchases of treasury stock of $11.9 million, payment of dividends to the Company's shareholders of $27.7 million ($0.86 per share), $1.8 million of holdback and contingent consideration payments related to acquisitions from prior years, and $1.8 million of payments for the acquisition of noncontrolling interests.

Cash used in financing activities for the year ended September 30, 2024 was $35.0 million, and principally reflected repayments, net of proceeds, on long-term debt of $31.3 million, purchases of treasury stock of $20.6 million, payment of dividends of $31.4 million, payments of debt issuance costs of $10.2 million (see below), and proceeds from net investment hedges of $58.4 million (see below).

Cash used in financing activities for the year ended September 30, 2022 was $37.2 million, and principally reflected proceeds, net of repayments, on long-term debt of $35.7 million, purchases of treasury stock of $41.7 million, payment of dividends of $27.7 million, and $725,000 of holdback and contingent consideration payments related to acquisitions from prior years.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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.

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in September 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.

The obligations under the domestic credit facility are secured by a first priority lien on substantially all of the Company's and certain of its domestic subsidiaries' assets.

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 September 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.

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.

Borrowings under the revolving credit facility bear interest at 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 September 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 debt issuance costs in connection with the domestic credit facility.

Unamortized costs were $949,000 and $1.5 million at September 30, 2023 and September 30, 2022, respectively.

The Company incurred debt issuance costs of $4.9 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 $5.0 million and $949,000 at September 30, 2024 and 2023, respectively.

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

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The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at September 30, 2024 and 2023 was 4.59% and 5.95%, respectively.

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

The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year.

The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries.

The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes.

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

Unamortized costs were $1.1 million and $1.7 million at September 30, 2023 and 2022, respectively.

In September 2024, the Company issued $300.0 million aggregate principal amount of 8.625% senior secured second lien notes due October 1, 2027 (the "2027 Senior Secured Notes").

The 2027 Senior Secured Notes bear interest at a rate of 8.625% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2025.

The Company's obligations under the 2027 Senior Secured Notes are secured by a second priority lien on substantially all of the Company’s and certain of its domestic subsidiaries’ assets.

The Company is subject to certain covenants and other restrictions in connection with the 2027 Senior Secured Notes.

The net proceeds from the 2027 Senior Secured Notes, together with additional funds borrowed under the Company’s domestic credit facility, were irrevocably deposited into a trust and were subsequently used to redeem all of the Company’s outstanding 5.25% senior unsecured notes due December 1, 2025 (the “2025 Senior Notes”) on October 24, 2024, and to pay accrued and unpaid interest on the 2025 Senior Notes at such time.

Effective with the irrevocable deposit of these amounts into the trust in September 2024, the Company satisfied and discharged the indenture governing the 2025 Senior Notes in accordance with its terms.

Accordingly, the remaining unamortized direct financing costs from the 2025 Senior Notes, which totaled $585,000 , were charged to interest expense during the fourth quarter of fiscal 2024.

The Company incurred direct financing fees and costs of $5.2 million in connection with 2027 Senior Secured Notes, which were deferred and are being amortized over the term of the 2027 Senior Secured Notes.

Unamortized costs related to the Company’s notes were $5.2 million and $1.1 million at September 30, 2024 and 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.

In March 2022, Matthews RFC entered into a receivables purchase agreement (“RPA”) to sell up to $125.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred.

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, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin.

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.

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As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $58.2 million and $57.9 million as of September 30, 2024 and 2023, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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

For the Year Ended September 30,

(Dollar amounts in thousands)

Gross receivables sold

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(384,594) (388,283)

Net cash proceeds received $ 5,210 $ 96,590

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Net cash (payments) proceeds $ (5,500) $ 5,210

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

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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 $55.2 million during the fiscal year ended September 30, 2023.

The principal amount of receivables sold under this arrangement was $70.2 million and $55.2 million during the fiscal year ended September 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 September 30, 2023, the amount of factored receivables that remained outstanding was $18.0 million.

As of September 30, 2024 and 2023, the amount of factored receivables that remained outstanding was $15.7 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.

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

Outstanding borrowings under the credit facility totaled €8.2 million ($8,050) at September 30, 2022.

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

There were no outstanding borrowings under the credit facility at September 30, 2024 or 2023.

Other borrowings totaled $15.6 million and $19.2 million at September 30, 2024 and 2023, respectively.

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

The fair value of the interest rate swaps reflected a net unrealized gain of $4.0 million ($3.0 million after tax) and $10.7 million ($7.9 million after tax) at September 30, 2023 and 2022, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").

Unrecognized gains of $8.1 million ($6.0 million after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of September 30, 2023.

The fair value of the interest rate swaps reflected a net unrealized loss of $2.6 million ($1.9 million after tax) and a net unrealized gain of $4.0 million ($3.0 million after tax) at September 30, 2024 and 2023, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").

Unrecognized gains of $3.8 million ($2.9 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 September 30, 2024 and 2023, respectively.

Assuming market rates remain constant with the rates at September 30, 2024, a gain (net of tax) of approximately $1.0 million included in AOCI is expected to be recognized in earnings over the next twelve months.

The Company has a U.S.

Dollar/Euro cross currency swap with a notional amount of $81.4 million as of September 30, 2023 and 2022, which has been designated as a net investment hedge of foreign operations.

The swap contract matures in September 2027.

The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices.

A loss of $2.1 million (net of income taxes of $701,000) and a gain of $2.8 million (net of income taxes of $940,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2023 and 2022, respectively.

Income of $1.2 million and $1.6 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 fiscal 2023 and fiscal 2022, respectively.

At September 30,

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

2023 and 2022, the swap totaled $2.8 million and $3.7 million, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.

The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations.

The Company utilizes certain cross currency swaps as net investment hedges of foreign operations and assesses effectiveness for these contracts based on changes in fair value attributable to changes in spot prices.

The following table presents information related to cross currency swaps entered into by the Company and designated as net investment hedges:

Notional Amount Unrealized Losses Recognized in AOCI

Swap Currencies Maturity Date September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

(Dollar amounts in thousands)

USD/EUR September 2027 $ 81,392 $ 81,392 $ (5,440) $ (2,065)

USD/SEK June 2025 20,000 — (468) —

USD/SGD August 2026 20,000 — (441) —

USD/EUR August 2026 25,000 — (30) —

$ 146,392 $ 81,392 $ (6,379) (1)

$ (2,065) (1)

(1) Total unrealized losses are presented net of tax of $2,156 and $701, for the years ended September 30, 2024 and 2023, respectively.

In connection with certain of these cross currency swaps, the Company received cash from the counterparties, representing partial advance payments of amounts due under the U.S.

dollar leg of the swaps.

Such amounts totaled $58.4 million, of which $17.4 million and $41.0 million were included in other current liabilities and other liabilities, respectively, on the Consolidated Balance Sheets at September 30, 2024.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations with a notional amount of €30.0 million ($33.5 million) as of September 30, 2024.

Currency losses of $3.8 million (net of income taxes of $1.1 million), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2024.

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

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

During fiscal 2022, net gains from economic hedges (which largely offset losses from underlying foreign currency exposures) totaled $4.7 million.

No such economic hedge contracts were outstanding as of September 30, 2023 or 2022.

No such net investment hedges were outstanding as of September 30, 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.

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Revolving credit facilities $ 444,011 $ — $ — $ 444,011 $ —

2025 Senior Notes 337,875 15,750 322,125 — —

2027 Senior Secured Notes 372,376 12,938 51,750 307,688 —

Finance lease obligations (1)

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67,592 24,711 30,977 8,457 3,447

Other 28,380 1,037 17,624 2,299 7,420

Cross-currency swaps 66,967 18,042 48,925 — —

74,029 53,532 11,495 2,419 6,583

Total contractual cash obligations $ 1,049,467 $ 116,059 $ 155,486 $ 766,834 $ 11,088

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

(2) Includes $42,245 of severance and other employee termination benefit obligations, as well as $15,433 of deferred purchase price and contingent consideration obligations related to acquisitions completed in prior years.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24.2 million to fully settle the Company's non-qualified Supplemental Retirement Plan ("SERP") and defined benefit portion of the Company's Officers Retirement Restoration Plan ("ORRP") obligations.

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This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP.

During fiscal 2023, the remaining funds held in a rabbi trust associated with the SERP were transferred to the Company.

Consequently, these amounts are no longer classified as restricted cash.

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

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

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

ACQUISITIONS AND DIVESTITURES:

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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 are expected to impact the segment’s sales through mid-fiscal 2024.

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 Company’s U.S.

dollar reported results.

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

CRITICAL ACCOUNTING POLICIES:

The Company initiated cost reduction programs during the fourth quarter of fiscal 2024, which are primarily focused on the Company's engineering and tooling operations in Europe, as well as the Company's general and administrative functions.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.

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A discussion of market risks affecting the Company can be found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

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The following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's consolidated financial statements for the year ended September 30, 2024.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Long-Lived Assets, including Property, Plant and Equipment:

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An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value, which is based on a discounted cash flow analysis.

No such charges were recognized during the years presented, except as disclosed in Note 23, “Asset Write-Downs" in Item 8 - "Financial Statements and Supplementary Data."

An asset considered held-for-sale is reported at the lower of the asset's carrying amount or fair value, less cost to sell.

No impairment charges for property, plant and equipment were recognized during the years presented, except as disclosed in Note 24, “Asset Write-Downs" in Item 8 - "Financial Statements and Supplementary Data."

Goodwill and Indefinite-Lived Intangibles:

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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 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% as of January 1, 2023.

In light of the limited excess fair value over carrying value and further declines experienced by the SGK Brand Solutions reporting unit, management determined that a triggering event occurred during the fourth quarter of fiscal 2023, resulting in an interim assessment of goodwill for the 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 7%.

1 unchanged sentence

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.

The Company's Surfaces and Engineering reporting unit experienced declines during the fourth quarter of fiscal 2024, primarily related to the Company's recently acquired (August 2022) Olbrich GmbH business.

The Company determined that a triggering event occurred during the fourth quarter of fiscal 2024, resulting in a re-evaluation of the goodwill for the Surfaces and Engineering reporting unit as of September 1, 2024.

As a result of this interim assessment, the Company recorded a goodwill write-down totaling $16.7 million during the fiscal 2024 fourth quarter, reducing the amount of goodwill for this reporting unit to zero.

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 the income approach valuation methodology which utilizes estimated discounted cash flows of the reporting unit.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

In fiscal 2022, in its assessment of the potential impacts of weakened economic conditions (particularly in Europe), increases in the cost of certain materials, labor, and other inflation-related pressures, and unfavorable changes in foreign exchange rates on the estimated future earnings and cash flows for the SGK Brand Solutions reporting unit, and in light of the limited excess fair value over carrying value for this reporting unit, management determined a triggering event occurred, resulting in a re-evaluation of goodwill for the reporting unit, as of September 1, 2022.

5 unchanged sentences

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are exempt from tax, or such earnings are considered to be reinvested indefinitely in foreign operations.

Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are exempt from tax, or such earnings are considered to be reinvested indefinitely in foreign operations.

Recent labor cost increases and other inflation-related pressures have had an unfavorable impact on the Company's results of operations (see "Results of Operations").

2 unchanged sentences

Refer to Note 3, "Accounting Pronouncements" in Item 8 - "Financial Statements and Supplementary Data," for further details on recently issued accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The following discussion about the Company's market risk involves forward-looking statements.

Actual results could differ materially from those projected in the forward-looking statements.

The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates.

The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.

Interest Rates - The Company's most significant long-term instrument is the domestic credit facility.

dollar denominated debt under the domestic credit facility bears interest at variable rates based on SOFR (LIBOR for periods prior to March 2023).

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:

September 30, 2024 September 30, 2023

(Dollar amounts in thousands)

Pay fixed swaps - notional amount $ 175,000 $ 175,000

Weighted-average maturity period (years) 3.2 4.1

Weighted-average received rate 4.85 % 5.32 %

Weighted-average pay rate 3.83 % 3.83 %

The interest rate swaps have been designated as cash flow hedges of the future variable interest payments which are considered probable of occurring.

Based on the Company's assessment, all 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.

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-K

Item 7. Management’s Discussion and Analysis