MATTHEWS INTERNATIONAL CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Sales for the three months ended December 31, 2024 were $401.8 million, compared to $450.0 million for the three months ended December 31, 2023. The decrease in fiscal 2025 sales primarily reflected lower sales in the Industrial Technologies and Memorialization segments. On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $1.2 million on fiscal 2025 sales compared to the prior year. Memorialization segment sales for the first three months of fiscal 2025 were $190.5 million, compared to $208.1 million for the first three months of fiscal 2024. The sales decrease principally reflected lower unit sales of caskets, granite memorial products, and cremation equipment, primarily reflecting a decline in U.S. death rates. These declines were partially offset by improved price realization. Industrial Technologies segment sales were $80.5 million for the first three months of fiscal 2025, compared to $111.4 million for the first three months of fiscal 2024. The decrease in sales reflected lower sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market) and reduced sales of warehouse automation solutions. The decrease also reflected lower sales of R+S automotive engineering solutions, as the Company has discontinued these product offerings. Fiscal 2025 sales for the Industrial Technologies segment were impacted by slower market conditions for the warehouse automation business, and customer delays impacting the timing of projects within the energy storage business. Changes in foreign currency exchange rates had an unfavorable impact of $396,000 on the segment's sales compared to the prior year. In the SGK Brand Solutions segment, sales for the first three months of fiscal 2025 were $130.8 million, compared to $130.5 million for the first three months of fiscal 2024. The increase in sales reflected higher sales of cylinder (packaging) products in Europe, higher brand sales in the Asia-Pacific region, increased private-label brand sales, and improved price realization to mitigate inflationary cost increases. These increases were partially offset by lower retail-based sales, lower brand sales in Europe, and the impact of unfavorable changes in foreign exchange rates. Changes in foreign currency exchange rates had an unfavorable impact of $700,000 on the segment's sales compared to the prior year. Gross profit for the three months ended December 31, 2024 was $125.7 million, compared to $132.4 million for the same period a year ago. Consolidated gross profit as a percent of sales was 31.3% and 29.4% for the first three months of fiscal 2025 and fiscal 2024, respectively. The decrease in gross profit reflected the impact of lower sales, lower margins on engineered products, and higher labor costs. These decreases were partially offset by improved margins on cremation equipment, 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 $1.1 million and $3.9 million for the three months ended December 31, 2024 and 2023, respectively. Selling and administrative expenses for the three months ended December 31, 2024 were $111.4 million, compared to $113.1 million for the first three months of fiscal 2024. Consolidated selling and administrative expenses, as a percent of sales, were 27.7% for the three months ended December 31, 2024, compared to 25.1% for the same period last year. Selling and administrative expenses in fiscal 2025 reflected higher compensation costs, offset by benefits from ongoing cost-reduction initiatives. Fiscal 2025 selling and administrative expenses included $8.7 million of net gains on the sales of certain significant property and other assets. Selling and administrative expenses included legal costs related to an ongoing dispute in the Company's energy storage business totaling $6.9 million in fiscal 2025 and $2.4 million in fiscal 2024 (see Legal Matter below). Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with certain commercial, operational and cost-reduction initiatives totaling $4.3 million in fiscal 2025, compared to $2.2 million in fiscal 2024. Intangible amortization for the three months ended December 31, 2024 was $8.6 million, compared to $9.8 million for the three months ended December 31, 2023. Adjusted EBITDA was $40.0 million for the three months ended December 31, 2024 and $45.5 million for the three months ended December 31, 2023. Memorialization segment adjusted EBITDA was $36.6 million for the first three months of fiscal 2025 compared to $36.7 million for the first three months of fiscal 2024. The decrease in segment adjusted EBITDA reflected the impact of lower unit sales, and higher labor costs. These decreases were partially offset by the impact of improved price realization, higher margins on cremation equipment, and benefits from productivity initiatives. Adjusted EBITDA for the Industrial Technologies segment was $1.8 million for the three months ended December 31, 2024 compared to $9.6 million for the three months ended December 31, 2023. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales and lower margins on engineered products. These decreases were partially offset by benefits from cost-reduction initiatives and lower performance-based compensation compared to fiscal 2024. Adjusted EBITDA for the SGK Brand Solutions segment was $12.3 million for the first three months of fiscal 2025 compared to $12.9 million for the same period a year ago. The decrease in segment adjusted EBITDA primarily reflected the impact of higher labor costs, partially offset by the impact of improved price realization and benefits from cost-reduction initiatives. Interest expense for the first three months of fiscal 2025 was $15.7 million, compared to $11.6 million for the same period last year. The increase in interest expense reflected higher average interest rates, partially offset by a decrease in average borrowing levels in the current fiscal year. Other income (deductions), net, for the three months ended December 31, 2024 represented an 25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued increase in pre-tax income of $4.2 million, compared to a decrease in pre-tax income of $880,000 for the same period last year. Other income (deductions), net includes investment income, banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. 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 three months of fiscal 2025 represented a benefit of $2.4 million, compared to a benefit of $726,000 for the first three months of fiscal 2024. The difference between the Company’s consolidated income taxes for the first three months of fiscal 2025 compared to the same period for fiscal 2024 resulted from an increase in consolidated pre-tax loss in fiscal 2025 compared to fiscal 2024, as well as a discrete net tax benefit related to adjustments in tax reserves resulting from the progression of foreign tax audits . The Company’s fiscal 2025 three-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, tax credits, non-tax benefited foreign losses, and other net discrete tax benefits. The Company’s fiscal 2024 three-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, and a net discrete tax benefit. Legal Matter Refer to Note 16, "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 system 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 system 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 system 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. 26 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 December 31, 2024 2023 (Dollar amounts in thousands) Net loss $ (3,472) $ (2,303) Income tax benefit (2,358) (726) Loss before income taxes (5,830) (3,029) Interest expense, including RPA and factoring financing fees (1) 16,854 12,751 Depreciation and amortization * 22,504 23,523 Acquisition and divestiture related items (2)** 577 1,237 Strategic initiatives and other items (3)**† 615 5,920 Highly inflationary accounting losses (primarily non-cash) (4) 191 320 Stock-based compensation 4,979 4,651 Non-service pension and postretirement expense (5) 133 109 Total Adjusted EBITDA $ 40,023 $ 45,482 (1) Includes fees for receivables sold under the RPA and factoring arrangements totaling $1.2 million for each of the three months ended December 31, 2024 and 2023. (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. Also includes legal costs related to an ongoing dispute with Tesla, which totaled $6.9 million and $2.4 million for the three months ended December 31, 2024 and 2023, respectively (see Note 16, "Legal Matter" in Item 1 - "Financial Statements and Supplementary Data"). Fiscal 2025 includes $8.7 million of net gains on the sales of certain significant property and other assets. Fiscal 2025 also includes loss recoveries totaling $1.2 million 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 $7.2 million and $6.4 million for the Memorialization segment, $5.7 million and $6.4 million for the Industrial Technologies segment, $8.9 million and $9.6 million for the SGK Brand Solutions segment, and $768,000 and $1.2 million for Corporate and Non-Operating, for the three months ended December 31, 2024 and 2023, respectively. ** Acquisition costs, ERP system integration costs, and strategic initiatives and other items were $1.3 million and $60,000 for the Memorialization segment, $4.1 million and $5.4 million for the Industrial Technologies segment, $714,000 and $863,000 for the SGK Brand Solutions segment, and income of $4.9 million and charges of $867,000 for Corporate and Non-Operating, for the three months ended December 31, 2024 and 2023, respectively. † Strategic initiatives and other items includes charges for exit and disposal activities (including severance and other employee terminations) totaling $313,000 and $2.0 million for the three months ended December 31, 2024 and 2023, respectively. Fiscal 2025 amounts totaling charges of $601,000 and income of $288,000 for the three months ended December 31, 2024 were presented in cost of sales and administrative expense, respectively. Fiscal 2024 amounts totaling charges of $1.9 million, income of $256,000 and charges of $315,000 for the three months ended December 31, 2023 were presented in cost of sales, selling expense, and administrative expense, respectively. Accrued severance and other termination benefits totaled $23.6 million and $42.2 million as of December 31, 2024 and September 30, 2024, respectively. 27 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued LIQUIDITY AND CAPITAL RESOURCES: Net cash used in operating activities was $25.0 million for the first three months of fiscal 2025, compared to $27.3 million for the first three months of fiscal 2024. Operating cash flow for both periods principally included net loss adjusted for depreciation and amortization, stock-based compensation expense, non-cash pension expense, other non-cash adjustments, and changes in working capital items. Net changes in working capital items decreased operating cash flow by $39.2 million and $51.6 million in fiscal 2025 and fiscal 2024, respectively. The fiscal 2025 change in working capital principally reflected incentive compensation-related payments, payments of severance and other employee termination benefits, lower accounts receivable and trade accounts payable, changes in contract assets and liabilities related to products and services provided to customers over time, and changes in other accounts. Cash provided by investing activities was $1.4 million for the three months ended December 31, 2024, compared to cash used in investing activities of $14.2 million for the three months ended December 31, 2023. Investing activities for the first three months of fiscal 2025 primarily reflected capital expenditures of $9.5 million, acquisitions, net of cash acquired, of $2.2 million, and proceeds from sale of assets of $13.2 million. Investing activities for the first three months of fiscal 2024 primarily reflected capital expenditures of $14.1 million. Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency and capacity, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $52.4 million for the last three fiscal years. 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 provided by financing activities for the three months ended December 31, 2024 was $18.4 million, primarily reflecting proceeds, net of repayments, on long-term debt of $31.9 million, treasury stock purchases of $4.3 million, and dividends of $9.2 million. Cash provided by financing activities for the three months ended December 31, 2023 was $36.1 million, primarily reflecting proceeds, net of repayments, on long-term debt of $62.6 million, treasury stock purchases of $17.2 million and dividends of $9.3 million. 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 assets of the Company and certain of its domestic subsidiaries. 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 December 31, 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 amended and restated agreement. Unamortized costs were $4.7 million and $5.0 million at December 31, 2024 and September 30, 2024, respectively. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $75.0 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 December 31, 2024 and September 30, 2024 were $481.0 million and $410.5 million, respectively. There were no outstanding Euro denominated borrowings on the revolving credit facility at December 31, 2024. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2024 were €30.0 million ($33.5 million). The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at December 31, 2024 and 2023 was 5.17% and 5.32%, respectively. 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company has $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 assets of the Company and certain of its domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2027 Senior Secured Notes. The Company incurred direct financing fees and costs in connection with 2027 Senior Secured Notes. Unamortized costs related to the Company’s notes were $5.2 million at December 31, 2024 and September 30, 2024. 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 matures in 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 December 31, 2024 and September 30, 2024, the amount sold to the Purchasers was $100.7 million and $96.3 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 $66.3 million and $58.2 million as of December 31, 2024 and September 30, 2024, respectively. The following table sets forth a summary of receivables sold as part of the RPA: Three Months Ended December 31, 2024 Three Months Ended December 31, 2023 (Dollar amounts in thousands) Gross receivables sold $ 89,486 $ 92,809 Cash collections reinvested (85,086) (92,709) Net cash proceeds received $ 4,400 $ 100 The Company, through its U.K. subsidiary, participates in 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 $21.4 million and $17.1 million during the three months ended December 31, 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 December 31, 2024 and September 30, 2024, the amount of factored receivables that remained outstanding was $17.1 million and $15.7 million, respectively. The Company facilitates a voluntary supply chain finance program (the "Program") to provide certain suppliers with the opportunity to sell receivables due from the Company to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. The Company is not a party to the agreements between the suppliers and the financial institutions and has no economic interest in a supplier's decision to sell a receivable. The range of payment terms negotiated with a supplier is consistent, irrespective of whether a supplier participates in the Program. All outstanding payments owed under the Program are recorded within trade accounts payable in the Consolidated Balance Sheets. The Company accounts for all payments made under the Program as a reduction to operating cash flows in changes in working capital within the Consolidated Statements of Cash Flows. The amounts owed to a participating financial institution under the Program and included in trade accounts payable were $3.0 million at December 31, 2024 and September 30, 2024. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued 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 €8.0 million ($8.3 million). The facility also provides €18.5 million ($19.2 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €3.0 million ($3.1 million) at December 31, 2024. There were no outstanding borrowings under the credit facility at September 30, 2024. The weighted-average interest rate on outstanding borrowings under this facility was 5.10% and 6.11% at December 31, 2024 and 2023, respectively. Other borrowings totaled $7.9 million and $15.6 million at December 31, 2024 and September 30, 2024, respectively. The weighted-average interest rate on these borrowings was 2.33% and 4.20% at December 31, 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: December 31, 2024 September 30, 2024 (Dollar amounts in thousands) Notional amount $ 175,000 $ 175,000 Weighted-average maturity period (years) 2.9 3.2 Weighted-average received rate 4.33 % 4.85 % 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 $1.1 million ($844,000 after tax) at December 31, 2024 and a net unrealized loss of $2.6 million ($1.9 million after tax) at September 30, 2024, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Unrecognized gains of $3.1 million ($2.3 million after tax) and $3.8 million ($2.9 million after tax) related to previously terminated LIBOR-based swaps were also included in AOCI as of December 31, 2024 and September 30, 2024, respectively. Assuming market rates remain constant with the rates at December 31, 2024, a gain (net of tax) of approximately $1.6 million included in AOCI is expected to be recognized in earnings over the next twelve months. 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 Gains (Losses) Recognized in AOCI Swap Currencies Maturity Date December 31, 2024 September 30, 2024 December 31, 2024 September 30, 2024 (Dollar amounts in thousands) USD/EUR September 2027 $ 81,392 $ 81,392 $ (1,423) $ (5,440) USD/SEK June 2025 20,000 20,000 1,110 (468) USD/SGD August 2026 20,000 20,000 988 (441) USD/EUR August 2026 25,000 25,000 1,879 (30) $ 146,392 $ 146,392 $ 2,554 (1) $ (6,379) (1) (1) Total unrealized gains (losses) are presented net of tax of $863 and $2,156 as of December 31, 2024 and September 30, 2024, 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 December 31, 2024 and September 30, 2024. 30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company previously used 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 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, 440,220 shares remain available for repurchase as of December 31, 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 2025. Consolidated working capital of the Company was $227.6 million at December 31, 2024, compared to $197.8 million at September 30, 2024. Cash and cash equivalents were $33.5 million at December 31, 2024, compared to $40.8 million at September 30, 2024. The Company's current ratio was 1.6 at December 31, 2024 and 1.5 at September 30, 2024, respectively. Long-Term Contractual Obligations: The following table summarizes the Company's contractual obligations at December 31, 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 2025 Remainder 2026 to 2027 2028 to 2029 After 2029 Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facilities $ 484,083 $ — $ 3,114 $ 480,969 $ — 2027 Senior Secured Notes 372,425 12,938 51,750 307,737 — Finance lease obligations (1) 24,737 5,484 13,389 4,805 1,059 Non-cancelable operating leases (1) 69,635 19,258 33,529 11,218 5,630 Cross-currency swaps 55,015 15,931 39,084 — — Other (2) 53,008 34,018 9,901 2,419 6,670 Total contractual cash obligations $ 1,058,903 $ 87,629 $ 150,767 $ 807,148 $ 13,359 (1) Lease obligations have not been discounted to their present value. (2) Includes $23,637 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. 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 December 31, 2024, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $1.9 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. 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued ACQUISITIONS AND DIVESTITURES: Refer to Note 14, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures. SUBSEQUENT EVENTS: Refer to Note 17, "Subsequent Events" in Item 1 - "Financial Statements" for further details on the Company's subsequent events. 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, with a view towards enterprise-level strategic transactions. 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. Additionally, 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. 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 are influenced by the timing of work with the Company's largest energy storage customer, which may be impacted by continuing disputes with such 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. 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, 2024. 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 fiscal year ended September 30, 2024. 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. 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued 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, and, therefore, no impairment charges were necessary at such time. 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company’s market risk during the three months ended December 31, 2024. For additional information, see 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, 2024.