MATTHEWS INTERNATIONAL CORP (MATW) FY 2021 MD&A

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the consolidated financial statements of Matthews and related notes thereto.  In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS:

The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products (including energy solutions), imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. Effective in the first quarter of fiscal 2022, the Company transferred its surfaces and engineered products businesses from the SGK Brand Solutions segment to the Industrial Technologies segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2022.

The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). 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 costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss.

In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The following table sets forth sales and adjusted EBITDA for the Company's SGK Brand Solutions, Memorialization and Industrial Technologies segments for each of the last three fiscal years. Refer to Note 19, "Segment Information" in Item 8 - "Financial Statements and Supplemental Data" for the Company's financial information by segment.

(1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.

Comparison of Fiscal 2021 and Fiscal 2020:

Sales for the year ended September 30, 2021 were $1.67 billion, compared to $1.50 billion for the year ended September 30, 2020, representing an increase of $172.7 million.  The increase in fiscal 2021 sales reflected higher sales in all of the Company's segments. Changes in foreign currency exchange rates were estimated to have a favorable impact of $30.2 million on fiscal 2021 consolidated sales compared to a year ago. Fiscal 2021 sales continued to be impacted by the global outbreak of COVID-19, which has caused some commercial impacts in certain of the Company's segments and geographic locations. These impacts have included higher sales volumes for memorialization products and services, but have also included temporary business disruptions and customer project delays for certain of the Company's businesses. Additionally, recent increases in the cost of certain raw materials and other inflationary pressures have had an unfavorable impact on the Company's results of operations. While substantially all of the Company's operations have remained open during the COVID-19 pandemic, management expects COVID-19 to continue to impact its sales and results of operations in the short-term as the pandemic subsides (see "Forward Looking Information" below).

In the SGK Brand Solutions segment, sales for fiscal 2021 were $726.9 million, compared to $693.1 million in fiscal 2020.  The increase primarily resulted from higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market), increased cylinder (packaging) sales, and higher brand sales in the Europe and Asia-Pacific markets. These increases were partially offset by lower retail-based sales (principally merchandising solutions and private label brand market sales), decreased brand sales in the U.S., and reduced sales of surfaces products in Europe, all of which were unfavorably impacted by COVID-19. Changes in foreign currency exchange rates had a favorable impact of $23.3 million on the segment's sales compared to the prior year. Memorialization segment sales for fiscal 2021 were $769.0 million, compared to $656.0 million for fiscal 2020.  The increase in sales resulted from a significant increase in unit sales of caskets due to COVID-19. The segment also reported higher sales of bronze and granite memorial products, mausoleums, and cremation equipment. The increase in sales also reflected improved price realization and benefits from a recently completed acquisition of a small cemetery products business. Changes in foreign currency exchange rates had a favorable impact of $4.4 million on the segment's sales compared to the prior year. Industrial Technologies segment sales for fiscal 2021 were $175.1 million, compared to $149.2 million for fiscal 2020.  The sales increase primarily reflected higher sales of warehouse automation systems and increased product identification sales. Changes in foreign currency exchange rates had a favorable impact of $2.6 million on the segment's sales compared to the prior year.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Gross profit for the year ended September 30, 2021 was $541.8 million, compared to $497.8 million for fiscal 2020.  Consolidated gross profit as a percent of sales was 32.4% and 33.2% in fiscal 2021 and fiscal 2020, respectively. The increase in gross profit primarily reflected higher sales, benefits from the realization of productivity improvements and other cost-reduction initiatives, and improved margins for cylinder (packaging) products within the SGK Brand Solutions segment. These improvements were partially offset by the impact of higher material and transportation costs, particularly in the Memorialization segment, ongoing price competition in the brand market, and lower margins on certain cremation and incineration projects. Higher material costs in the Memorialization segment reflected a significant increase in commodity costs, particularly steel, lumber and bronze ingot. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $17.3 million and $12.4 million in fiscal 2021 and 2020, respectively.

Selling and administrative expenses for the year ended September 30, 2021 were $415.6 million, compared to $400.0 million for fiscal 2020.  Consolidated selling and administrative expenses, as a percent of sales, were 24.9% for fiscal 2021, compared to 26.7% in fiscal 2020.  The increase in selling and administrative expenses reflected higher performance-based compensation compared to fiscal 2020, partially offset by benefits from ongoing cost-reduction initiatives, and reduced travel and entertainment ("T&E") costs reflecting travel limitations resulting from the pandemic. Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $17.5 million in fiscal 2021, compared to $31.5 million in fiscal 2020. Fiscal 2020 selling and administrative expenses also included an $11.2 million gain on the sale of an ownership interest in a Memorialization business and a $10.6 million charge for a legal matter involving a letter of credit for a customer in Saudi Arabia. Intangible amortization for the year ended September 30, 2021 was $84.2 million, compared to $71.5 million for fiscal 2020. The increase in intangible amortization reflected $15.2 million of incremental amortization resulting from a reduction in useful lives for certain customer relationships. Intangible amortization also included accelerated amortization resulting from the fiscal 2019 reduction in useful lives for certain trade names that are being discontinued. Amortization for these trade names totaled $35.5 million and $37.5 million in fiscal 2021 and fiscal 2020, respectively. During the second quarter of fiscal 2020, the Company recorded a goodwill write-down totaling $90.4 million related to its two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products). Refer to Note 21, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary Data" for further details.

Adjusted EBITDA for fiscal 2021 was $227.8 million, compared to $203.1 million for fiscal 2020. Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2021 was $99.7 million, compared to $90.6 million for fiscal 2020.  The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from cost-reduction initiatives, reduced T&E costs, and improved margins for cylinders and engineered products. Changes in foreign currency exchange rates had a favorable impact of $2.0 million on the segment's adjusted EBITDA compared to the prior year. These increases were partially offset by increased performance-based compensation compared to fiscal 2020, and the impact of ongoing price competition in the brand market. Memorialization segment adjusted EBITDA for fiscal 2021 was $165.7 million, compared to $146.3 million for fiscal 2020.  The increase in segment adjusted EBITDA primarily reflected the impact of higher sales, benefits from productivity initiatives, lower T&E costs, and benefits from a recently completed acquisition of a small cemetery products business. These increases were partially offset by the impact of higher material and transportation costs, increased performance-based compensation compared to fiscal 2020, and lower margins on certain cremation and incineration projects. Adjusted EBITDA for the Industrial Technologies segment for fiscal 2021 was $26.7 million, compared to $22.8 million in fiscal 2020. Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher warehouse automation and product identification sales, and reduced T&E costs, partially offset by increased performance-based compensation expense and higher product development costs. Changes in foreign currency exchange rates had a favorable impact of $545,000 on the segment's adjusted EBITDA compared to the prior year.

Investment income for the fiscal year ended September 30, 2021 was $2.6 million, compared to $2.0 million for the year ended September 30, 2020.  Investment income for both fiscal years primarily reflected changes in the value of investments (primarily marketable securities) held in trust for certain of the Company's benefit plans. Interest expense for fiscal 2021 was $28.7 million, compared to $34.9 million in fiscal 2020.  The decrease in interest expense reflected a decrease in average borrowing levels and lower average interest rates in the current fiscal year. Other income (deductions), net for the year ended September 30, 2021 represented a decrease in pre-tax income of $6.8 million, compared to a decrease in pre-tax income of $9.2 million in fiscal 2020. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $5.8 million and $7.8 million in fiscal years 2021 and 2020, respectively. Other income (deductions), net also includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

The Company's consolidated income taxes for the year ended September 30, 2021 were an expense of $6.4 million, compared to a benefit of $18.7 million for fiscal 2020. The difference between the Company's consolidated income taxes for fiscal 2021 compared to fiscal 2020 primarily resulted from fiscal 2021 having consolidated income before income taxes, compared to fiscal 2020 having a consolidated loss, which reflected the goodwill write-down recorded in the second quarter of fiscal 2020, that was partially non-deductible. Additionally, the fiscal 2021 tax rate was negatively impacted by the termination of the Company's Supplemental Retirement Plan ("SERP"), which resulted in certain expenses that are nondeductible for tax purposes. The fiscal 2021 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the expiration of the statute of limitations in certain jurisdictions, and the completion of a state tax audit, and the tax benefit of the NOL carryback. The Company’s fiscal 2020 effective tax rate was negatively affected by the non-deductible portion of the goodwill write-down along with certain other non-deductible expenses. The fiscal 2020 effective tax rate benefited from research and development and foreign tax credits, the reduction of uncertain tax positions due to the completion of a foreign tax audit, and the tax benefit of the NOL carryback. Refer to Note 16, “Income Taxes” in Item 8 - “Financial Statements and Supplementary Data” for further details regarding income taxes.

Net losses attributable to noncontrolling interests were $52,000 in fiscal 2021, compared to $497,000 in fiscal 2020.  The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.

Comparison of Fiscal 2020 and Fiscal 2019:

For a comparison of the Company's results of operations for the fiscal years ended September 30, 2020 and September 30, 2019, 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, 2020 filed with the SEC on November 20, 2020.

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 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 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 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.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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

* Depreciation and amortization was $99.5 million, $87.6 million, and $59.7 million for the SGK Brand Solutions segment, $23.0 million, $20.5 million, and $19.7 million for the Memorialization segment, $5.6 million, $5.8 million, and $6.2 million for the Industrial Technologies segment, and $5.4 million, $5.2 million, and $5.2 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2021, 2020, and 2019, respectively.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $16.3 million, $14.7 million, and $8.9 million for the SGK Brand Solutions segment and $11.3 million, $23.0 million, and $19.9 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2021, 2020, and 2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1.9 million and $2.7 million for the Memorialization segment for the fiscal years ended September 30, 2021 and 2020, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $268,000 and $3.1 million for the Industrial Technologies segment for the fiscal years ended September 30, 2020 and 2019, respectively.

*** Non-recurring/incremental COVID-19 costs were $1.6 million and $1.5 million for the SGK Brand Solutions segment, $3.6 million and $1.8 million for the Memorialization segment, $14,000 and $21,000 for the Industrial Technologies segment, and $89,000 and $615,000 for Corporate and Non-Operating, for the fiscal years ended September 30, 2021 and 2020, respectively.

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $162.8 million for the year ended September 30, 2021, compared to $180.4 million and $131.1 million for fiscal years 2020 and 2019, respectively.  Fiscal 2021 operating cash flow reflected a $15.0 million discretionary contribution to fund the Company's principal defined benefit retirement plan ("DB Plan"). Operating cash flow for fiscal 2021 principally included net income 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. The favorable movements in working capital in fiscal 2021 primarily reflected the Company's continued emphasis on working capital management, particularly trade accounts payable. Operating cash flow for fiscal 2020 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, and non-cash pension expense, and changes in working capital items. The favorable movements in working capital in fiscal 2020 primarily reflected enhanced accounts receivable collection efforts and effective management of trade accounts payable. Operating cash flow for fiscal 2019 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net losses related to goodwill and investments, net gains from sale of buildings and other property, and non-cash pension expense, and changes in working capital items.

Cash used in investing activities was $13.0 million for the year ended September 30, 2021, compared to $2.7 million and $60.8 million for fiscal years 2020 and 2019, respectively.  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 investments of $34.2 million, and proceeds from sale of assets of $2.8 million. Investing activities for fiscal 2020 primarily reflected capital expenditures of $34.8 million, acquisition payments (net of cash acquired or received from sellers) of $1.0 million, proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business, and investments and advances of $9.7 million.  Investing activities for fiscal 2019 primarily reflected capital expenditures of $37.7 million, acquisition payments (net of cash acquired or received from sellers) of $11.5 million, proceeds of $13.3 million from the sale of assets, proceeds of $8.3 million from the sale of a controlling interest in a Memorialization business, and additional investments made in non-consolidated subsidiaries of $33.1 million.

Capital expenditures were $34.3 million for the year ended September 30, 2021, compared to $34.8 million and $37.7 million for fiscal years 2020 and 2019, respectively.  Capital expenditures in each of the last three fiscal years reflected reinvestments 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, lower production costs and meet regulatory requirements.  Capital spending for property, plant and equipment has averaged $35.6 million for the last three fiscal years. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for fiscal 2022 is currently estimated to be approximately $60 million, reflecting additional capital projects to support new production capabilities and increased efficiencies within the SGK Brand Solutions and Memorialization segments.  The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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, 2020 was $172.3 million, and principally reflected repayments, net of proceeds, on long-term debt of $126.3 million, purchases of treasury stock of $4.4 million, payment of dividends to the Company's shareholders of $26.4 million ($0.84 per share), $10.2 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million. Cash used in financing activities for the year ended September 30, 2019 was $75.0 million, and principally reflected repayments, net of proceeds, on long-term debt of $16.0 million, purchases of treasury stock of $26.1 million, payment of dividends to the Company's shareholders of $25.6 million ($0.80 per share), and $4.4 million of holdback and contingent consideration payments related to a fiscal 2018 acquisition.

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, and a $35.0 million senior secured amortizing term loan. The senior secured amortizing term loan was paid in full in March 2021. 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 LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.00% at September 30, 2021) based on the Company's secured leverage ratio.  The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement.  The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $2.2 million and $2.7 million at September 30, 2021 and September 30, 2020, respectively.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35.0 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 September 30, 2021 and 2020 were $349.8 million and $257.4 million, respectively. There were no outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2021. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 were €117.0 million ($137.2 million). There were no outstanding borrowings on the term loan as of September 30, 2021. Outstanding borrowings on the term loan at September 30, 2020 were $22.4 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 September 30, 2021 and 2020 was 2.03% and 2.41%, respectively.

The Company has $300.0 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 $2.2 million and $2.7 million at September 30, 2021 and 2020, respectively.

The Company has a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures in March 2022 and the Company intends to extend this facility. Under the Securitization Facility, 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 in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at September 30, 2021 and 2020 were $96.0 million and $67.7 million, respectively. The interest rate on borrowings under this facility at September 30, 2021 and 2020 was 0.83% and 0.90%, respectively.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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

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 an unrealized loss net of unrealized gains of $2.1 million ($1.6 million after tax) and an unrealized loss of $7.8 million ($5.9 million after tax) at September 30, 2021 and 2020, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI").  Assuming market rates remain constant with the rates at September 30, 2021, a loss (net of tax) of approximately $1.4 million included in AOCI is expected to be recognized in earnings over the next twelve months.

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 borrowings available under this facility is €25.0 million ($29.0 million), which includes €8.0 million ($9.3 million) for bank guarantees.  The credit facility matures in December 2021 and the Company intends to extend this facility. Outstanding borrowings under the credit facility totaled €704,000 ($817,000) and €18.9 million ($22.2 million) at September 30, 2021 and 2020, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 2.25% and 1.25% at September 30, 2021 and 2020, respectively.

Other borrowings totaled $10.2 million and $20.7 million at September 30, 2021 and 2020, respectively. The weighted-average interest rate on these borrowings was 2.19% and 2.10% at September 30, 2021 and 2020, respectively.

During fiscal 2021, the Company entered into a U.S. Dollar/Euro cross currency swap with a notional amount of $94.5 million as of September 30, 2021, which was designated as a net investment hedge of foreign operations. The swap contract matures in seven years. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A gain of $22,000 (net of income taxes of $7,000) which represented an effective hedge of net investments, was reported as a component of AOCI within currency translation adjustment for fiscal 2021. Income of $63,000, which represented the recognized portion of the fair value excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for fiscal 2021.

The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $5.4 million (net of income taxes of $1.7 million) and currency losses of $4.4 million (net of income taxes of $1.4 million), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2021 and 2020, respectively.

The Company has a stock repurchase program. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation. On July 28, 2021, the Company's Board of Directors approved the continuation of the stock repurchase program and increased the authorization for stock repurchases by an additional 2,500,000 shares. Under the current authorization, 2,658,627 shares remain available for repurchase as of September 30, 2021.

Consolidated working capital was $269.9 million at September 30, 2021, compared to $258.7 million at September 30, 2020.  Cash and cash equivalents were $49.2 million at September 30, 2021, compared to $41.3 million at September 30, 2020.  The Company's current ratio was 1.8 at September 30, 2021 and 2020.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at September 30, 2021, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

(1)The Company maintains certain debt facilities with current maturity dates in fiscal 2022 that it intends and has the ability to extend beyond fiscal 2022 totaling $96.8 million. These balances have been classified as non-current on the Company's Consolidated Balance Sheet.

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

Benefit payments under the Company's DB Plan are made from plan assets, while benefit payments under the SERP and postretirement benefit plan are funded from the Company's operating cash. During fiscal 2021 contributions of $15.0 million, $806,000 and $507,000 were made under the DB Plan, SERP and postretirement plan, respectively.

In April 2021, the Compensation Committee of the Company's Board of Directors (the “Committee”) approved resolutions to freeze all future benefit accruals for all participants in the Company's SERP and the defined benefit portion of the Officers Retirement Restoration Plan (“ORRP”), effective April 30, 2021. In August 2021, the Committee approved the termination of the SERP and the defined benefit portion of the ORRP. In September 2021, the Company notified SERP and ORRP participants of its intention to fully settle the obligations of the SERP and ORRP in early fiscal 2023.

In August 2021, the Company's Board of Directors approved the freeze of all future benefit accruals for the Company's DB Plan, effective September 30, 2021, and the planned termination of the DB Plan in early fiscal 2022. At such time, the Company notified all plan participants of the Company's intentions to terminate and fully settle the obligations of the DB Plan early in fiscal 2022.

In November 2021, subsequent to the date of the balance sheet, the Company contributed $20.0 million to the DB Plan. Also in November 2021, lump sum distributions of $178.2 million from the DB Plan were made to plan participants, resulting in the settlement of a substantial portion of the DB Plan obligations. This settlement of the DB Plan obligations is expected to result in the recognition of a non-cash charge in excess of $30.0 million in the first quarter of fiscal 2022. This amount represents the immediate recognition of a portion of the deferred AOCI balances related to the DB Plan, and is based on current estimates as of September 30, 2021. The Company currently anticipates additional contributions of approximately $15.0 million to its DB Plan during fiscal 2022 to fully fund the anticipated settlement of the remaining DB Plan obligations. The Company also expects to make payments totaling approximately $24.2 million in fiscal 2023 to fully settle the SERP and ORRP obligations. The obligations of the SERP are expected to be funded from an existing rabbi trust. 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.

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 September 30, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $2.8 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.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

ACQUISITIONS AND DIVESTITURES:

Refer to Note 20, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data," for further details on the Company's acquisitions and divestitures.

FORWARD-LOOKING INFORMATION:

The Company's current strategy to attain annual operating growth primarily consists of the following:  internal growth - which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products - and acquisitions and related integration activities to achieve synergy benefits.

The significant factors (excluding acquisitions) influencing sales growth in the SGK Brand Solutions segment are global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation. Due to the global footprint of this segment, currency fluctuations can also be a significant factor. For the Memorialization segment, sales growth will be influenced by North America death rates, and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products. For the Industrial Technologies segment, sales growth drivers include economic/industrial market conditions, new product development, and the e-commerce trend.

During fiscal 2019, the Company initiated a strategic evaluation to improve profitability and reduce the Company's cost structure. These actions leveraged the benefit of the Company's new global ERP platform, primarily targeted at the SGK Brand Solutions segment, both operational and commercial structure, and the Company's shared financial services and other administrative functions. This evaluation identified opportunities for significant cost structure improvements, which the Company expects to achieve through at least fiscal 2022. The Company's recent strategic review has also resulted in improvements to the commercial structure within the SGK Brand Solutions segment.

On January 30, 2020, the World Health Organization declared an outbreak of COVID-19 to be a Public Health Emergency of International Concern, and subsequently recognized COVID-19 as a global pandemic in March 2020. Widespread efforts have been deployed by multiple countries around the world to prevent the virus from spreading, including temporary closures of non-essential businesses, event cancellations, travel restrictions, quarantines, and other disruptive actions. Substantially all of the Company’s operations have remained open during the COVID-19 pandemic, as they have been considered “essential” businesses during this time. However, the Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19.

Considerable judgment is necessary to assess and predict the potential financial impacts of COVID-19 on the Company’s future operating results. Management expects that each of its business segments will experience some level of impacts in the short-term, potentially due to customer business disruptions, supply chain disruptions, facilities shut-downs, changing global economic conditions, and customer project delays. Additionally, recent increases in the cost of certain raw materials, labor, and other inflationary impacts are expected to impact the Company's results for the near future. The Company expects to partially mitigate these cost increases through price realization and the cost-reduction initiatives discussed above. Longer-term financial impacts will depend on global economic conditions resulting from COVID-19.

CRITICAL ACCOUNTING 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.  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," of this Annual Report on Form 10-K.

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

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

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, 2021.

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

Long-lived assets are recorded at their respective cost basis on the date of acquisition.  Depreciation on property, plant and equipment is computed primarily on the straight-line method over the estimated useful lives of the assets.  Intangible assets with finite useful lives are amortized over their estimated useful lives.  The Company reviews long-lived assets, including property, plant and equipment, and intangibles with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate.  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.

Goodwill and Indefinite-Lived Intangibles:

Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may exist.  In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized.  A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets.  For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including discounted cash flows and other market indicators.  A number of assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including sales volumes and pricing, costs to produce, tax rates, capital spending, working capital changes, and discount rates.  The Company estimates future cash flows using volume and pricing assumptions based largely on existing customer relationships and contracts, and operating cost assumptions management believes are reasonable based on historical performance and projected future performance as reflected in its most recent operating plans and projections. The discount rates used in the discounted cash flow analyses are developed with the assistance of valuation experts and management believes the discount rates appropriately reflect the risks associated with the Company's operating cash flows.  In order to further validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization is performed using a reasonable control premium.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2021 (January 1, 2021) 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 Graphics Imaging reporting unit, within the SGK Brand Solutions segment, exceeded the carrying value (expressed as a percentage of carrying value) by approximately 5%. If current projections are not achieved or specific valuation factors outside the Company’s control (such as discount rates and continued economic and industry impacts of COVID-19) significantly change, goodwill write-downs may be necessary in future periods.

In fiscal 2020, in its assessment of the potential impacts of COVID-19 on the estimated future earnings and cash flows for the SGK Brand Solutions segment, and in light of the limited excess fair values over carrying values for its two reporting units, management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for its reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products), as of March 31, 2020. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $90.4 million during the fiscal 2020 second quarter. Subsequent to this write-down, the fair values of the two reporting units within the SGK Brand Solutions segment (Graphics Imaging and Cylinders, Surfaces and Engineered Products) approximated their carrying values at March 31, 2020. The fair values for these reporting units were 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.

During the fourth quarter of fiscal 2019, the Company initiated an in-depth review of the commercial and cost structure of the SGK Brand Solutions segment as a result of continued challenging market conditions affecting the segment. This review identified certain opportunities to improve the segment’s profitability and reduce its operating cost structure and, as a result, the Company revised its estimates of future earnings and cash flows for the Graphics Imaging reporting unit. In response to these revised projections, the Company re-evaluated the goodwill for the Graphics Imaging reporting unit, as of September 1, 2019. As a result of this interim assessment, the Company recorded a goodwill write-down of $77.6 million during the fiscal 2019 fourth quarter.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)

Pension and Postretirement Benefits:

Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations.  Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost.

The Company's DB Plan has historically maintained a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company's pension board.  Based on an analysis of the historical performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for these assets at 6.75% at September 30, 2020 for purposes of determining fiscal 2021 pension cost.  The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices as of September 30, 2021 and September 30, 2020 for the fiscal year end valuation. The discount rate was 2.79%, 2.62% and 3.13% in fiscal 2021, 2020 and 2019, respectively. Refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K, for disclosure about the hypothetical impact of changes in actuarial assumptions.

Income Taxes:

Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.  Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.  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, and such earnings are considered to be reinvested indefinitely in foreign operations.

INFLATION:

Except for the volatility in the cost of bronze ingot, steel, wood, granite and fuel (see "Results of Operations"), inflation has not had a material impact on the Company over the past three years. Although recent economic conditions increase the level of uncertainty in the Company's near-term outlook, inflation is not currently anticipated to have a material impact on a long-term basis.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

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