# MATTHEWS INTERNATIONAL CORP (MATW) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MATTHEWS INTERNATIONAL CORP's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/63296/000006329622000099/matw-20220930.htm
Accession: 0000063296-22-000099
Filing date: 2022-11-18
Report date: 2022-09-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/MATW/
All MD&A years: /company/MATW/mda/
Previous year: /company/MATW/mda/fy2021/ (FY 2021)
Next year: /company/MATW/mda/fy2023/ (FY 2023)

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: Memorialization, Industrial Technologies and SGK Brand Solutions. 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. Prior periods were revised to reflect retrospective application of this segment realignment. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions, product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.

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.

21

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

The following table sets forth sales and adjusted EBITDA for the Company's Memorialization, Industrial Technologies and SGK Brand Solutions segments for each of the last three fiscal years. Refer to Note 20, "Segment Information" in Item 8 - "Financial Statements and Supplemental Data" for the Company's financial information by segment.

[[GREPCENT_TABLE]]
[["","Years Ended September 30,"],["","2022","","2021","","2020"],["","(Dollar amounts in thousands)"],["Sales to external customers:"],["Memorialization","$","840,124","","","$","769,016","","","$","656,035"],["Industrial Technologies","335,523","","","284,495","","","228,453"],["SGK Brand Solutions","586,756","","","617,519","","","613,818"],["Consolidated Sales","$","1,762,403","","","$","1,671,030","","","$","1,498,306"],["Adjusted EBITDA:"],["Memorialization","$","151,849","","","$","165,653","","","$","146,285"],["Industrial Technologies","56,762","","","34,889","","","23,055"],["SGK Brand Solutions","60,120","","","91,435","","","90,342"],["Corporate and Non-Operating","(58,323)","","","(64,227)","","","(56,602)"],["Total Adjusted EBITDA(1)","$","210,408","","","$","227,750","","","$","203,080"]]
[[/GREPCENT_TABLE]]

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

Comparison of Fiscal 2022 and Fiscal 2021:

Sales for the year ended September 30, 2022 were $1.76 billion, compared to $1.67 billion for the year ended September 30, 2021, representing an increase of $91.4 million.  The increase in fiscal 2022 sales reflected higher sales in the Memorialization and Industrial Technologies segments, partially offset by lower sales in the SGK Brand Solutions segment. On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $56.3 million on fiscal 2022 sales compared to the prior year.

Memorialization segment sales for fiscal 2022 were $840.1 million, compared to $769.0 million for fiscal 2021.  The increase in sales resulted from improved price realization, increased unit sales of bronze and granite memorial products, higher sales of mausoleums and U.S. cremation equipment, and benefits from the fiscal 2021 acquisition of a small cemetery products business. These increases were partially offset by lower unit sales of caskets compared to the prior year. Changes in foreign currency exchange rates had an unfavorable impact of $4.6 million on the segment's sales compared to the prior year. Industrial Technologies segment sales for fiscal 2022 were $335.5 million, compared to $284.5 million for fiscal 2021.  The sales increase primarily reflected higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market), increased sales of warehouse automation solutions, higher product identification sales, and benefits from the recently completed acquisition of OLBRICH GmbH (“OLBRICH”) and R+S Automotive GmbH (“R+S Automotive”) (see Acquisitions and Divestitures below). These increases were partially offset by reduced sales of surfaces products. Changes in foreign currency exchange rates had an unfavorable impact of $16.9 million on the segment's sales compared to the prior year. In the SGK Brand Solutions segment, sales for fiscal 2022 were $586.8 million, compared to $617.5 million in fiscal 2021, representing a decrease of $30.7 million.  The decrease primarily resulted from unfavorable changes in foreign currency exchange rates, which had an unfavorable impact of $34.8 million on the segment's sales compared to the prior year. The change in sales also reflected higher retail-based sales (principally merchandising solutions), higher brand sales in the Asia-Pacific market, and increased sales volume for cylinder (primarily packaging) products, partially offset by lower brand sales in the U.S. and Europe. The sales decline in Europe primarily resulted from weakened economic conditions.

Gross profit for the year ended September 30, 2022 was $522.3 million, compared to $541.8 million for fiscal 2021.  Consolidated gross profit as a percent of sales was 29.6% and 32.4% in fiscal 2022 and fiscal 2021, respectively. The decrease in gross profit primarily reflected the impact of higher material (steel, lumber and bronze ingot), labor and transportation costs, particularly in the Memorialization segment, unfavorable changes in sales mix and lower margins on cylinder products within the SGK Brand Solutions segment, and lower margins on U.K. based cremation and incineration projects. Fiscal 2022 gross profit also included $9.7 million of asset write-downs related to the current war between Russia and Ukraine (see Note 23, "Asset Write-downs" in Item 8 - "Financial Statements and Supplementary Data" for further details). These decreases in gross profit were partially offset by the impact of higher sales, benefits from the realization of productivity improvements and other

22

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

cost-reduction initiatives, and improved margins for engineered products within the Industrial Technologies segment. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $12.6 million and $17.3 million in fiscal 2022 and 2021, respectively.

Selling and administrative expenses for the year ended September 30, 2022 were $426.7 million, compared to $415.6 million for fiscal 2021.  Consolidated selling and administrative expenses, as a percent of sales, were 24.2% for fiscal 2022, compared to 24.9% in fiscal 2021.  Fiscal 2022 selling and administrative expenses reflected the impacts of higher salaries and wage rates, higher travel and entertainment ("T&E") costs, and additional expenses from the recently completed OLBRICH and R+S Automotive acquisition. These increases were partially offset by lower performance-based compensation compared to fiscal 2021 and benefits from ongoing cost-reduction initiatives. Fiscal 2022 selling and administrative expenses included $364,000 of asset write-downs (net of recoveries) related to the current war between Russia and Ukraine (see Note 23, "Asset Write-downs" in Item 8 - "Financial Statements and Supplementary Data" for further details). Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $27.1 million in fiscal 2022, compared to $17.5 million in fiscal 2021. Intangible amortization for the year ended September 30, 2022 was $57.1 million, compared to $84.2 million for fiscal 2021. Fiscal 2022 intangible amortization included $4.0 million of incremental amortization resulting from the fiscal 2021 reduction in useful lives for certain customer relationships. Intangible amortization also included accelerated amortization related to certain trade names that have been discontinued. Amortization for these trade names totaled $9.5 million and $35.5 million in fiscal 2022 and fiscal 2021, respectively. In the fiscal 2022 fourth quarter, the Company recorded a goodwill write-down of $82.5 million related to the SGK Brand Solutions reporting unit (formerly the Graphics Imaging reporting unit). Refer to Note 22, "Goodwill and Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary Data" for further details.

Adjusted EBITDA for fiscal 2022 was $210.4 million, compared to $227.8 million for fiscal 2021. Memorialization segment adjusted EBITDA for fiscal 2022 was $151.8 million, compared to $165.7 million for fiscal 2021.  Fiscal 2022 segment adjusted EBITDA reflected the benefits of higher sales and productivity initiatives, which were offset by the impact of higher material, labor, transportation and T&E costs and lower margins on certain cremation and incineration projects. Adjusted EBITDA for the Industrial Technologies segment for fiscal 2022 was $56.8 million, compared to $34.9 million in fiscal 2021. Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales, improved margins for engineered products, and benefits from cost-reduction initiatives, which were partially offset by the impact of higher T&E costs and increased performance-based compensation compared to fiscal 2021. Changes in foreign currency exchange rates had an unfavorable impact of $4.1 million on the segment's adjusted EBITDA compared to the prior year. Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2022 was $60.1 million, compared to $91.4 million for fiscal 2021.  The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales, unfavorable changes in sales mix, lower margins on cylinder products, and higher material, labor and T&E costs. These decreases were partially offset by the impact of lower performance-based compensation compared to fiscal 2021 and benefits from cost-reduction initiatives. Changes in foreign currency exchange rates had an unfavorable impact of $5.1 million on the segment's adjusted EBITDA compared to the prior year.

Investment income for the fiscal year ended September 30, 2022 was $1.0 million, compared to $2.6 million for the year ended September 30, 2021.  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 2022 was $27.7 million, compared to $28.7 million in fiscal 2021.  The decrease in interest expense reflected lower average borrowing levels and income recognized from cross currency swaps (see "Liquidity and Capital Resources" below). Other income (deductions), net for the year ended September 30, 2022 represented a decrease in pre-tax income of $33.6 million, compared to a decrease in pre-tax income of $6.8 million in fiscal 2021. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $31.8 million and $5.8 million in fiscal years 2022 and 2021, respectively. Fiscal 2022 non-service pension expense included a $30.9 million non-cash charge resulting from the full settlement of the Company's principal defined benefit retirement plan ("DB Plan") obligations. Refer to Note 15, "Pension and Other Postretirement Plans" in Item 8 - "Financial Statements and Supplementary Data" for further details. Other income (deductions), net also includes banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. Fiscal 2022 other income (deductions), net included $1.5 million of currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey (see Note 2, "Summary of Significant Accounting Policies" in Item 8 - "Financial Statements and Supplementary Data" for further details).

The Company's consolidated income taxes for the year ended September 30, 2022 were a benefit of $4.4 million, compared to an expense of $6.4 million for fiscal 2021. The difference between the Company's consolidated income taxes for fiscal 2022 compared to fiscal 2021 partially resulted from fiscal 2022 having a consolidated loss before income taxes compared to fiscal 2021 having consolidated income before incomes taxes. The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible. The fiscal 2022 effective tax rate benefited

23

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

from research and development and foreign tax credits. The fiscal 2022 effective tax rate was negatively impacted by foreign net operating losses that had a full valuation allowance. The fiscal 2021 effective tax rate also benefited from research and development and foreign tax credits as well as the reduction of uncertain tax positions due to the expiration of the statute of limitations in certain jurisdictions, the completion of a state tax audit, and the tax benefit of the NOL carryback. 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. Refer to Note 17, “Income Taxes” in Item 8 - “Financial Statements and Supplementary Data” for further details regarding income taxes.

Net losses attributable to noncontrolling interests were $54,000 in fiscal 2022, compared to $52,000 in fiscal 2021.  The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.

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 fiscal 2020. Fiscal 2021 sales were impacted by the global outbreak of coronavirus disease 2019 ("COVID-19"), which caused some commercial impacts in certain of the Company's segments and geographic locations. These impacts included higher sales volumes for memorialization products and services, but also included temporary business disruptions and customer project delays for certain of the Company's businesses. Additionally, increases in the cost of certain raw materials and other inflation-related pressures had an unfavorable impact on the Company's results of operations.

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 an 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 fiscal 2020. Industrial Technologies segment sales for fiscal 2021 were $284.5 million, compared to $228.5 million for fiscal 2020. The sales increase primarily reflected higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market), higher sales of warehouse automation systems, and increased product identification sales, partially offset by reduced sales of surfaces products in Europe. Changes in foreign currency exchange rates had a favorable impact of $9.5 million on the segment's sales compared to fiscal 2020. In the SGK Brand Solutions segment, sales for fiscal 2021 were $617.5 million, compared to $613.8 million in fiscal 2020. The increase primarily resulted from 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) and decreased brand sales in the U.S., both of which were unfavorably impacted by COVID-19. Changes in foreign currency exchange rates had a favorable impact of $16.4 million on the segment's sales compared to fiscal 2020.

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 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

24

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

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 have been 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. Refer to Note 22, "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. 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 an 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 $34.9 million, compared to $23.1 million in fiscal 2020. Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales, improved margins for engineered products, 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 $1.2 million on the segment's adjusted EBITDA compared to fiscal 2020. Adjusted EBITDA for the SGK Brand Solutions segment for fiscal 2021 was $91.4 million, compared to $90.3 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 cylinder products. Changes in foreign currency exchange rates had a favorable impact of $1.4 million on the segment's adjusted EBITDA compared to fiscal 2020. 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.

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 fiscal 2021. 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.

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 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 17, “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.

25

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

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.

26

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

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

[[GREPCENT_TABLE]]
[["","Years Ended September 30,"],["","2022","","2021","","2020"],["","(Dollar amounts in thousands)"],["Net (loss) income","$","(99,828)","","","$","2,858","","","$","(87,652)"],["Income tax (benefit) provision","(4,391)","","","6,375","","","(18,685)"],["(Loss) income before income taxes","(104,219)","","","9,233","","","(106,337)"],["Net loss attributable to noncontrolling interests","54","","","52","","","497"],["Interest expense","27,725","","","28,684","","","34,885"],["Depreciation and amortization *","104,056","","","133,512","","","119,058"],["Receivables Purchase Agreement (\"RPA\") financing fees (1)","1,046","","","\u2014","","","\u2014"],["Strategic initiatives and other charges (2)**","37,431","","","29,539","","","40,686"],["Legal matter reserve (3)","\u2014","","","\u2014","","","10,566"],["Non-recurring / incremental COVID-19 costs (4)***","2,985","","","5,312","","","3,908"],["Defined benefit plan termination related items (5)","(429)","","","\u2014","","","\u2014"],["Asset write-downs, net (6)","10,050","","","\u2014","","","\u2014"],["Goodwill write-downs (7)","82,454","","","\u2014","","","90,408"],["Gain on sale of ownership interests in subsidiaries (8)","\u2014","","","\u2014","","","(11,208)"],["Joint Venture depreciation, amortization, interest expense and other charges (9)","\u2014","","","\u2014","","","4,732"],["Stock-based compensation","17,432","","","15,581","","","8,096"],["Non-service pension and postretirement expense (10)","31,823","","","5,837","","","7,789"],["Total Adjusted EBITDA","$","210,408","","","$","227,750","","","$","203,080"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1) Represents fees for receivables sold under the Company's RPA agreement (see \"Liquidity and Capital Resources\u201d)."],["(2) Includes certain non-recurring items associated with recent acquisition activities, costs associated with global ERP system integration efforts, certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels, and exchange losses associated with highly inflationary accounting (see Note 2, \"Summary of Significant Accounting Policies\" in Item 8 - \u201cFinancial Statements and Supplementary Data\u201d)."],["(3) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment (see Note 9, \"Debt and Financing Arrangements\" in Item 8 - \u201cFinancial Statements and Supplementary Data\u201d)."],["(4) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19."],["(5) Represents items associated with the termination of the Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan."],["(6) Represents asset write-downs, net of recoveries within the SGK Brand Solutions segment (see Note 23, \"Asset Write-Downs\" in Item 8 - \u201cFinancial Statements and Supplementary Data\u201d)."],["(7) Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 22, \"Goodwill and Other Intangible Assets\" in Item 8 - \u201cFinancial Statements and Supplementary Data\u201d)."],["(8) Represents the gain on the sale of ownership interests in subsidiaries within the Memorialization segment."],["(9) Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment."],["(10) 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."]]
[[/GREPCENT_TABLE]]

* Depreciation and amortization was $23.2 million, $23.0 million, and $20.5 million, for the Memorialization segment, $11.4 million, $11.4 million, and $11.9 million for the Industrial Technologies segment, $64.2 million, $93.7 million, and $81.4 million for the SGK Brand Solutions segment, and $5.3 million, $5.4 million, and $5.2 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3.5 million, $1.9 million, and $2.7 million for the Memorialization segment, $5.6 million, $4.0 million, and $2.5 million for the Industrial Technologies segment, $19.4 million, $12.3 million, and $12.5 million for the SGK Brand Solutions segment, and $8.9 million, $11.3 million, and $23.0 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.

*** Non-recurring/incremental COVID-19 costs were $1.3 million, $3.6 million. and $1.8 million for the Memorialization segment, $6,000, $38,000, and $32,000 for the Industrial Technologies segment, $1.2 million, $1.5 million, and $1.4 million for the SGK Brand Solutions segment, and $466,000, $89,000, and $615,000 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.

27

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

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $126.9 million for the year ended September 30, 2022, compared to $162.8 million and $180.4 million for fiscal years 2021 and 2020, respectively. Operating cash flow for fiscal 2022 principally included net (loss) income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, goodwill and other asset write-downs, non-cash pension expense, gain on sale of assets, and other non-cash adjustments, and changes in working capital items. Fiscal 2022 operating cash flow also reflected $35.7 million of contributions to fully fund the settlement of the Company's DB Plan obligations. The favorable movements in working capital in fiscal 2022 primarily reflected proceeds from the sale of receivables under a receivables purchase agreement (see below for further discussion), partially offset by higher inventory levels reflecting increased commodity costs, lower performance-based compensation accruals, and changes in other accounts. Operating cash flow for fiscal 2021 principally included net income adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains related to investments, and non-cash pension expense, and changes in working capital items. Fiscal 2021 operating cash flow also reflected a $15.0 million discretionary contribution to fund the DB Plan. The favorable movements in working capital in fiscal 2021 primarily reflected 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.

Cash used in investing activities was $80.9 million for the year ended September 30, 2022, compared to $13.0 million and $2.7 million for fiscal years 2021 and 2020, respectively.  Investing activities for fiscal 2022 primarily reflected capital expenditures of $61.3 million, acquisition payments (net of cash acquired or received from sellers) of $44.5 million, purchases of investments of $2.2 million, proceeds from the sale of assets of $5.0 million, proceeds from the sale of investments of $8.8 million, and proceeds from the settlement of net investment hedges of $13.1 million. Investing activities for fiscal 2021 primarily reflected capital expenditures of $34.3 million, acquisition payments (net of cash acquired or received from sellers) of $15.6 million, proceeds from the sale of assets of $2.8 million, and proceeds from the sale of investments of $34.2 million.  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, purchases of investments of $9.7 million, and proceeds of $42.2 million from the sale of an ownership interest in a pet cremation business.

Capital expenditures were $61.3 million for the year ended September 30, 2022, compared to $34.3 million and $34.8 million for fiscal years 2021 and 2020, 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 $43.5 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 2023 is currently estimated to be approximately $75 million. Capital spending in fiscal 2022 and 2023 reflects additional capital projects to support new production capabilities and increased efficiencies within the Memorialization and Industrial Technologies segments.  The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cash used in financing activities for the year ended September 30, 2022 was $37.2 million, and principally reflected proceeds, net of repayments, on long-term debt of $35.7 million, purchases of treasury stock of $41.7 million, payment of dividends to the Company's shareholders of $27.7 million ($0.88 per share), and $725,000 of holdback and contingent consideration payments related to acquisitions from prior years. Cash used in financing activities for the year ended September 30, 2021 was $122.9 million, and principally reflected repayments, net of proceeds, on long-term debt of $76.8 million, purchases of treasury stock of $11.9 million, payment of dividends to the Company's shareholders of $27.7 million ($0.86 per share), $1.8 million of holdback and contingent consideration payments related to acquisitions from prior years, and $1.8 million of payments for the acquisition of noncontrolling interests. Cash used in financing activities for the year ended September 30, 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.

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750.0 million senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $350.0 million ) can be drawn in foreign currencies. 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% (1.25% at September 30, 2022) based on the

28

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

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 $1.5 million and $2.2 million at September 30, 2022 and September 30, 2021, respectively.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $55.0 million) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2022 and 2021 were $472.1 million and $349.8 million, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at September 30, 2022 and 2021 was 3.13% and 2.03%, respectively.

The Company has $299.6 million of 5.25% senior unsecured notes due December 1, 2025. The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $1.7 million and $2.2 million at September 30, 2022 and 2021, respectively.

The Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. In March 2022, Matthews RFC entered into a receivables purchase agreement (“RPA”) to sell up to $125.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables.

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. Gross receivables sold and cash collections reinvested under the RPA program were $424.8 million and $328.2 million in fiscal 2022, respectively. 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 September 30, 2022, the amount sold to the Purchasers was $96.6 million, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $44.3 million as of September 30, 2022.

Previously, the Company had a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matured in March 2022. The Securitization Facility did not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remained on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility were based on LIBOR plus 0.75% and the Company was 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 totaled $96.0 million. At September 30, 2021, the interest rate on borrowings under this facility was 0.83%.

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 ($24.5 million), which includes €8.0 million ($7.8 million) for bank guarantees.  The credit facility matures in December 2022 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €8.2 million ($8.1 million) and €704,000 ($817,000) at September 30, 2022 and 2021, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 2.25% at September 30, 2022 and 2021.

Other borrowings totaled $13.4 million and $10.2 million at September 30, 2022 and 2021, respectively. The weighted-average interest rate on these borrowings was 1.85% and 2.19% at September 30, 2022 and 2021, respectively.

29

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

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:

[[GREPCENT_TABLE]]
[["","","September 30, 2022","","September 30, 2021"],["","","(Dollar amounts in thousands)"],["Notional amount","","$","125,000","","","$","250,000"],["Weighted-average maturity period (years)","","3.1","","2.2"],["Weighted-average received rate","","3.14","%","","0.08","%"],["Weighted-average pay rate","","1.04","%","","1.34","%"]]
[[/GREPCENT_TABLE]]

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 $10.7 million ($7.9 million after tax) and a net unrealized loss of $2.1 million ($1.6 million after tax) at September 30, 2022 and 2021, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").  Assuming market rates remain constant with the rates at September 30, 2022, a gain (net of tax) of approximately $2.5 million included in AOCI is expected to be recognized in earnings over the next twelve months.

During fiscal 2021, the Company entered into a U.S. Dollar/Euro cross currency swap with a notional amount of $94.5 million, which was designated as a net investment hedge of foreign operations. The swap was settled during fiscal 2022, resulting in cash proceeds of $13.1 million. Concurrently, the Company entered into a new U.S. Dollar/Euro cross currency swap with a notional amount of $81.4 million, which was also designated as a net investment hedge of foreign operations. The new swap contract matures in September 2027. The Company assesses hedge effectiveness for the swap contracts based on changes in fair value attributable to changes in spot prices. A gain of $2.8 million (net of income taxes of $0.9 million) and a gain of $29,000 (net of income taxes of $10,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2022 and September 30, 2021, respectively. Income of $1.6 million and $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 2022 and fiscal 2021, respectively. At September 30, 2022 and September 30, 2021, the swaps totaled $3.7 million and $39,000, respectively, and were included in other assets in the Consolidated Balance Sheets.

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), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2021.

The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting but which have the economic impact of largely mitigating foreign currency exposure. Changes in the fair value of these economic hedges are recorded in current period earnings as a component of other income (deductions), net. During fiscal 2022, net gains from economic hedges (which largely offset losses from underlying foreign currency exposures) totaled $4.7 million. No such economic hedge contracts were outstanding as of September 30, 2022 and 2021.

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. Under the current authorization, 1,294,842 shares remain available for repurchase as of September 30, 2022.

Consolidated working capital was $217.2 million at September 30, 2022, compared to $269.9 million at September 30, 2021.  Cash and cash equivalents were $69.0 million at September 30, 2022, compared to $49.2 million at September 30, 2021.  The Company's current ratio was 1.5 and 1.8 at September 30, 2022 and 2021, respectively.

30

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

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at September 30, 2022, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

[[GREPCENT_TABLE]]
[["","","","Payments due in fiscal year:"],["","Total","","2023(1)","","2024 to 2025","","2026 to 2027","","After 2027"],["Contractual Cash Obligations:","(Dollar amounts in thousands)"],["Revolving credit facilities","$","480,107","","","$","8,050","","","$","472,057","","","$","\u2014","","","$","\u2014"],["2025 Senior Notes","353,086","","","15,750","","","31,500","","","305,836","","","\u2014"],["Finance lease obligations (2)","7,722","","","2,499","","","2,451","","","1,510","","","1,262"],["Non-cancelable operating leases (2)","77,978","","","24,378","","","34,728","","","15,561","","","3,311"],["Other","40,559","","","28,119","","","2,070","","","2,155","","","8,215"],["Total contractual cash obligations","$","959,452","","","$","78,796","","","$","542,806","","","$","325,062","","","$","12,788"]]
[[/GREPCENT_TABLE]]

(1)The Company maintains certain debt facilities with current maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $8.1 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 were made from plan assets, while benefit payments under the SERP and postretirement benefit plan are funded from the Company's operating funds.

In the first quarter of fiscal 2022, the Company terminated its DB Plan and made plan contributions totaling $35.7 million to fully fund the planned settlement of the DB Plan obligations. Also during the first quarter of fiscal 2022, lump sum distributions of $186.0 million were made from the DB Plan to plan participants, and non-participating annuity contracts totaling $56.3 million were purchased by the DB Plan for plan participants, resulting in the full settlement of the DB Plan obligations. The settlement of the DB Plan obligations resulted in the recognition of a non-cash charge of $30.9 million, which has been presented as a component of other income (deductions), net for the year ended September 30, 2022. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan. During fiscal 2022 contributions of $760,000, $416,000, and $615,000 were made under the SERP, other retirement plans, and postretirement plan, respectively.

In October 2022, subsequent to the date of the balance sheet, the Company made lump sum payments totaling $24.2 million to fully settle the SERP and defined benefit portion of the Company's Officers Retirement Restoration Plan ("ORRP") obligations. The settlement of these plan obligations is expected to result in the recognition of a non-cash charge of approximately $1.3 million in the first quarter of fiscal 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP, and is based on current estimates as of September 30, 2022.

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, 2022, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.1 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.

31

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

ACQUISITIONS AND DIVESTITURES:

Refer to Note 21, "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 income growth primarily consists of the following:  internal growth - which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products - and acquisitions and related integration activities to achieve synergy benefits.

The significant factors (excluding acquisitions) influencing sales growth in the Industrial Technologies segment include economic/industrial market conditions, new product development, and the electric vehicles ("EV") and e-commerce trends. Order rates for the Company's Industrial Technologies businesses remained strong through fiscal 2022 and, as a result, are currently expected to support the segment’s organic growth objectives into next year. For the Memorialization segment, sales growth will be influenced by North America death rates, and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products. For the SGK Brand Solutions segment, sales growth will be influenced by global economic conditions, brand innovation, the level of marketing spending by the Company's clients, and government regulation. Due to the global footprint of this segment, currency fluctuations can also be a significant factor. Additionally, the retail-based businesses in the SGK Brand Solutions segment continue to recover from the unfavorable sales impacts of the pandemic (see below).

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. The Company has experienced some commercial impact and business disruptions in certain segments and geographic locations as a result of COVID-19. Recent impacts have included higher sales volumes for memorialization products and services, which are expected to decrease as the pandemic subsides. Additionally, recent increases in the cost of certain raw materials, labor, supply chain challenges, and other inflation-related impacts are expected to impact the Company's results for the near future. The Company expects to partially mitigate these cost increases through price realization and cost-reduction initiatives.

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.  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, 2022.

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, except as disclosed in Note 23, “Asset Write-Downs" in Item 8 - "Financial Statements and Supplementary Data."

32

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

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 2022 (January 1, 2022) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary. The estimated fair value of the Company's SGK Brand Solutions reporting unit (formerly the Graphics Imaging reporting unit) exceeded the carrying value (expressed as a percentage of carrying value) by approximately 10%.

The SGK Brand Solutions reporting unit has experienced recent declines, primarily resulting from weakened economic conditions (particularly in Europe) and unfavorable changes in foreign exchange rates. Additionally, recent increases in the cost of certain materials, labor, and other inflation-related pressures have had an unfavorable impact on the reporting unit's results of operations. During the fourth quarter of fiscal 2022, in its assessment of these potential impacts, and in light of the limited excess fair value over carrying value for its SGK Brand Solutions reporting unit (discussed above), management determined a triggering event occurred, resulting in a re-evaluation of goodwill for the reporting unit, as of September 1, 2022. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $82.5 million during the fiscal 2022 fourth quarter. Subsequent to this write-down, the fair value of the SGK Brand Solutions reporting unit approximated its carrying value at September 1, 2022. 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.

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 the segment's two reporting units, management determined that COVID-19 represented a triggering event, resulting in a re-evaluation of the goodwill for the 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.

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.

33

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

INFLATION:

Recent increases in the cost of certain materials (such as bronze ingot, steel, wood, granite and fuel), labor, and other inflation-related pressures have had an unfavorable impact on the Company's results of operations (see "Results of Operations"). 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.