UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30,December 31, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____
Commission File No. 0-09115
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________________ | | | | | | | | |
Pennsylvania | | 25-0644320 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
Two Northshore Center, Pittsburgh, PA 15212-5851
(Address of principal executive offices) (Zip Code)
(412) 442-8200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) | | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Class A Common Stock, $1.00 par value | | MATW | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ý | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ý
As of June 30,December 31, 2021, shares of common stock outstanding were: Class A Common Stock 31,612,67131,550,416 shares.
PART I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands) | | | June 30, 2021 | | September 30, 2020 | | December 31, 2021 | | September 30, 2021 |
ASSETS | ASSETS | | | | | | | | ASSETS | | | | | | | |
Current assets: | Current assets: | | | | | | | | Current assets: | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | | | $ | 46,230 | | | | | $ | 41,334 | | Cash and cash equivalents | | | $ | 70,984 | | | | | $ | 49,176 | |
Accounts receivable, net | Accounts receivable, net | | | 296,660 | | | | | 295,185 | | Accounts receivable, net | | | 313,997 | | | | | 309,818 | |
Inventories, net | Inventories, net | | | 194,700 | | | | | 175,100 | | Inventories, net | | | 192,744 | | | | | 189,088 | |
Restricted cash, current | | Restricted cash, current | | 19,167 | | | — | |
Other current assets | Other current assets | | | 83,141 | | | | | 63,954 | | Other current assets | | | 89,860 | | | | | 76,083 | |
| Total current assets | Total current assets | | | 620,731 | | | | | 575,573 | | Total current assets | | | 686,752 | | | | | 624,165 | |
| Restricted cash, non-current | | Restricted cash, non-current | | — | | | 19,167 | |
Investments | Investments | | | 49,646 | | | | | 63,250 | | Investments | | | 30,416 | | | | | 30,438 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | | 229,207 | | | | | 236,788 | | Property, plant and equipment, net | | | 221,940 | | | | | 223,707 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 83,846 | | | 72,011 | | Operating lease right-of-use assets | | 79,128 | | | 80,262 | |
Deferred income taxes | Deferred income taxes | | | 2,894 | | | | | 3,757 | | Deferred income taxes | | | 2,987 | | | | | 3,489 | |
Goodwill | Goodwill | | | 780,375 | | | | | 765,388 | | Goodwill | | | 771,983 | | | | | 773,787 | |
Other intangible assets, net | Other intangible assets, net | | | 285,756 | | | | | 333,498 | | Other intangible assets, net | | | 239,724 | | | | | 261,542 | |
Other assets | Other assets | | 22,596 | | | 22,368 | | Other assets | | 20,385 | | | 15,521 | |
| Total assets | Total assets | | | $ | 2,075,051 | | | | | $ | 2,072,633 | | Total assets | | | $ | 2,053,315 | | | | | $ | 2,032,078 | |
| LIABILITIES | LIABILITIES | | | | | | | | LIABILITIES | | | | | | | |
Current liabilities: | Current liabilities: | | | | | | | | Current liabilities: | | | | | | | |
Long-term debt, current maturities | Long-term debt, current maturities | | | $ | 4,994 | | | | | $ | 26,824 | | Long-term debt, current maturities | | | $ | 4,271 | | | | | $ | 4,624 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | | 25,349 | | | 23,942 | | Current portion of operating lease liabilities | | 24,535 | | | 25,151 | |
Trade accounts payable | Trade accounts payable | | | 101,591 | | | | | 82,921 | | Trade accounts payable | | | 112,016 | | | | | 112,722 | |
Accrued compensation | Accrued compensation | | | 64,214 | | | | | 58,058 | | Accrued compensation | | | 38,506 | | | | | 68,938 | |
Accrued income taxes | Accrued income taxes | | | 2,479 | | | | | 3,612 | | Accrued income taxes | | | 4,728 | | | | | 4,235 | |
Other current liabilities | Other current liabilities | | | 130,838 | | | | | 121,511 | | Other current liabilities | | | 157,074 | | | | | 138,555 | |
| Total current liabilities | Total current liabilities | | | 329,465 | | | | | 316,868 | | Total current liabilities | | | 341,130 | | | | | 354,225 | |
| Long-term debt | Long-term debt | | | 787,493 | | | | | 807,710 | | Long-term debt | | | 831,791 | | | | | 759,086 | |
Operating lease liabilities | Operating lease liabilities | | 60,386 | | | 49,297 | | Operating lease liabilities | | 56,859 | | | 57,272 | |
Accrued pension | Accrued pension | | | 135,108 | | | | | 149,848 | | Accrued pension | | | 33,990 | | | | | 84,803 | |
Postretirement benefits | Postretirement benefits | | | 18,545 | | | | | 18,600 | | Postretirement benefits | | | 18,010 | | | | | 17,958 | |
Deferred income taxes | Deferred income taxes | | | 84,427 | | | | | 78,911 | | Deferred income taxes | | | 108,683 | | | | | 97,416 | |
Other liabilities | Other liabilities | | | 33,315 | | | | | 39,966 | | Other liabilities | | | 18,180 | | | | | 24,915 | |
Total liabilities | Total liabilities | | | 1,448,739 | | | | | 1,461,200 | | Total liabilities | | | 1,408,643 | | | | | 1,395,675 | |
| SHAREHOLDERS' EQUITY | SHAREHOLDERS' EQUITY | | | | | | | | SHAREHOLDERS' EQUITY | | | | | | | |
Shareholders' equity-Matthews: | Shareholders' equity-Matthews: | | | | | | | | Shareholders' equity-Matthews: | | | | | | | |
Common stock | Common stock | $ | 36,334 | | | | | $ | 36,334 | | | | Common stock | $ | 36,334 | | | | | $ | 36,334 | | | |
Additional paid-in capital | Additional paid-in capital | 148,959 | | | | | 135,187 | | | | Additional paid-in capital | 148,425 | | | | | 149,484 | | | |
Retained earnings | Retained earnings | 844,732 | | | | | 859,002 | | | | Retained earnings | 807,581 | | | | | 834,208 | | | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (218,319) | | | | | (240,719) | | | | Accumulated other comprehensive loss | (159,114) | | | | | (192,739) | | | |
Treasury stock, at cost | Treasury stock, at cost | (185,958) | | | | | (178,997) | | | | Treasury stock, at cost | (188,406) | | | | | (190,739) | | | |
Total shareholders' equity-Matthews | Total shareholders' equity-Matthews | | | 625,748 | | | | | 610,807 | | Total shareholders' equity-Matthews | | | 644,820 | | | | | 636,548 | |
Noncontrolling interests | Noncontrolling interests | | | 564 | | | | | 626 | | Noncontrolling interests | | | (148) | | | | | (145) | |
Total shareholders' equity | Total shareholders' equity | | | 626,312 | | | | | 611,433 | | Total shareholders' equity | | | 644,672 | | | | | 636,403 | |
| Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | | | $ | 2,075,051 | | | | | $ | 2,072,633 | | Total liabilities and shareholders' equity | | | $ | 2,053,315 | | | | | $ | 2,032,078 | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
| | | Three Months Ended June 30, | | Nine Months Ended June 30, | | | Three Months Ended December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2021 | | 2020 |
| Sales | Sales | $ | 428,380 | | | $ | 359,422 | | | $ | 1,232,191 | | | $ | 1,099,166 | | Sales | | $ | 438,579 | | | $ | 386,657 | |
Cost of sales | Cost of sales | (291,122) | | | (238,469) | | | (828,424) | | | (737,722) | | Cost of sales | | (306,942) | | | (261,159) | |
| Gross profit | Gross profit | 137,258 | | | 120,953 | | | 403,767 | | | 361,444 | | Gross profit | | 131,637 | | | 125,498 | |
| Selling expense | Selling expense | (31,463) | | | (28,508) | | | (94,618) | | | (93,953) | | Selling expense | | (30,743) | | | (30,795) | |
Administrative expense | Administrative expense | (73,484) | | | (69,374) | | | (213,342) | | | (208,238) | | Administrative expense | | (68,569) | | | (69,109) | |
Intangible amortization | Intangible amortization | (23,039) | | | (17,825) | | | (61,190) | | | (53,639) | | Intangible amortization | | (21,546) | | | (15,221) | |
Goodwill write-down | 0 | | | 0 | | | 0 | | | (90,408) | | |
| Operating profit (loss) | 9,272 | | | 5,246 | | | 34,617 | | | (84,794) | | |
| Operating profit | | Operating profit | | 10,779 | | | 10,373 | |
| Investment income | Investment income | 959 | | | 1,252 | | | 3,005 | | | 1,443 | | Investment income | | 1,003 | | | 1,077 | |
Interest expense | Interest expense | (6,748) | | | (8,082) | | | (21,709) | | | (26,935) | | Interest expense | | (6,507) | | | (7,728) | |
Other income (deductions), net | Other income (deductions), net | (2,442) | | | (2,776) | | | (6,760) | | | (7,438) | | Other income (deductions), net | | (31,713) | | | (1,734) | |
| Income (loss) before income taxes | 1,041 | | | (4,360) | | | 9,153 | | | (117,724) | | |
(Loss) income before income taxes | | (Loss) income before income taxes | | (26,438) | | | 1,988 | |
| Income tax benefit (provision) | Income tax benefit (provision) | 2,325 | | | 6,209 | | | (2,627) | | | 22,672 | | Income tax benefit (provision) | | 6,628 | | | (3,980) | |
| Net income (loss) | 3,366 | | | 1,849 | | | 6,526 | | | (95,052) | | |
Net loss | | Net loss | | (19,810) | | | (1,992) | |
| Net (income) loss attributable to noncontrolling interests | (11) | | | 420 | | | 60 | | | 491 | | |
Net loss attributable to noncontrolling interests | | Net loss attributable to noncontrolling interests | | 7 | | | 234 | |
| Net income (loss) attributable to Matthews shareholders | $ | 3,355 | | | $ | 2,269 | | | $ | 6,586 | | | $ | (94,561) | | |
Net loss attributable to Matthews shareholders | | Net loss attributable to Matthews shareholders | | $ | (19,803) | | | $ | (1,758) | |
| Earnings (loss) per share attributable to Matthews shareholders: | |
Loss per share attributable to Matthews shareholders: | | Loss per share attributable to Matthews shareholders: |
Basic | Basic | $ | 0.11 | | | $ | 0.07 | | | $ | 0.21 | | | $ | (3.04) | | Basic | | $ | (0.62) | | | $ | (0.06) | |
| Diluted | Diluted | $ | 0.10 | | | $ | 0.07 | | | $ | 0.21 | | | $ | (3.04) | | Diluted | | $ | (0.62) | | | $ | (0.06) | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| Matthews | | Noncontrolling Interest | | Total |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | | | |
Net income (loss): | $ | 3,355 | | | $ | 2,269 | | | $ | 11 | | | $ | (420) | | | $ | 3,366 | | | $ | 1,849 | |
Other comprehensive income (loss) ("OCI"), net of tax: | | | | | | | | | | | |
Foreign currency translation adjustment | 2,904 | | | 11,240 | | | 0 | | | 0 | | | 2,904 | | | 11,240 | |
Pension plans and other postretirement benefits | 3,328 | | | 1,743 | | | 0 | | | 0 | | | 3,328 | | | 1,743 | |
| | | | | | | | | | | |
Unrecognized (loss) gain on derivatives: | | | | | | | | | | | |
Net change from periodic revaluation | (654) | | | (509) | | | 0 | | | 0 | | | (654) | | | (509) | |
Net amount reclassified to earnings | 596 | | | 330 | | | 0 | | | 0 | | | 596 | | | 330 | |
Net change in unrecognized loss on derivatives | (58) | | | (179) | | | 0 | | | 0 | | | (58) | | | (179) | |
OCI, net of tax | 6,174 | | | 12,804 | | | 0 | | | 0 | | | 6,174 | | | 12,804 | |
Comprehensive income (loss) | $ | 9,529 | | | $ | 15,073 | | | $ | 11 | | | $ | (420) | | | $ | 9,540 | | | $ | 14,653 | |
| | | Nine Months Ended June 30, | | Three Months Ended December 31, |
| | Matthews | | Noncontrolling Interest | | Total | | Matthews | | Noncontrolling Interest | | Total |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss): | $ | 6,586 | | | $ | (94,561) | | | $ | (60) | | | $ | (491) | | | $ | 6,526 | | | $ | (95,052) | | |
Net loss: | | Net loss: | $ | (19,803) | | | $ | (1,758) | | | $ | (7) | | | $ | (234) | | | $ | (19,810) | | | $ | (1,992) | |
OCI, net of tax: | OCI, net of tax: | | | | | | | | | | | | OCI, net of tax: | | | | | | | | | | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | 11,061 | | | (8,297) | | | (2) | | | (4) | | | 11,059 | | | (8,301) | | Foreign currency translation adjustment | (1,989) | | | 17,055 | | | 4 | | | (3) | | | (1,985) | | | 17,052 | |
Pension plans and other postretirement benefits | Pension plans and other postretirement benefits | 7,707 | | | 5,297 | | | 0 | | | 0 | | | 7,707 | | | 5,297 | | Pension plans and other postretirement benefits | 34,133 | | | 2,124 | | | — | | | — | | | 34,133 | | | 2,124 | |
| Unrecognized gain (loss) on derivatives: | | | | | | | | | | | | |
Unrecognized gain on derivatives: | | Unrecognized gain on derivatives: | | | | | | | | | | | |
Net change from periodic revaluation | Net change from periodic revaluation | 1,787 | | | (4,248) | | | 0 | | | 0 | | | 1,787 | | | (4,248) | | Net change from periodic revaluation | 875 | | | 353 | | | — | | | — | | | 875 | | | 353 | |
Net amount reclassified to earnings | Net amount reclassified to earnings | 1,845 | | | (82) | | | 0 | | | 0 | | | 1,845 | | | (82) | | Net amount reclassified to earnings | 606 | | | 682 | | | — | | | — | | | 606 | | | 682 | |
Net change in unrecognized gain (loss) on derivatives | 3,632 | | | (4,330) | | | 0 | | | 0 | | | 3,632 | | | (4,330) | | |
Net change in unrecognized gain on derivatives | | Net change in unrecognized gain on derivatives | 1,481 | | | 1,035 | | | — | | | — | | | 1,481 | | | 1,035 | |
OCI, net of tax | OCI, net of tax | 22,400 | | | (7,330) | | | (2) | | | (4) | | | 22,398 | | | (7,334) | | OCI, net of tax | 33,625 | | | 20,214 | | | 4 | | | (3) | | | 33,629 | | | 20,211 | |
Comprehensive income (loss) | Comprehensive income (loss) | $ | 28,986 | | | $ | (101,891) | | | $ | (62) | | | $ | (495) | | | $ | 28,924 | | | $ | (102,386) | | Comprehensive income (loss) | $ | 13,822 | | | $ | 18,456 | | | $ | (3) | | | $ | (237) | | | $ | 13,819 | | | $ | 18,219 | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the three and nine months ended June 30,December 31, 2021 and 2020 (Unaudited)
(Dollar amounts in thousands, except per share data)
| | | Shareholders' Equity | | Shareholders' Equity |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Non- controlling Interests | | Total | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Non- controlling Interests | | Total |
Balance, September 30, 2020 | $ | 36,334 | | | $ | 135,187 | | | $ | 859,002 | | | $ | (240,719) | | | $ | (178,997) | | | $ | 626 | | | $ | 611,433 | | |
Balance, September 30, 2021 | | Balance, September 30, 2021 | $ | 36,334 | | | $ | 149,484 | | | $ | 834,208 | | | $ | (192,739) | | | $ | (190,739) | | | $ | (145) | | | $ | 636,403 | |
Net loss | Net loss | — | | | — | | | (1,758) | | | — | | | — | | | (234) | | | (1,992) | | Net loss | — | | | — | | | (19,803) | | | — | | | — | | | (7) | | | (19,810) | |
Minimum pension liability | Minimum pension liability | — | | | — | | | — | | | 2,124 | | | — | | | — | | | 2,124 | | Minimum pension liability | — | | | — | | | — | | | 34,133 | | | — | | | — | | | 34,133 | |
Translation adjustment | Translation adjustment | — | | | — | | | — | | | 17,055 | | | — | | | (3) | | | 17,052 | | Translation adjustment | — | | | — | | | — | | | (1,989) | | | — | | | 4 | | | (1,985) | |
Fair value of derivatives | Fair value of derivatives | — | | | — | | | — | | | 1,035 | | | — | | | — | | | 1,035 | | Fair value of derivatives | — | | | — | | | — | | | 1,481 | | | — | | | — | | | 1,481 | |
Total comprehensive income | Total comprehensive income | | | | | | | | | | | | | 18,219 | | Total comprehensive income | | | | | | | | | | | | | 13,819 | |
Stock-based compensation | Stock-based compensation | — | | | 3,246 | | | — | | | — | | | — | | | — | | | 3,246 | | Stock-based compensation | — | | | 3,709 | | | — | | | — | | | — | | | — | | | 3,709 | |
Purchase of 162,291 shares of treasury stock | — | | | — | | | — | | | — | | | (4,237) | | | — | | | (4,237) | | |
Issuance of 10,300 shares of treasury stock | — | | | (407) | | | — | | | — | | | 407 | | | — | | | 0 | | |
Cancellations of 34,727 shares of treasury stock | — | | | 1,982 | | | — | | | — | | | (1,982) | | | — | | | 0 | | |
Dividends, $0.215 per share | — | | | — | | | (6,808) | | | — | | | — | | | — | | | (6,808) | | |
Purchase of 62,746 shares of treasury stock | | Purchase of 62,746 shares of treasury stock | — | | | — | | | — | | | — | | | (2,435) | | | — | | | (2,435) | |
Issuance of 174,107 shares of treasury stock | | Issuance of 174,107 shares of treasury stock | — | | | (6,859) | | | — | | | — | | | 6,859 | | | — | | | — | |
Cancellations of 31,057 shares of treasury stock | | Cancellations of 31,057 shares of treasury stock | — | | | 2,091 | | | — | | | — | | | (2,091) | | | — | | | — | |
Dividends, $0.22 per share | | Dividends, $0.22 per share | — | | | — | | | (6,824) | | | — | | | — | | | — | | | (6,824) | |
| Balance, December 31, 2020 | $ | 36,334 | | | $ | 140,008 | | | $ | 850,436 | | | $ | (220,505) | | | $ | (184,809) | | | $ | 389 | | | $ | 621,853 | | |
Net income | — | | | — | | | 4,989 | | | — | | | — | | | 163 | | | 5,152 | | |
Minimum pension liability | — | | | — | | | — | | | 2,255 | | | — | | | — | | | 2,255 | | |
Translation adjustment | — | | | — | | | — | | | (8,898) | | | — | | | 1 | | | (8,897) | | |
Fair value of derivatives | — | | | — | | | — | | | 2,655 | | | — | | | — | | | 2,655 | | |
Total comprehensive income | | | | | | | | | | | | | 1,165 | | |
Stock-based compensation | — | | | 4,001 | | | — | | | — | | | — | | | — | | | 4,001 | | |
Purchase of 6,000 shares of treasury stock | — | | | — | | | — | | | — | | | (249) | | | — | | | (249) | | |
Issuance of 17,357 shares of treasury stock | — | | | (685) | | | — | | | — | | | 685 | | | — | | | 0 | | |
| Dividends, $0.215 per share | — | | | — | | | (7,171) | | | — | | | — | | | — | | | (7,171) | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | $ | 36,334 | | | $ | 148,425 | | | $ | 807,581 | | | $ | (159,114) | | | $ | (188,406) | | | $ | (148) | | | $ | 644,672 | |
| Balance, March 31, 2021 | $ | 36,334 | | | $ | 143,324 | | | $ | 848,254 | | | $ | (224,493) | | | $ | (184,373) | | | $ | 553 | | | $ | 619,599 | | |
Net income | — | | | — | | | 3,355 | | | — | | | — | | | 11 | | | 3,366 | | |
Minimum pension liability | — | | | — | | | — | | | 3,328 | | | — | | | — | | | 3,328 | | |
Translation adjustment | — | | | — | | | — | | | 2,904 | | | — | | | — | | | 2,904 | | |
Fair value of derivatives | — | | | — | | | — | | | (58) | | | — | | | — | | | (58) | | |
Total comprehensive income | | | | | | | | | | | | | 9,540 | | |
Stock-based compensation | — | | | 5,713 | | | — | | | — | | | — | | | — | | | 5,713 | | |
Purchase of 45,584 shares of treasury stock | — | | | — | | | — | | | — | | | (1,663) | | | — | | | (1,663) | | |
Issuance of 2,045 shares of treasury stock | — | | | (78) | | | — | | | — | | | 78 | | | — | | | 0 | | |
| Dividends, $0.215 per share | — | | | — | | | (6,877) | | | — | | | — | | | — | | | (6,877) | | |
| Balance, June 30, 2021 | $ | 36,334 | | | $ | 148,959 | | | $ | 844,732 | | | $ | (218,319) | | | $ | (185,958) | | | $ | 564 | | | $ | 626,312 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Non- controlling Interests | | Total |
Balance, September 30, 2019 | $ | 36,334 | | | $ | 137,774 | | | $ | 972,594 | | | $ | (228,361) | | | $ | (200,235) | | | $ | 1,130 | | | $ | 719,236 | |
Net (loss) income | — | | | — | | | (10,466) | | | — | | | — | | | 160 | | | (10,306) | |
Minimum pension liability | — | | | — | | | — | | | 1,727 | | | — | | | — | | | 1,727 | |
Translation adjustment | — | | | — | | | — | | | 11,111 | | | — | | | (5) | | | 11,106 | |
Fair value of derivatives | — | | | — | | | — | | | 291 | | | — | | | — | | | 291 | |
Total comprehensive income | | | | | | | | | | | | | 2,818 | |
Stock-based compensation | — | | | 2,031 | | | — | | | — | | | — | | | — | | | 2,031 | |
Purchase of 52,104 shares of treasury stock | — | | | — | | | — | | | — | | | (1,845) | | | — | | | (1,845) | |
Issuance of 11,225 shares of treasury stock | — | | | (450) | | | — | | | — | | | 450 | | | — | | | 0 | |
Cancellations of 17,509 shares of treasury stock | — | | | 1,171 | | | — | | | — | | | (1,171) | | | — | | | 0 | |
Dividends, $0.21 per share | — | | | — | | | (6,535) | | | — | | | — | | | — | | | (6,535) | |
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Balance, December 31, 2019 | $ | 36,334 | | | $ | 140,526 | | | $ | 955,593 | | | $ | (215,232) | | | $ | (202,801) | | | $ | 1,285 | | | $ | 715,705 | |
Net loss | — | | | — | | | (86,364) | | | — | | | — | | | (231) | | | (86,595) | |
Minimum pension liability | — | | | — | | | — | | | 1,827 | | | — | | | — | | | 1,827 | |
Translation adjustment | — | | | — | | | — | | | (30,648) | | | — | | | 1 | | | (30,647) | |
Fair value of derivatives | — | | | — | | | — | | | (4,442) | | | — | | | — | | | (4,442) | |
Total comprehensive loss | | | | | | | | | | | | | (119,857) | |
Stock-based compensation | — | | | 2,508 | | | — | | | — | | | — | | | — | | | 2,508 | |
Purchase of 20,750 shares of treasury stock | — | | | — | | | — | | | — | | | (506) | | | — | | | (506) | |
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Dividends, $0.21 per share | — | | | — | | | (6,648) | | | — | | | — | | | — | | | (6,648) | |
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Balance, March 31, 2020 | $ | 36,334 | | | $ | 143,034 | | | $ | 862,581 | | | $ | (248,495) | | | $ | (203,307) | | | $ | 1,055 | | | $ | 591,202 | |
Net income (loss) | — | | | — | | | 2,269 | | | — | | | — | | | (420) | | | 1,849 | |
Minimum pension liability | — | | | — | | | — | | | 1,743 | | | — | | | — | | | 1,743 | |
Translation adjustment | — | | | — | | | — | | | 11,240 | | | — | | | — | | | 11,240 | |
Fair value of derivatives | — | | | — | | | — | | | (179) | | | — | | | — | | | (179) | |
Total comprehensive income | | | | | | | | | | | | | 14,653 | |
Stock-based compensation | — | | | 2,539 | | | — | | | — | | | — | | | — | | | 2,539 | |
Purchase of 722 shares of treasury stock | — | | | — | | | — | | | — | | | (22) | | | — | | | (22) | |
Issuance of 900 shares of treasury stock | — | | | (36) | | | — | | | — | | | 36 | | | — | | | 0 | |
Cancellations of 4,616 shares of treasury stock | — | | | 277 | | | — | | | — | | | (277) | | | — | | | 0 | |
Dividends, $0.21 per share | — | | | — | | | (6,630) | | | — | | | — | | | — | | | (6,630) | |
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Balance, June 30, 2020 | $ | 36,334 | | | $ | 145,814 | | | $ | 858,220 | | | $ | (235,691) | | | $ | (203,570) | | | $ | 635 | | | $ | 601,742 | |
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| Shareholders' Equity |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Non- controlling Interests | | Total |
Balance, September 30, 2020 | $ | 36,334 | | | $ | 135,187 | | | $ | 859,002 | | | $ | (240,719) | | | $ | (178,997) | | | $ | 626 | | | $ | 611,433 | |
Net loss | — | | | — | | | (1,758) | | | — | | | — | | | (234) | | | (1,992) | |
Minimum pension liability | — | | | — | | | — | | | 2,124 | | | — | | | — | | | 2,124 | |
Translation adjustment | — | | | — | | | — | | | 17,055 | | | — | | | (3) | | | 17,052 | |
Fair value of derivatives | — | | | — | | | — | | | 1,035 | | | — | | | — | | | 1,035 | |
Total comprehensive income | | | | | | | | | | | | | 18,219 | |
Stock-based compensation | — | | | 3,246 | | | — | | | — | | | — | | | — | | | 3,246 | |
Purchase of 162,291 shares of treasury stock | — | | | — | | | — | | | — | | | (4,237) | | | — | | | (4,237) | |
Issuance of 10,300 shares of treasury stock | — | | | (407) | | | — | | | — | | | 407 | | | — | | | — | |
Cancellations of 34,727 shares of treasury stock | — | | | 1,982 | | | — | | | — | | | (1,982) | | | — | | | — | |
Dividends, $0.215 per share | — | | | — | | | (6,808) | | | — | | | — | | | — | | | (6,808) | |
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Balance, December 31, 2020 | $ | 36,334 | | | $ | 140,008 | | | $ | 850,436 | | | $ | (220,505) | | | $ | (184,809) | | | $ | 389 | | | $ | 621,853 | |
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The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
| | | Nine Months Ended June 30, | | Three Months Ended December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income (loss) | $ | 6,526 | | | $ | (95,052) | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Net loss | | Net loss | $ | (19,810) | | | $ | (1,992) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 97,919 | | | 88,418 | | Depreciation and amortization | 33,501 | | | 27,351 | |
Stock-based compensation expense | Stock-based compensation expense | 12,960 | | | 7,078 | | Stock-based compensation expense | 3,709 | | | 3,246 | |
Deferred tax provision (benefit) | 967 | | | (11,986) | | |
Deferred tax provision | | Deferred tax provision | 47 | | | 707 | |
Gain on sale of assets, net | Gain on sale of assets, net | (641) | | | (229) | | Gain on sale of assets, net | (276) | | | (569) | |
Gain on sale of ownership interest in a subsidiary | 0 | | | (11,208) | | |
| Unrealized gain on investments | (1,336) | | | (1,161) | | |
Loss from equity-method investments | 0 | | | 3,542 | | |
Goodwill write-down | 0 | | | 90,408 | | |
| Other investment loss (gain) | | Other investment loss (gain) | 91 | | | (654) | |
Pension settlement loss | | Pension settlement loss | 30,856 | | | — | |
| Changes in working capital items | Changes in working capital items | (7,513) | | | 41,726 | | Changes in working capital items | (40,816) | | | (3,729) | |
Decrease in other assets | Decrease in other assets | 2,632 | | | 5,076 | | Decrease in other assets | 2,112 | | | 1,515 | |
(Decrease) increase in other liabilities | (Decrease) increase in other liabilities | (6,064) | | | 2,960 | | (Decrease) increase in other liabilities | (39,121) | | | 8,813 | |
| Other operating activities, net | Other operating activities, net | 1,407 | | | 4,036 | | Other operating activities, net | 2,551 | | | 638 | |
| Net cash provided by operating activities | 106,857 | | | 123,608 | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (27,156) | | | 35,326 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Capital expenditures | Capital expenditures | (24,495) | | | (25,486) | | Capital expenditures | (12,640) | | | (7,535) | |
Acquisitions, net of cash acquired | (15,623) | | | 0 | | |
| Proceeds from sale of assets | Proceeds from sale of assets | 2,211 | | | 398 | | Proceeds from sale of assets | 301 | | | 1,689 | |
Proceeds from sale of investments | 15,000 | | | 0 | | |
Proceeds from sale of ownership interest in subsidiary | 0 | | | 42,210 | | |
| | Investments and advances | Investments and advances | 0 | | | (9,723) | | Investments and advances | (130) | | | — | |
| | Net cash (used in) provided by investing activities | (22,907) | | | 7,399 | | |
Net cash used in investing activities | | Net cash used in investing activities | (12,469) | | | (5,846) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from long-term debt | Proceeds from long-term debt | 385,065 | | | 971,399 | | Proceeds from long-term debt | 174,859 | | | 121,596 | |
Payments on long-term debt | Payments on long-term debt | (434,089) | | | (1,063,459) | | Payments on long-term debt | (102,514) | | | (139,635) | |
| Purchases of treasury stock | Purchases of treasury stock | (6,149) | | | (2,372) | | Purchases of treasury stock | (2,435) | | | (4,237) | |
Dividends | Dividends | (20,856) | | | (19,813) | | Dividends | (6,824) | | | (6,808) | |
Acquisition holdback and contingent consideration payments | Acquisition holdback and contingent consideration payments | (1,556) | | | (4,689) | | Acquisition holdback and contingent consideration payments | — | | | (1,556) | |
Other financing activities | Other financing activities | (2,245) | | | (4,156) | | Other financing activities | (725) | | | (735) | |
| Net cash used in financing activities | (79,830) | | | (123,090) | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 62,361 | | | (31,375) | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 776 | | | (315) | | Effect of exchange rate changes on cash | (928) | | | 1,736 | |
| Net change in cash and cash equivalents | 4,896 | | | 7,602 | | |
Cash and cash equivalents at beginning of year | 41,334 | | | 35,302 | | |
Cash and cash equivalents at end of period | $ | 46,230 | | | $ | 42,904 | | |
Net change in cash, cash equivalents and restricted cash | | Net change in cash, cash equivalents and restricted cash | 21,808 | | | (159) | |
Cash, cash equivalents and restricted cash at beginning of year | | Cash, cash equivalents and restricted cash at beginning of year | 68,343 | | | 41,334 | |
Cash, cash equivalents and restricted cash at end of period | | Cash, cash equivalents and restricted cash at end of period | $ | 90,151 | | | $ | 41,175 | |
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The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30,December 31, 2021
(Dollar amounts in thousands, except per share data)
Note 1. Nature of Operations
Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of brand solutions, memorialization products and industrial technologies. The Company manages its businesses under 3 segments: SGK Brand Solutions, Memorialization and Industrial Technologies. 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. Brand solutions consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial technologies includeincludes the design, manufacturing, service and distribution of high-tech custom energy storage, marking, and coding equipment and consumables, industrial automation productstechnologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
The Company has facilities in North America, Europe, Asia, Australia, and Central and South America.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the ninethree months ended June 30,December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021.2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020.2021. The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. Investments in certain companies over which the Company does not exert significant influence are accounted for as cost method investments. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements:
Adopted
In August 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The adoption of this ASU in the first quarter ended December 31, 2020 had no material impact on the Company's consolidated financial statements and the Form 10-K disclosures for the year ended September 30, 2021 will reflect the adoption of this ASU.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each report date. Subsequently, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842), that provide certain amendments to the new guidance. The adoption of these ASUs in the first quarter ended December 31, 2020 had no material impact on the Company's consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 2. Basis of Presentation (continued)
The following table summarizes the activity for the accounts receivable allowance for doubtful accounts for the nine months ended June 30, 2021:
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| | | Accounts Receivable Allowance for Doubtful Accounts |
| Balance at October 1, 2020 | | $ | 9,618 | |
| Current period expense / (deductions) | | (296) | |
| Translation and other adjustments (1)
| | (193) | |
| Balance at June 30, 2021 | | $ | 9,129 | |
(1) Includes the impact of foreign currency fluctuations and amounts determined not to be collectible (including direct write-offs), net of recoveries.
Note 3. Revenue Recognition
The Company delivers a variety of products and services through its business segments. The SGK Brand Solutions segment delivers brand management, pre-media services, printing plates and cylinders, engineered products (including energy solutions), and imaging services, for consumer goods and retail customers,digital asset management, merchandising display systems, and marketing and design services primarily tofor the consumer goods and retail industries. The Memorialization segment produces and delivers 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 deliversdesigns, manufactures, services and distributes high-tech custom energy storage, marking, and coding equipment and consumables, industrial automation productstechnologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products for the warehousing and industrial industries.products.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 3. Revenue Recognition (continued)
The Company disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the three and nine months ended June 30,December 31, 2021 and 2020 were as follows:
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| | SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated |
| | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 |
North America | | $ | 73,831 | | $ | 81,852 | | | $ | 168,652 | | $ | 151,160 | | | $ | 35,909 | | $ | 25,038 | | | $ | 278,392 | | $ | 258,050 | |
Central and South America | | 1,225 | | 1,571 | | | 0 | | 0 | | | 0 | | 0 | | | 1,225 | | 1,571 | |
Europe | | 107,427 | | 68,702 | | | 13,072 | | 9,163 | | | 6,831 | | 5,647 | | | 127,330 | | 83,512 | |
Australia | | 3,352 | | 2,865 | | | 2,613 | | 1,795 | | | 0 | | 0 | | | 5,965 | | 4,660 | |
Asia | | 13,880 | | 10,790 | | | 0 | | 0 | | | 1,588 | | 839 | | | 15,468 | | 11,629 | |
Total Sales | | $ | 199,715 | | $ | 165,780 | | | $ | 184,337 | | $ | 162,118 | | | $ | 44,328 | | $ | 31,524 | | | $ | 428,380 | | $ | 359,422 | |
| | | | SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated | | | SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated |
| | Nine Months Ended June 30, | | Nine Months Ended June 30, | | Nine Months Ended June 30, | | Nine Months Ended June 30, | | Three Months Ended December 31, | | Three Months Ended December 31, | | Three Months Ended December 31, | | Three Months Ended December 31, |
| | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 | | 2021 | 2020 |
North America | North America | | $ | 210,515 | | $ | 233,530 | | | $ | 529,229 | | $ | 447,458 | | | $ | 95,804 | | $ | 85,717 | | | $ | 835,548 | | $ | 766,705 | | North America | | $ | 74,190 | | $ | 70,402 | | | $ | 196,751 | | $ | 170,324 | | | $ | 36,365 | | $ | 27,635 | | | $ | 307,306 | | $ | 268,361 | |
Central and South America | Central and South America | | 3,919 | | 4,767 | | | 0 | | 0 | | | 0 | | 0 | | | 3,919 | | 4,767 | | Central and South America | | 1,020 | | 1,375 | | | — | | — | | | — | | — | | | 1,020 | | 1,375 | |
Europe | Europe | | 278,426 | | 234,130 | | | 36,174 | | 24,629 | | | 19,835 | | 20,026 | | | 334,435 | | 278,785 | | Europe | | 61,002 | | 63,628 | | | 11,514 | | 10,440 | | | 36,555 | | 24,172 | | | 109,071 | | 98,240 | |
Australia | Australia | | 10,289 | | 8,804 | | | 7,665 | | 6,255 | | | 0 | | 0 | | | 17,954 | | 15,059 | | Australia | | 2,868 | | 3,481 | | | 2,441 | | 2,510 | | | — | | — | | | 5,309 | | 5,991 | |
Asia | Asia | | 35,730 | | 32,284 | | | 0 | | 0 | | | 4,605 | | 1,566 | | | 40,335 | | 33,850 | | Asia | | 14,462 | | 11,073 | | | — | | — | | | 1,411 | | 1,617 | | | 15,873 | | 12,690 | |
Total Sales | Total Sales | | $ | 538,879 | | $ | 513,515 | | | $ | 573,068 | | $ | 478,342 | | | $ | 120,244 | | $ | 107,309 | | | $ | 1,232,191 | | $ | 1,099,166 | | Total Sales | | $ | 153,542 | | $ | 149,959 | | | $ | 210,706 | | $ | 183,274 | | | $ | 74,331 | | $ | 53,424 | | | $ | 438,579 | | $ | 386,657 | |
Revenue from products or services provided to customers over time accounted for approximately 13% and 7% of revenue for the three months ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and September 30, 2021, the Company had contract assets of $15,701 and $23,998, respectively, that were recorded in other current assets within the Consolidated Balance Sheets. As of December 31, 2021 and September 30, 2021, the Company had contract liabilities of $21,138 and $19,752, respectively, that were recorded in other current liabilities within the Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 4. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below:
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| Level 1: | Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. |
| Level 2: | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| Level 3: | Unobservable inputs for the asset or liability. |
The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows: | | | June 30, 2021 | | September 30, 2020 | | December 31, 2021 | | September 30, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | |
| Derivatives (1) | | Derivatives (1) | $ | — | | | $ | 3,906 | | | $ | — | | | $ | 3,906 | | | $ | — | | | $ | 209 | | | $ | — | | | $ | 209 | |
Equity and fixed income mutual funds | Equity and fixed income mutual funds | $ | 0 | | | $ | 25,949 | | | $ | 0 | | | $ | 25,949 | | | $ | 0 | | | $ | 24,610 | | | $ | 0 | | | $ | 24,610 | | Equity and fixed income mutual funds | — | | | 6,914 | | | — | | | 6,914 | | | — | | | 6,936 | | | — | | | 6,936 | |
Life insurance policies | Life insurance policies | 0 | | | 4,653 | | | 0 | | | 4,653 | | | 0 | | | 4,621 | | | 0 | | | 4,621 | | Life insurance policies | — | | | 4,585 | | | — | | | 4,585 | | | — | | | 4,626 | | | — | | | 4,626 | |
Total assets at fair value | Total assets at fair value | $ | 0 | | | $ | 30,602 | | | $ | 0 | | | $ | 30,602 | | | $ | 0 | | | $ | 29,231 | | | $ | 0 | | | $ | 29,231 | | Total assets at fair value | $ | — | | | $ | 15,405 | | | $ | — | | | $ | 15,405 | | | $ | — | | | $ | 11,771 | | | $ | — | | | $ | 11,771 | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | |
Derivatives (1) | Derivatives (1) | $ | 0 | | | $ | 2,982 | | | $ | 0 | | | $ | 2,982 | | | $ | 0 | | | $ | 7,792 | | | $ | 0 | | | $ | 7,792 | | Derivatives (1) | $ | — | | | $ | 1,254 | | | $ | — | | | $ | 1,254 | | | $ | — | | | $ | 2,232 | | | $ | — | | | $ | 2,232 | |
Total liabilities at fair value | Total liabilities at fair value | $ | 0 | | | $ | 2,982 | | | $ | 0 | | | $ | 2,982 | | | $ | 0 | | | $ | 7,792 | | | $ | 0 | | | $ | 7,792 | | Total liabilities at fair value | $ | — | | | $ | 1,254 | | | $ | — | | | $ | 1,254 | | | $ | — | | | $ | 2,232 | | | $ | — | | | $ | 2,232 | |
|
(1) Interest rate swaps and cross currency swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
Note 5. Inventories
Inventories consisted of the following: | | | | | | | | | | | |
| June 30, 2021 | | September 30, 2020 |
Raw materials | $ | 38,754 | | | $ | 36,157 | |
Work in process | 77,189 | | | 70,128 | |
Finished goods | 78,757 | | | 68,815 | |
| $ | 194,700 | | | $ | 175,100 | |
Note 6. Investments
Non-current investments consisted of the following: | | | | | | | | | | | |
| June 30, 2021 | | September 30, 2020 |
Equity and fixed income mutual funds | $ | 25,949 | | | $ | 24,610 | |
Life insurance policies | 4,653 | | | 4,621 | |
| | | |
Other (primarily cost-method) investments | 19,044 | | | 34,019 | |
| $ | 49,646 | | | $ | 63,250 | |
During the second quarter of fiscalThe carrying values for other financial assets and liabilities approximated fair value at December 31, 2021 the Company received $15,000 for the full redemption of its senior preferred shares investment in a memorialization business.and September 30, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 5. Inventories
Inventories consisted of the following: | | | | | | | | | | | |
| December 31, 2021 | | September 30, 2021 |
Raw materials | $ | 43,041 | | | $ | 37,673 | |
Work in process | 79,040 | | | 75,997 | |
Finished goods | 70,663 | | | 75,418 | |
| $ | 192,744 | | | $ | 189,088 | |
Note 6. Investments
Non-current investments consisted of the following: | | | | | | | | | | | |
| December 31, 2021 | | September 30, 2021 |
Equity and fixed income mutual funds | $ | 6,914 | | | $ | 6,936 | |
Life insurance policies | 4,585 | | | 4,626 | |
Equity-method investments | 391 | | | 458 | |
Other (primarily cost-method) investments | 18,526 | | | 18,418 | |
| $ | 30,416 | | | $ | 30,438 | |
Note 7. Debt
Long-term debt at June 30,December 31, 2021 and September 30, 20202021 consisted of the following:
| | | June 30, 2021 | | September 30, 2020 | | December 31, 2021 | | September 30, 2021 |
Revolving credit facilities | Revolving credit facilities | $ | 382,253 | | | $ | 416,793 | | Revolving credit facilities | $ | 405,000 | | | $ | 350,597 | |
Securitization facility | Securitization facility | 90,710 | | | 67,700 | | Securitization facility | 104,690 | | | 95,990 | |
Senior secured term loan | 0 | | | 22,359 | | |
| 2025 Senior Notes | 2025 Senior Notes | 297,661 | | | 297,256 | | 2025 Senior Notes | 297,931 | | | 297,796 | |
| Other borrowings | Other borrowings | 11,612 | | | 20,742 | | Other borrowings | 20,296 | | | 10,150 | |
Finance lease obligations | Finance lease obligations | 10,251 | | | 9,684 | | Finance lease obligations | 8,145 | | | 9,177 | |
| 792,487 | | | 834,534 | | |
Total debt | | Total debt | 836,062 | | | 763,710 | |
Less current maturities | Less current maturities | (4,994) | | | (26,824) | | Less current maturities | (4,271) | | | (4,624) | |
| $ | 787,493 | | | $ | 807,710 | | |
Long-term debt | | Long-term debt | $ | 831,791 | | | $ | 759,086 | |
The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan. The senior secured amortizing term loan was paid in full in March 2021.2025. A portion of the revolving credit facility (not to exceed $350,000) 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 June 30,December 31, 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 $2,423$2,004 and $2,734$2,182 at June 30,December 31, 2021 and September 30, 2020,2021, respectively.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at June 30,December 31, 2021 and September 30, 20202021 were $259,237$405,000 and $257,439,$349,780, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2021 and September 30, 2020 were €97.0 million($115,229) and €117.0 million ($137,188), respectively. There were 0 outstanding borrowings on the term loan as of June 30, 2021.Outstanding borrowings on the term loan at September 30, 2020 were $22,359. The weighted-average interest rate on the outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at June 30,December 31, 2021 and 2020 was 1.94%1.86% and 2.44%2.07%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 7. Debt (continued)
The Company has $300,000 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 the 2025 Senior Notes. Unamortized costs were $2,339$2,069 and $2,744$2,204 at June 30,December 31, 2021 and September 30, 2020,2021, respectively.
The Company has a $115,000 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 June 30,December 31, 2021 and September 30, 20202021 were $90,710$104,690 and $67,700,$95,990, respectively. At June 30,December 31, 2021 and 2020, the interest rate on borrowings under this facility was 0.85% and 0.91%0.89%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 7. Debt (continued)
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
| | | June 30, 2021 | | September 30, 2020 | | December 31, 2021 | | September 30, 2021 |
Pay fixed swaps - notional amount | Pay fixed swaps - notional amount | | $ | 250,000 | | | $ | 312,500 | | Pay fixed swaps - notional amount | | $ | 250,000 | | | $ | 250,000 | |
Net unrealized loss | Net unrealized loss | | $ | (2,982) | | | $ | (7,792) | | Net unrealized loss | | $ | (102) | | | $ | (2,062) | |
Weighted-average maturity period (years) | Weighted-average maturity period (years) | | 2.5 | | 2.6 | Weighted-average maturity period (years) | | 2.0 | | 2.2 |
Weighted-average received rate | Weighted-average received rate | | 0.10 | % | | 0.15 | % | Weighted-average received rate | | 0.10 | % | | 0.08 | % |
Weighted-average pay rate | Weighted-average pay rate | | 1.34 | % | | 1.34 | % | Weighted-average pay rate | | 1.34 | % | | 1.34 | % |
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 unrealized loss of $2,982($2,252102 ($77 after tax) at June 30,December 31, 2021 and an unrealized loss net of $7,792unrealized gains of $2,062 ($5,8841,558 after tax) at September 30, 2020,2021, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at June 30,December 31, 2021, a loss (net of tax) of approximately $1,820663 included in AOCI is expected to be recognized in earnings over the next twelve months.
At June 30,December 31, 2021 and September 30, 2020,2021, the interest rate swap contracts were reflected on a gross-basis in the Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | |
Derivatives | | June 30, 2021 | | September 30, 2020 |
| | | | |
| | | | |
| | | | |
| | | | |
Current liabilities: | | | | |
Other current liabilities | | $ | (2,411) | | | $ | (3,164) | |
Long-term liabilities: | | | | |
Other liabilities | | (571) | | | (4,628) | |
Total derivatives | | $ | (2,982) | | | $ | (7,792) | |
The (losses) gains recognized on derivatives were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Location of (Loss) Gain Recognized in Income on Derivative | | Amount of Loss Recognized in Income on Derivatives | | Amount of (Loss) Gain Recognized in Income on Derivatives |
|
|
| | | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | | | 2021 | | 2020 | | 2021 | | 2020 |
Interest rate swaps | | Interest expense | | $ | (790) | | | $ | (438) | | | $ | (2,444) | | | $ | 108 | |
The Company recognized the following gains (losses) in AOCI: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Amount of Gain (Loss) Recognized in AOCI on Derivatives | | Location of (Loss) Gain Reclassified From AOCI into Income (Effective Portion*) | | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion*) |
| | June 30, 2021 | | June 30, 2020 | | | | June 30, 2021 | | June 30, 2020 |
Interest rate swaps | | $ | 1,787 | | | $ | (4,248) | | | Interest expense | | $ | (1,845) | | | $ | 82 | |
* There is no ineffective portion or amounts excluded from effectiveness testing. |
| | | | | | | | | | | | | | |
Derivatives | | December 31, 2021 | | September 30, 2021 |
Current assets: | | | | |
Other current assets | | $ | 269 | | | $ | 31 | |
Long-term assets: | | | | |
Other assets | | 883 | | | 139 | |
Current liabilities: | | | | |
Other current liabilities | | (1,148) | | | (1,922) | |
Long-term liabilities: | | | | |
Other liabilities | | (106) | | | (310) | |
Total derivatives | | $ | (102) | | | $ | (2,062) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 7. Debt (continued)
The losses recognized on derivatives were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Location of Loss Recognized in Income on Derivative | | | | Amount of Loss Recognized in Income on Derivatives |
|
|
| | | | | | Three Months Ended December 31, |
| | | | | | | | 2021 | | 2020 |
Interest rate swaps | | Interest expense | | | | | | $ | (801) | | | $ | (903) | |
The Company recognized the following gains (losses) in AOCI: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Amount of Gain Recognized in AOCI on Derivatives | | Location of Loss Reclassified From AOCI into Income (Effective Portion*) | | Amount of Loss Reclassified from AOCI into Income (Effective Portion*) |
| | December 31, 2021 | | December 31, 2020 | | | | December 31, 2021 | | December 31, 2020 |
Interest rate swaps | | $ | 875 | | | $ | 353 | | | Interest expense | | $ | (606) | | | $ | (682) | |
* There is no ineffective portion or amounts excluded from effectiveness testing. |
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €25.0 million ($29,698)28,361), which includes €8.0 million ($9,503)9,075) for bank guarantees. The creditIn the first quarter of fiscal 2022, the Company extended this facility matures into a current maturity of December 20212022 and the Company intends to continue to extend this facility. There were no outstanding borrowings under the credit facility at December 31, 2021. Outstanding borrowings under the credit facility totaled €6.6€0.7 million ($7,786) and €18.9 million ($22,166)817) at June 30, 2021 and September 30, 2020, respectively.2021. The weighted-average interest rate on outstanding borrowings under this facility was 2.25%at JuneDecember 31, 2020.
Other borrowings totaled $20,296 and $10,150 at December 31, 2021 and September 30, 2021, respectively. The weighted-average interest rate on all other borrowings was 1.88% and 2.11% at December 31, 2021 and 2020, was2.25%and 1.25%, respectively.
The Company uses certain foreignhas a U.S. Dollar/Euro cross currency debt instrumentsswap with a notional amount of $94,464 as of December 31, 2021, which has been designated as a net investment hedgeshedge of foreign operations. CurrencyThe swap contract matures in September 2028. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A gain of $2,079 losses(net of $5,957income taxes of $675) and a gain of $29 (net of income taxes of $1,933) and currency losses of $4,377 (net of income taxes of $1,420)$10), which representrepresented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30,December 31, 2021 and September 30, 2020,2021, respectively. Income of $365, 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 the three months ended December 31, 2021. At December 31, 2021 and September 30, 2021, the swap, which is included in other assets in the Consolidated Balance Sheets, totaled $2,754 and $39, respectively.
As of June 30,December 31, 2021 and September 30, 2020,2021, the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of June 30,December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8. Share-Based Payments
The Company maintains an equity incentive plan (the "2017 Equity Incentive Plan") that provides for grants of stock options, restricted shares, restricted share units, stock-based performance units and certain other types of stock-based awards. Under the 2017 Equity Incentive Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 1,700,000. In November 2021, the Board of Directors approved the Amended and Restated 2017 Equity Incentive Plan (the "Amended 2017 Plan"), which increases the maximum number of shares available for grants or awards to an aggregate of 3,450,000. The Amended 2017 Plan is subject to shareholder approval at the February 2022 Annual Shareholder Meeting. At June 30,December 31, 2021, there were 1,700,000211,788 shares reserved for future issuancehave been issued under the 2017 Equity Incentive Plan. 1,064,910768,498 time-based restricted share units, 933,212 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan andPlan. 1,479,325 of these share-based awards are outstanding as of June 30,December 31, 2021. The 2017 Equity Incentive plan is administered by the Compensation Committee of the Board of Directors.
For the three-month periods ended June 30,December 31, 2021 and 2020, stock-based compensation cost totaled $5,713$3,709 and $2,539, respectively. For the nine-month periods ended June 30, 2021 and 2020, stock-based compensation cost totaled $12,960 and $7,078,$3,246, respectively. The associated future income tax benefit recognized for stock-based compensation was $1,467$409 and $622$239 for the three-month periods ended June 30, 2021 and 2020, respectively, and $2,443 and $1,415 for the nine-month periods ended June 30,December 31, 2021 and 2020, respectively.
With respect to the restricted share grants, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of three or five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares.
With respect to the restricted share unit grants, units generally vest on the third anniversary of the grant date. The number of units that vest depend on certain time and performance thresholds. Such performance thresholds include adjusted earnings per share, return on invested capital, appreciation in the market value of the Company's Class A Common Stock, or other targets established by the Compensation Committee of the Board of Directors. Approximately 45%42% of the outstanding share units vest based on time, while the remaining vest based on pre-defined performance thresholds. The Company issues common stock from treasury shares once vested.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8. Share-Based Payments (continued)
The transactions for restricted shares and restricted share units for the ninethree months ended June 30,December 31, 2021 were as follows: | | | | | | | | | | | |
| Shares /Units | | Weighted- average Grant-date Fair Value |
Non-vested at September 30, 2020 | 750,322 | | | $ | 40.88 | |
Granted | 499,050 | | | 30.06 | |
Vested | (109,365) | | | 55.40 | |
Expired or forfeited | (38,467) | | | 55.79 | |
Non-vested at June 30, 2021 | 1,101,540 | | | $ | 34.01 | |
| | | | | | | | | | | |
| Shares /Units | | Weighted- average Grant-date Fair Value |
Non-vested at September 30, 2021 | 1,083,365 | | | $ | 34.07 | |
Granted | 636,800 | | | 38.20 | |
Vested | (163,201) | | | 42.21 | |
Expired or forfeited | (116,368) | | | 48.40 | |
Non-vested at December 31, 2021 | 1,440,596 | | | $ | 33.81 | |
During the third quarter of fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan. The option price for each stock option granted was $41.70, which was equal to the fair market value of the Company's Class A Common Stock on the date of grant. These options vest in one-third increments annually over three years from the grant date. Unvested stock options expire on the earlier of five years from the date of grant, or upon employment termination, retirement or death. The Company generally settles employee stock option exercises with treasury shares.
As of June 30,December 31, 2021, the total unrecognized compensation cost related to all unvested stock-based awards was $12,893$30,245 and is expected to be recognized over a weighted average period of 2.02.7 years.
The fair value of certain restricted share units that are subject to performance conditions and the fair value of stock options are estimated on the date of grant using a binomial lattice valuation model. The following table indicates the assumptions used in estimating the fair value of certain stock-based awards granted during the nine-month period ended June 30, 2021.
| | | | | | | | | | | |
| Restricted Share Units | | Stock Options |
| | | |
Expected volatility | 42.9 | % | | 41.9 | % |
Dividend yield | 3.2 | % | | 3.1 | % |
Average risk-free interest rate | 0.2 | % | | 0.5 | % |
Average expected term (years) | 3.0 | | 5.0 |
The risk-free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date. Expected volatilities are based on the historical volatility of the Company's stock price. The expected term for grants
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in the nine months ended June 30, 2021 represents an estimate of the average period of time for restrictedthousands, except per share units and stock options to vest.data)
Note 8. Share-Based Payments (continued)
The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans"). There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan. Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2021,2022, either cash or shares of the Company's Class A Common Stock with a value equal to $85.$90. The annual retainer fee for fiscal 20212022 paid to the non-employee Chairman of the Board is $185.$210. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits). The value of deferred shares is recorded in other liabilities. A total of 38,48238,832 shares and share units had been deferred under the Director Fee Plans as of June 30,December 31, 2021. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $125$140 for fiscal 2021.2022. As of June 30,December 31, 2021, 271,807265,225 restricted shares and restricted share units have been granted under the Director Fee Plans, 98,57891,996 of which were issued under the 2019 Director Fee Plan. 74,639 restricted shares and restricted share units are unvested at June 30,December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 9. Earnings Per Share Attributable to Matthews' Shareholders
The information used to compute earnings (loss)loss per share attributable to Matthews' common shareholders was as follows: | | | Three Months Ended June 30, | | Nine Months Ended June 30, | | | Three Months Ended December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2021 | | 2020 |
Net income (loss) attributable to Matthews shareholders | $ | 3,355 | | | $ | 2,269 | | | $ | 6,586 | | | $ | (94,561) | | |
Net loss attributable to Matthews shareholders | | Net loss attributable to Matthews shareholders | | $ | (19,803) | | | $ | (1,758) | |
| Weighted-average shares outstanding (in thousands): | Weighted-average shares outstanding (in thousands): | | | | | | | | Weighted-average shares outstanding (in thousands): | | | | |
Basic shares | Basic shares | 31,656 | | | 31,145 | | | 31,683 | | | 31,143 | | Basic shares | | 31,719 | | | 31,725 | |
Effect of dilutive securities | Effect of dilutive securities | 537 | | | 87 | | | 435 | | | 0 | | Effect of dilutive securities | | — | | | — | |
Diluted shares | Diluted shares | 32,193 | | | 31,232 | | | 32,118 | | | 31,143 | | Diluted shares | | 31,719 | | | 31,725 | |
Anti-dilutive securities excluded from the dilution calculation were insignificant for the three and nine months ended June 30, 2021 and 2020.December 31, 2021. During periods in which the Company incurs a net loss, diluted weighted-average shares outstanding are equal to basic weighted-average shares outstanding because the effect of all equity awards is anti-dilutive.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 10. Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three months ended June 30, |
| Pension | | Other Postretirement |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Service cost | $ | 2,020 | | | $ | 2,170 | | | $ | 50 | | | $ | 64 | |
Interest cost * | 1,560 | | | 1,933 | | | 94 | | | 140 | |
Expected return on plan assets * | (2,761) | | | (2,232) | | | 0 | | | 0 | |
Amortization: | | | | | | | |
Prior service cost | (46) | | | (47) | | | (91) | | | (23) | |
Net actuarial loss * | 2,730 | | | 2,386 | | | 0 | | | 0 | |
Curtailment gain * | (220) | | | 0 | | | 0 | | | 0 | |
Prior service cost write-off * | 526 | | | 0 | | | 0 | | | 0 | |
Net benefit cost | $ | 3,809 | | | $ | 4,210 | | | $ | 53 | | | $ | 181 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended June 30, |
| Pension | | Other Postretirement |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Service cost | $ | 6,216 | | | $ | 6,510 | | | $ | 150 | | | $ | 192 | |
Interest cost * | 4,654 | | | 5,799 | | | 282 | | | 420 | |
Expected return on plan assets * | (8,286) | | | (6,696) | | | 0 | | | 0 | |
Amortization: | | | | | | | |
Prior service cost | (104) | | | (141) | | | (273) | | | (69) | |
Net actuarial loss * | 8,774 | | | 7,159 | | | 0 | | | 0 | |
Curtailment gain * | (220) | | | 0 | | | 0 | | | 0 | |
Prior service cost write-off * | 526 | | | 0 | | | 0 | | | 0 | |
Net benefit cost | $ | 11,560 | | | $ | 12,631 | | | $ | 159 | | | $ | 543 | |
* Non-service components of pension and postretirement expense are included in other income (deductions), net. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 10. Pension and Other Postretirement Benefit Plans (continued)
During the third quarter of fiscal 2021, the Compensation Committee of the Company's Board of Directors approved a resolution to freeze all future benefit accruals for all participants in the Company’s supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan, effective April 30, 2021. Consequently, participants in these plans will no longer earn additional benefits after April 30, 2021. The freezing of these plans triggered curtailments, which resulted in the remeasurement of the projected benefit obligations and the immediate recognition of prior service costs in earnings, which were previously included within AOCI.
During the third quarter of fiscal 2021, the investment policy for the Company’s principal defined benefit retirement plan was updated to establish modified asset allocation targets. The updated investment objective is intended to reduce risk assets in favor of fixed income investments as the plan’s funding status increases. Accordingly, as of June 30, 2021, the principal defined benefit plans' asset allocation reflected 54% allocated to fixed income, cash and cash equivalents, 39% allocated to equity securities, and 7% allocated to other investments. | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, |
| Pension | | Other Postretirement |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Service cost | $ | 380 | | | $ | 2,213 | | | $ | 41 | | | $ | 50 | |
Interest cost * | 990 | | | 1,548 | | | 103 | | | 94 | |
Expected return on plan assets * | (1,042) | | | (2,763) | | | — | | | — | |
Amortization: | | | | | | | |
Prior service cost (credit) | 47 | | | (17) | | | (91) | | | (91) | |
Net actuarial loss * | 201 | | | 3,021 | | | — | | | — | |
Settlement loss * | 30,856 | | | — | | | — | | | — | |
Net benefit cost | $ | 31,432 | | | $ | 4,002 | | | $ | 53 | | | $ | 53 | |
* Non-service components of pension and postretirement expense are included in other income (deductions), net. |
Benefit payments under the Company's principal defined benefit retirement plan ("DB Plan") are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are made from the Company's operating funds. DuringIn the thirdfirst quarter of fiscal 2021,2022, the Company contributed $15,000terminated its DB Plan and made plan contributions totaling $35,706 to its principal retirement plan. Under IRS regulations, no further contributions are requiredfully fund the planned settlement of the DB Plan obligations. Also during the first quarter of fiscal 2022, lump sum distributions of $185,958 were made from the DB Plan to be madeplan participants, and non-participating annuity contracts totaling $56,274 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 $30,856, which has been presented as a component of other income (deductions), net for the three months ended December 31, 2021. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the Company's principal retirement plan during fiscal 2021.DB Plan.
Contributions made and anticipated for fiscal year 20212022 are as follows:
| | | | | | | | | | | | | | |
Contributions | | Pension | | Other Postretirement |
| | | | |
Contributions during the ninethree months ended June 30,December 31, 2021: | | | | |
Principal defined benefit retirement plan | | $ | 15,00035,706 | | | $ | — | |
Supplemental retirement plan | | 607199 | | | — | |
Other postretirement plan | | — | | | 43683 | |
| | | | |
Additional contributions expected in fiscal 2021:2022: | | | | |
| | | | |
Supplemental retirement plan | | $ | 298561 | | | $ | — | |
Other postretirement plan | | — | | | 395801 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 11. Accumulated Other Comprehensive Income
The changes in AOCI by component, net of tax, for the three-month periods ended June 30,December 31, 2021 and 2020 were as follows:
| | | | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total | | | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total |
Attributable to Matthews: | Attributable to Matthews: | | | | | | | | | Attributable to Matthews: | | | | | | | | |
Balance, March 31, 2021 | | $ | (78,575) | | | $ | (143,724) | | | $ | (2,194) | | | $ | (224,493) | | |
Balance, September 30, 2021 | | Balance, September 30, 2021 | | $ | (35,930) | | | $ | (155,251) | | | $ | (1,558) | | | $ | (192,739) | |
OCI before reclassification | OCI before reclassification | | 970 | | | 2,904 | | | (654) | | | 3,220 | | OCI before reclassification | | 10,718 | | | (1,989) | | | 875 | | | 9,604 | |
Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 2,358 | | (a) | 0 | | | 596 | | (b) | 2,954 | | Amounts reclassified from AOCI | | 23,415 | | (a) | — | | | 606 | | (b) | 24,021 | |
Net current-period OCI | Net current-period OCI | | 3,328 | | | 2,904 | | | (58) | | | 6,174 | | Net current-period OCI | | 34,133 | | | (1,989) | | | 1,481 | | | 33,625 | |
Balance, June 30, 2021 | | $ | (75,247) | | | $ | (140,820) | | | $ | (2,252) | | | $ | (218,319) | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | (1,797) | | | $ | (157,240) | | | $ | (77) | | | $ | (159,114) | |
Attributable to noncontrolling interest: | Attributable to noncontrolling interest: | | | | | | | | | Attributable to noncontrolling interest: | | | | | | | | |
Balance, March 31, 2021 | | $ | 0 | | | $ | 366 | | | $ | 0 | | | $ | 366 | | |
Balance, September 30, 2021 | | Balance, September 30, 2021 | | $ | — | | | $ | 241 | | | $ | — | | | $ | 241 | |
OCI before reclassification | OCI before reclassification | | 0 | | | 0 | | | 0 | | | 0 | | OCI before reclassification | | — | | | 4 | | | — | | | 4 | |
Net current-period OCI | Net current-period OCI | | 0 | | | 0 | | | 0 | | | 0 | | Net current-period OCI | | — | | | 4 | | | — | | | 4 | |
Balance, June 30, 2021 | | $ | 0 | | | $ | 366 | | | $ | 0 | | | $ | 366 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | — | | | $ | 245 | | | $ | — | | | $ | 245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total |
Attributable to Matthews: | | | | | | | | |
Balance, September 30, 2020 | | $ | (82,954) | | | $ | (151,881) | | | $ | (5,884) | | | $ | (240,719) | |
OCI before reclassification | | — | | | 17,055 | | | 353 | | | 17,408 | |
Amounts reclassified from AOCI | | 2,124 | | (a) | — | | | 682 | | (b) | 2,806 | |
Net current-period OCI | | 2,124 | | | 17,055 | | | 1,035 | | | 20,214 | |
Balance, December 31, 2020 | | $ | (80,830) | | | $ | (134,826) | | | $ | (4,849) | | | $ | (220,505) | |
Attributable to noncontrolling interest: | | | | | | | | |
Balance, September 30, 2020 | | $ | — | | | $ | 368 | | | $ | — | | | $ | 368 | |
OCI before reclassification | | — | | | (3) | | | — | | | (3) | |
Net current-period OCI | | — | | | (3) | | | — | | | (3) | |
Balance, December 31, 2020 | | $ | — | | | $ | 365 | | | $ | — | | | $ | 365 | |
(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 10).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 11. Accumulated Other Comprehensive Income (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total |
Attributable to Matthews: | | | | | | | | |
Balance, March 31, 2020 | | $ | (68,189) | | | $ | (175,751) | | | $ | (4,555) | | | $ | (248,495) | |
OCI before reclassification | | 0 | | | 11,240 | | | (509) | | | 10,731 | |
Amounts reclassified from AOCI | | 1,743 | | (a) | 0 | | | 330 | | (b) | 2,073 | |
Net current-period OCI | | 1,743 | | | 11,240 | | | (179) | | | 12,804 | |
Balance, June 30, 2020 | | $ | (66,446) | | | $ | (164,511) | | | $ | (4,734) | | | $ | (235,691) | |
Attributable to noncontrolling interest: | | | | | | | | |
Balance, March 31, 2020 | | $ | 0 | | | $ | 371 | | | $ | 0 | | | $ | 371 | |
OCI before reclassification | | 0 | | | 0 | | | 0 | | | 0 | |
Net current-period OCI | | 0 | | | 0 | | | 0 | | | 0 | |
Balance, June 30, 2020 | | $ | 0 | | | $ | 371 | | | $ | 0 | | | $ | 371 | |
(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 10).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7).
The changes inReclassifications out of AOCI by component, net of tax, for the nine-monththree-month periods ended June 30,December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total |
Attributable to Matthews: | | | | | | | | |
Balance, September 30, 2020 | | $ | (82,954) | | | $ | (151,881) | | | $ | (5,884) | | | $ | (240,719) | |
OCI before reclassification | | 970 | | | 11,061 | | | 1,787 | | | 13,818 | |
Amounts reclassified from AOCI | | 6,737 | | (a) | 0 | | | 1,845 | | (b) | 8,582 | |
Net current-period OCI | | 7,707 | | | 11,061 | | | 3,632 | | | 22,400 | |
| | | | | | | | |
Balance, June 30, 2021 | | $ | (75,247) | | | $ | (140,820) | | | $ | (2,252) | | | $ | (218,319) | |
Attributable to noncontrolling interest: | | | | | | | | |
Balance, September 30, 2020 | | $ | 0 | | | $ | 368 | | | $ | 0 | | | $ | 368 | |
OCI before reclassification | | 0 | | | (2) | | | 0 | | | (2) | |
Net current-period OCI | | 0 | | | (2) | | | 0 | | | (2) | |
Balance, June 30, 2021 | | $ | 0 | | | $ | 366 | | | $ | 0 | | | $ | 366 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Post-retirement benefit plans | | Currency translation adjustment | | Derivatives | | Total |
Attributable to Matthews: | | | | | | | | |
Balance, September 30, 2019 | | $ | (71,743) | | | $ | (156,214) | | | $ | (404) | | | $ | (228,361) | |
OCI before reclassification | | 0 | | | (8,297) | | | (4,248) | | | (12,545) | |
Amounts reclassified from AOCI | | 5,297 | | (a) | 0 | | | (82) | | (b) | 5,215 | |
Net current-period OCI | | 5,297 | | | (8,297) | | | (4,330) | | | (7,330) | |
Balance, June 30, 2020 | | $ | (66,446) | | | $ | (164,511) | | | $ | (4,734) | | | $ | (235,691) | |
Attributable to noncontrolling interest: | | | | | | | | |
Balance, September 30, 2019 | | $ | 0 | | | $ | 375 | | | $ | 0 | | | $ | 375 | |
OCI before reclassification | | 0 | | | (4) | | | 0 | | | (4) | |
Net current-period OCI | | 0 | | | (4) | | | 0 | | | (4) | |
Balance, June 30, 2020 | | $ | 0 | | | $ | 371 | | | $ | 0 | | | $ | 371 | |
(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 10).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 7).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 11. Accumulated Other Comprehensive Income (continued)
Reclassifications out of AOCI for the three and nine-month periods ended June 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Amount reclassified from AOCI |
Details about AOCI Components | | Three Months Ended June 30, 2021 | | Nine Months Ended June 30, 2021 | | Affected line item in the Statement of income |
| | | | | | |
Postretirement benefit plans | | | | | | |
Prior service credit (a) | | $ | 137 | | | $ | 377 | | | |
Actuarial losses | | (2,730) | | | (8,774) | | | Other income (deductions), net |
Prior service cost write-off | | (526) | | | (526) | | | Other income (deductions), net |
| | (3,119) | | | (8,923) | | | Income before income tax (b) |
| | 761 | | | 2,186 | | | Income taxes |
| | $ | (2,358) | | | $ | (6,737) | | | Net income |
Derivatives | | | | | | |
Interest rate swap contracts | | $ | (790) | | | $ | (2,444) | | | Interest expense |
| | (790) | | | (2,444) | | | Income before income tax (b) |
| | 194 | | | 599 | | | Income taxes |
| | $ | (596) | | | $ | (1,845) | | | Net income |
| | | | | Amount reclassified from AOCI | | | Amount reclassified from AOCI |
Details about AOCI Components | Details about AOCI Components | | Three Months Ended June 30, 2020 | | | Nine Months Ended June 30, 2020 | | | Affected line item in the Statement of income | Details about AOCI Components | | Three Months Ended December 31, 2021 | | | Three Months Ended December 31, 2020 | | | Affected line item in the Statement of income |
| Postretirement benefit plans | Postretirement benefit plans | | | | | | | | Postretirement benefit plans | | | | | | | |
Prior service credit (a) | Prior service credit (a) | | $ | 70 | | | | $ | 210 | | | | | Prior service credit (a) | | $ | 44 | | | | $ | 108 | | | | |
Actuarial losses | Actuarial losses | | (2,386) | | | | (7,159) | | | | Other income (deductions), net | Actuarial losses | | (201) | | | | (3,021) | | | | Other income (deductions), net |
Settlement loss | | Settlement loss | | (30,856) | | | | — | | | | Other income (deductions), net |
| | | (2,316) | | | | (6,949) | | | | Income before income tax (b) | | | (31,013) | | | | (2,913) | | | | Income before income tax (b) |
| | | 573 | | | | 1,652 | | | | Income taxes | | 7,598 | | | | 789 | | | | Income taxes |
| | | $ | (1,743) | | | | $ | (5,297) | | | | Net income | | | $ | (23,415) | | | | $ | (2,124) | | | | Net income |
Derivatives | Derivatives | | | | | | | | | Derivatives | | | | | | | | |
Interest rate swap contracts | Interest rate swap contracts | | $ | (438) | | | | $ | 108 | | | | Interest expense | Interest rate swap contracts | | $ | (801) | | | | $ | (903) | | | | Interest expense |
| | | (438) | | | | 108 | | | | Income before income tax (b) | | | (801) | | | | (903) | | | | Income before income tax (b) |
| | | 108 | | | | (26) | | | | Income taxes | | | 195 | | | | 221 | | | | Income taxes |
| | | $ | (330) | | | | $ | 82 | | | | Net income | | | $ | (606) | | | | $ | (682) | | | | Net income |
|
| | |
(a) Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. For additional information, see Note 10. |
(b) For pre-tax items, positive amounts represent income and negative amounts represent expense. |
Note 12. Income Taxes
Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the ninefirst three months ended June 30, 2021of fiscal 2022 were a benefit of $6,628, compared to an expense of $2,627, compared to a benefit of $22,672$3,980 for the first ninethree months of fiscal 2020.2021. The difference between the Company’s consolidated income taxes for the first ninethree months of fiscal 20212022 compared to the same period for fiscal 20202021 primarily resulted from a consolidated pre-tax loss in fiscal 2022 compared to pre-tax income in fiscal 2021 compared2021. Additionally, fiscal 2022 included discrete tax expenses related to a pre-tax loss in fiscal 2020. Additionally, fiscalthe addition of uncertain tax liabilities. Fiscal 2021 included discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a net operating loss (“NOL”) carryback to tax years where the U.S. federal statutory rate was 35%, and additional foreign tax credits. Fiscal 2020 included discreteThe Company’s fiscal 2022 three month effective tax benefits resultingrate varied from the closureU.S. statutory tax rate of several21.0% primarily due to state taxes, foreign statutory rate differentials, and tax audits.credits. The Company’s
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 12. Income Taxes (continued)
fiscal 2021 nine-monththree-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a NOL carryback to tax years where the U.S. federal statutory rate was 35%, and additional foreign tax credits. Additionally, state taxes, foreign statutory rate differentials, and tax credits all affected the fiscal 2021 effective tax rate. The Company’s fiscal 2020 nine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, the goodwill write-down, the expected NOL carryback, and discrete tax benefits recognized in fiscal 2020.
The Company had unrecognized tax benefits (excluding penalties and interest) of $8,104$3,328 and $10,483$2,807 on June 30,December 31, 2021 and September 30, 2020,2021, respectively, of which $4,890 and $7,066 would impact the annual effective rate at June 30,December 31, 2021 and September 30, 2020,2021, respectively. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $5,655$414 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitations.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $1,773$808 and $2,172$691 at June 30,December 31, 2021 and September 30, 2020,2021, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 12. Income Taxes (continued)
The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions. As of June 30,December 31, 2021, the tax years that remain subject to examination by major jurisdiction generally are:
| | | | | |
United States – Federal | 20172018 and forward |
United States – State | 20162017 and forward |
Canada | 2017 and forward |
Germany | 2019 and forward |
United Kingdom | 20192020 and forward |
Singapore | 2017 and forward |
Australia | 2017 and forward |
Note 13. Segment Information
The Company manages its businesses under 3 segments: SGK Brand Solutions, Memorialization and Industrial Technologies. 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 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 the design, manufacturing, service and distribution of high-tech custom energy storage, marking, and coding equipment and consumables, industrial automation productstechnologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 13. Segment Information (continued)
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 13. Segment Information (continued)
The following table sets forth information about the Company's segments, including a reconciliation of adjusted EBITDA to net income. | | | Three Months Ended June 30, | | Nine Months Ended June 30, | | | Three Months Ended December 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2021 | | 2020 |
Sales: | Sales: | | | Sales: | | |
SGK Brand Solutions | SGK Brand Solutions | | $ | 199,715 | | | $ | 165,780 | | | $ | 538,879 | | | $ | 513,515 | | SGK Brand Solutions | | $ | 153,542 | | | $ | 149,959 | |
Memorialization | Memorialization | | 184,337 | | | 162,118 | | | 573,068 | | | 478,342 | | Memorialization | | 210,706 | | | 183,274 | |
Industrial Technologies | Industrial Technologies | | 44,328 | | | 31,524 | | | 120,244 | | | 107,309 | | Industrial Technologies | | 74,331 | | | 53,424 | |
Consolidated Sales | Consolidated Sales | | $ | 428,380 | | | $ | 359,422 | | | $ | 1,232,191 | | | $ | 1,099,166 | | Consolidated Sales | | $ | 438,579 | | | $ | 386,657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | |
SGK Brand Solutions | | $ | 33,258 | | | $ | 20,846 | | | $ | 75,426 | | | $ | 61,808 | |
Memorialization | | 36,402 | | | 37,734 | | | 132,080 | | | 103,020 | |
Industrial Technologies | | 5,940 | | | 4,679 | | | 15,242 | | | 15,205 | |
Corporate and Non-Operating | | (15,585) | | | (13,862) | | | (47,030) | | | (41,009) | |
Total Adjusted EBITDA | | $ | 60,015 | | | $ | 49,397 | | | $ | 175,718 | | | $ | 139,024 | |
| | | | | | | | |
Acquisition related items (1)** | | (398) | | | (355) | | | (38) | | | (2,576) | |
ERP integration costs (2)** | | (118) | | | (745) | | | (477) | | | (2,160) | |
Strategic initiatives and other charges: (3)** | | | | | | | | |
Workforce reductions and related costs | | (1,826) | | | (776) | | | (10,644) | | | (4,425) | |
Other cost-reduction initiatives | | (4,871) | | | (4,743) | | | (12,339) | | | (20,951) | |
Gain on sale of ownership interest in a subsidiary (4) | | 0 | | | 11,208 | | | 0 | | | 11,208 | |
Legal matter reserve (5) | | 0 | | | (10,566) | | | 0 | | | (10,566) | |
Non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs (6) | | (1,993) | | | (1,871) | | | (4,689) | | | (2,534) | |
Goodwill write-down (7) | | 0 | | | 0 | | | 0 | | | (90,408) | |
Joint Venture depreciation, amortization, interest expense and other charges (8) | | 0 | | | (2,473) | | | 0 | | | (4,732) | |
Stock-based compensation | | (5,713) | | | (2,539) | | | (12,960) | | | (7,078) | |
| | | | | | | | |
Non-service pension and postretirement expense (9) | | (1,929) | | | (2,227) | | | (5,730) | | | (6,682) | |
Depreciation and amortization * | | (35,389) | | | (30,168) | | | (97,919) | | | (88,418) | |
Interest expense | | (6,748) | | | (8,082) | | | (21,709) | | | (26,935) | |
Net income (loss) attributable to noncontrolling interests | | 11 | | | (420) | | | (60) | | | (491) | |
Income (loss) before income taxes | | 1,041 | | | (4,360) | | | 9,153 | | | (117,724) | |
Income tax benefit (provision) | | 2,325 | | | 6,209 | | | (2,627) | | | 22,672 | |
Net income (loss) | | $ | 3,366 | | | $ | 1,849 | | | $ | 6,526 | | | $ | (95,052) | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | |
SGK Brand Solutions | | | | | | $ | 15,414 | | | $ | 21,833 | |
Memorialization | | | | | | 43,370 | | | 44,072 | |
Industrial Technologies | | | | | | 7,183 | | | 2,996 | |
Corporate and Non-Operating | | | | | | (12,634) | | | (14,138) | |
Total Adjusted EBITDA | | | | | | $ | 53,333 | | | $ | 54,763 | |
| | | | | | | | |
Strategic initiatives and other charges (1)** | | | | | | (3,823) | | | (11,192) | |
Non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs (2)*** | | | | | | (690) | | | (1,124) | |
Defined benefit plan termination related costs (3) | | | | | | (426) | | | — | |
Stock-based compensation | | | | | | (3,709) | | | (3,246) | |
| | | | | | | | |
Non-service pension and postretirement expense (4) | | | | | | (31,108) | | | (1,900) | |
Depreciation and amortization * | | | | | | (33,501) | | | (27,351) | |
Interest expense | | | | | | (6,507) | | | (7,728) | |
Net loss attributable to noncontrolling interests | | | | | | (7) | | | (234) | |
(Loss) income before income taxes | | | | | | (26,438) | | | 1,988 | |
Income tax benefit (provision) | | | | | | 6,628 | | | (3,980) | |
Net loss | | | | | | $ | (19,810) | | | $ | (1,992) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 13. Segment Information (continued) | | |
(1) Includes certain non-recurring items associated with recent acquisition activities. |
(2) Representsactivities, costs associated with global ERP system integration efforts.
|
(3) Includesefforts, and certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels.
|
(4) Represents a gain on the sale of an ownership interest in a subsidiary within the Memorialization segment.
|
(5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment.
|
(6)(2) 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.
|
(7)(3) Represents costs associated with the goodwill write-down for two reporting units withintermination of the SGK Brand Solutions segment.Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan.
|
(8) 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.
|
(9)(4) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and curtailmentlosses, 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.benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.
|
* Depreciation and amortization was $26,813$23,725 and $21,833$17,848 for the SGK Brand Solutions segment, $5,838$5,810 and $5,549$5,469 for the Memorialization segment, $1,399$2,653 and $1,450$2,740 for the Industrial Technologies segment, and $1,339$1,313 and $1,336$1,294 for Corporate and Non-Operating, for the three months ended June 30, 2021 and 2020, respectively. Depreciation and amortization was $72,700 and $65,274 for the SGK Brand Solutions segment, $17,016 and $15,024 for the Memorialization segment, $4,241 and $4,320 for the Industrial Technologies segment, and $3,962 and $3,800 for Corporate and Non-Operating, for the nine months ended June 30,December 31, 2021 and 2020, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3,790$1,229 and $1,794$4,696 for the SGK Brand Solutions segment, $484$671 and $697$1,130 for the Memorialization segment, $32 and $2,939$2,659 for the Industrial Technologies segment, and $4,128$1,891 and $2,707 for Corporate and Non-Operating, for the three months ended June 30,December 31, 2021 and 2020, respectively. Acquisition
*** Non-recurring/incremental COVID-19 costs ERP integration costs,were $220 and strategic initiatives and other charges were $14,135 and $9,058$409 for the SGK Brand Solutions segment, $1,279$464 and $1,754$650 for the Memorialization segment, $4 and $8,084$18 for the Industrial Technologies segment, and $19,032$2 and $47 for Corporate and Non-Operating, for the ninethree months ended June 30,December 31, 2021 and 2020, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $268 for the Industrial Technologies segment, for the nine months ended June 30, 2020.
Note 14. Acquisitions
Fiscal 2021:
In April 2021, the Company completed a small acquisition in the hydrogen fuel cell industry within the SGK Brand Solutions segment for a purchase price of $2,523 (net of cash acquired and holdback amounts). The preliminary purchase price allocation is not finalized as of June 30, 2021 and is subject to changes as the Company finalizes the valuation of acquired intangible assets, and obtains additional information related to other assets and liabilities.
In January 2021, the Company acquired a memorialization business that produces and distributes cemetery products for a purchase price of $13,100. The preliminary purchase price allocation is not finalized as of June 30, 2021 and is subject to changes as the Company obtains additional information related to fixed assets, and other assets and liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 15.14. Goodwill and Other Intangible Assets
A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net goodwill at September 30, 2020 | $ | 311,737 | | | $ | 361,682 | | | $ | 91,969 | | | $ | 765,388 | |
Additions during period | 0 | | | 4,775 | | | 0 | | | 4,775 | |
| | | | | | | |
Translation and other adjustments | 8,662 | | | 689 | | | 861 | | | 10,212 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net goodwill at June 30, 2021 | $ | 320,399 | | | $ | 367,146 | | | $ | 92,830 | | | $ | 780,375 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net goodwill at September 30, 2021 | $ | 314,850 | | | $ | 366,360 | | | $ | 92,577 | | | $ | 773,787 | |
| | | | | | | |
| | | | | | | |
Translation and other adjustments | (1,422) | | | (479) | | | 97 | | | (1,804) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net goodwill at December 31, 2021 | $ | 313,428 | | | $ | 365,881 | | | $ | 92,674 | | | $ | 771,983 | |
The net goodwill balances at June 30,December 31, 2021 and September 30, 20202021 included $178,732 of accumulated impairment losses. Accumulated impairment losses at June 30,December 31, 2021 and September 30, 20202021 were $173,732$149,786, $5,000, and $5,000$23,946 for the SGK Brand Solutions, Memorialization, and MemorializationIndustrial Technologies segments, respectively.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 14. Goodwill and Other Intangible Assets (continued)
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of June 30,December 31, 2021 and September 30, 2020,2021, respectively.
| | | Carrying Amount | | Accumulated Amortization | | Net | | Carrying Amount | | Accumulated Amortization | | Net |
June 30, 2021: | | | | | | |
December 31, 2021: | | December 31, 2021: | | | | | |
Indefinite-lived trade names | Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | | Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | |
Definite-lived trade names | Definite-lived trade names | 148,986 | | | (93,712) | | | 55,274 | | Definite-lived trade names | 148,794 | | | (114,714) | | | 34,080 | |
Customer relationships | Customer relationships | 390,253 | | | (198,793) | | | 191,460 | | Customer relationships | 388,112 | | | (220,667) | | | 167,445 | |
Copyrights/patents/other | Copyrights/patents/other | 23,843 | | | (15,361) | | | 8,482 | | Copyrights/patents/other | 23,485 | | | (15,826) | | | 7,659 | |
| | $ | 593,622 | | | $ | (307,866) | | | $ | 285,756 | | | $ | 590,931 | | | $ | (351,207) | | | $ | 239,724 | |
September 30, 2020: | | | | | | |
September 30, 2021: | | September 30, 2021: | | | | | |
Indefinite-lived trade names | Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | | Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | |
Definite-lived trade names | Definite-lived trade names | 148,867 | | | (64,462) | | | 84,405 | | Definite-lived trade names | 148,867 | | | (104,211) | | | 44,656 | |
Customer relationships | Customer relationships | 379,246 | | | (166,892) | | | 212,354 | | Customer relationships | 388,699 | | | (210,361) | | | 178,338 | |
Copyrights/patents/other | Copyrights/patents/other | 20,704 | | | (14,505) | | | 6,199 | | Copyrights/patents/other | 23,584 | | | (15,576) | | | 8,008 | |
| | $ | 579,357 | | | $ | (245,859) | | | $ | 333,498 | | | $ | 591,690 | | | $ | (330,148) | | | $ | 261,542 | |
The net change in intangible assets during the ninethree months ended June 30,December 31, 2021 included the impact of foreign currency fluctuations during the period and additional amortization and additions related to fiscal 2021 acquisitions. During the second quarter of fiscal 2021, the Company reassessed the useful lives for certain of its customer relationships. As a result of this reassessment, the Company reduced the remaining useful lives for these customer relationships to reflect their estimated remaining duration, utilizing actual historical customer attrition rates.amortization.
Amortization expense on intangible assets was $23,039$21,546 and $17,825$15,221 for the three-month periods ended June 30,December 31, 2021 and 2020, respectively. For the nine-month periods ended June 30, 2021 and 2020, amortization expense was $61,190 and $53,639, respectively. Amortization expense is estimated to be $22,948$35,988 for the remainder of fiscal 2021, $57,197 in 2022, $40,832$41,064 in 2023, $35,336$35,505 in 2024, $19,770 in 2025 and $20,182$14,686 in 2025. The accelerated amortization related to the fiscal 2019 reduction in useful lives for certain discontinued trade names is scheduled to continue through the first quarter of fiscal 2022.2026.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES:
The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation ("Matthews" or the "Company") and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021. Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company's products, changes in mortality and cremation rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, or other factors such as supply chain disruptions, labor shortages or labor cost increases, changes in product demand or pricing as a result of domestic or international competitive pressures, ability to achieve cost-reduction objectives, unknown risks in connection with the Company's acquisitions, cybersecurity concerns, effectiveness of the Company's internal controls, compliance with domestic and foreign laws and regulations, technological factors beyond the Company's control, impact of pandemics or similar outbreaks, or other disruptions to our industries, customers or supply chains, and other factors described in Item 1A - "Risk Factors" in this Form 10-Q and Item 1A - "Risk Factors" in the Company's Form 10-K for the fiscal year ended September 30, 2020.2021. In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors. Matthews cautions that the foregoing list of important factors is not all inclusive. Readers are also cautioned not to place undue reliance on any forward looking statements, which reflect management's analysis only as of the date of this report, even if subsequently made available by Matthews on its website or otherwise. Matthews does not undertake to update any forward looking statement, whether written or oral, that may be made from time to time by or on behalf of Matthews to reflect events or circumstances occurring after the date of this report.
Included in this report are measures of financial performance that are not defined by generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures assist management in comparing the Company's 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. For additional information and reconciliations from the consolidated financial statements see "Non-GAAP Financial Measures" below.
RESULTS OF OPERATIONS:
The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. 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 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 the design, manufacturing, service and distribution of high-tech custom energy storage, marking, and coding equipment and consumables, industrial automation productstechnologies and solutions, and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
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.
The following table sets forth the sales and adjusted EBITDA for the Company's three reporting segments for the three and nine-monththree-month periods ended June 30,December 31, 2021 and 2020. Refer to Note 13, "Segment Information" in Item 1 - "Financial Statements" for the Company's financial information by segment.
| | | Three Months Ended June 30, | | Nine Months Ended June 30, | | | Three Months Ended December 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2021 | | 2020 |
Sales: | Sales: | | (Dollar amounts in thousands) | Sales: | | (Dollar amounts in thousands) |
SGK Brand Solutions | SGK Brand Solutions | | $ | 199,715 | | | $ | 165,780 | | | $ | 538,879 | | | $ | 513,515 | | SGK Brand Solutions | | $ | 153,542 | | | $ | 149,959 | |
Memorialization | Memorialization | | 184,337 | | | 162,118 | | | 573,068 | | | 478,342 | | Memorialization | | 210,706 | | | 183,274 | |
Industrial Technologies | Industrial Technologies | | 44,328 | | | 31,524 | | | 120,244 | | | 107,309 | | Industrial Technologies | | 74,331 | | | 53,424 | |
Consolidated Sales | Consolidated Sales | | $ | 428,380 | | | $ | 359,422 | | | $ | 1,232,191 | | | $ | 1,099,166 | | Consolidated Sales | | $ | 438,579 | | | $ | 386,657 | |
| Adjusted EBITDA: | Adjusted EBITDA: | | | | | | | | | Adjusted EBITDA: | | | | |
SGK Brand Solutions | SGK Brand Solutions | | $ | 33,258 | | | $ | 20,846 | | | $ | 75,426 | | | $ | 61,808 | | SGK Brand Solutions | | $ | 15,414 | | | $ | 21,833 | |
Memorialization | Memorialization | | 36,402 | | | 37,734 | | | 132,080 | | | 103,020 | | Memorialization | | 43,370 | | | 44,072 | |
Industrial Technologies | Industrial Technologies | | 5,940 | | | 4,679 | | | 15,242 | | | 15,205 | | Industrial Technologies | | 7,183 | | | 2,996 | |
Corporate and Non-Operating | Corporate and Non-Operating | | (15,585) | | | (13,862) | | | (47,030) | | | (41,009) | | Corporate and Non-Operating | | (12,634) | | | (14,138) | |
Total Adjusted EBITDA (1) | Total Adjusted EBITDA (1) | | $ | 60,015 | | | $ | 49,397 | | | $ | 175,718 | | | $ | 139,024 | | Total Adjusted EBITDA (1) | | $ | 53,333 | | | $ | 54,763 | |
(1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.
Sales for the ninethree months ended June 30,December 31, 2021 were $1.23 billion,$438.6 million, compared to $1.10 billion$386.7 million for the ninethree months ended June 30,December 31, 2020, representing an increase of $133.0$51.9 million. The increase in fiscal 20212022 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 $27.4 million on fiscal 2021 consolidated sales compared to a year ago. Fiscal 20212022 sales continued to be impacted by the global outbreak of coronavirus disease 2019 ("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 asuntil the pandemic subsides (see "Forward Looking Information" below).
In the SGK Brand Solutions segment, sales for the first ninethree months of fiscal 20212022 were $538.9$153.5 million, compared to $513.5$150.0 million for the first ninethree months of fiscal 2020.2021. The increase primarily resulted from higher retail-based sales of purpose-built engineered products (primarily in support of the electric vehicle and energy storage industries)(principally merchandising solutions) and higher brand sales in the Europe and Asia-Pacific markets.market. 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.Europe. Changes in foreign currency exchange rates had a favorablean unfavorable impact of $21.0$2.4 million on the segment's sales compared to the prior year. Memorialization segment sales for the first ninethree months of fiscal 20212022 were $573.1$210.7 million, compared to $478.3$183.3 million for the first ninethree months of fiscal 2020.2021. The increase in sales predominantly resulted from increased unit sales of caskets and bronze and granite memorial products, 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 $4.0 million on the segment's sales compared to the prior year. Industrial Technologies segment sales were $120.2 million for the first nine months of fiscal 2021, compared to $107.3 million for the first nine months of 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 $2.4 million on the segment's sales compared to the prior year.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
reported higher sales of mausoleums and cremation and incineration equipment. The increase in sales also reflected improved price realization and benefits from the fiscal 2021 acquisition of a small cemetery products business. Industrial Technologies segment sales were $74.3 million for the first three months of fiscal 2022, compared to $53.4 million for the first three months of fiscal 2021. The sales increase primarily reflected higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market) and increased sales of warehouse automation solutions. These increases were partially offset by reduced sales of surfaces products. Changes in foreign currency exchange rates had an unfavorable impact of $1.5 million on the segment's sales compared to the prior year. On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $4.1 million on fiscal 2022 sales compared to a year ago.
Gross profit for the ninethree months ended June 30,December 31, 2021 was $403.8$131.6 million, compared to $361.4$125.5 million for the same period a year ago. Consolidated gross profit as a percent of sales was 32.8%30.0% and 32.9%32.5% for the first ninethree months of fiscal 20212022 and fiscal 2020,2021, 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 cylinderssurfaces and engineered products within the SGK Brand SolutionsIndustrial Technologies segment. These improvements were partially offset by the impact of higher material, labor and transportation costs, particularly in the Memorialization segment, and lower margins on U.K. based cremationunfavorable changes in sales mix within the SGK Brand Solutions segment. Higher material costs in the Memorialization segment reflected a significant increase in commodity costs, particularly steel, lumber and incineration projects.bronze ingot. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $15.5$1.5 million and $6.6$8.0 million for the ninethree months ended June 30,December 31, 2021 and 2020, respectively.
Selling and administrative expenses for the ninethree months ended June 30,December 31, 2021 were $308.0$99.3 million, compared to $302.2$99.9 million for the first ninethree months of fiscal 2020.2021. Consolidated selling and administrative expenses, as a percent of sales, were 25.0%22.6% for the ninethree months ended June 30,December 31, 2021, compared to 27.5%25.8% for the same period last year. The increase inFiscal 2022 selling and administrative expenses reflected higherlower performance-based compensation compared to fiscal 2020, partially offset by2021 and benefits from ongoing cost-reduction initiatives, which were partially offset by the impact of higher salaries and reduced travel and entertainment ("T&E") costs resulting from the pandemic.wage rates. Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost-reduction initiatives totaling $13.0$3.5 million in fiscal 2021,2022, compared to $25.6$4.4 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.2021. Intangible amortization for the ninethree months ended June 30,December 31, 2021 was $61.2$21.5 million, compared to $53.6$15.2 million for the ninethree months ended June 30,December 31, 2020. The increase in intangible amortization reflected $10.1$4.0 million of incremental amortization resulting from athe fiscal 2021 reduction in useful lives for certain customer relationships. Refer to Note 15, "Goodwill and Other Intangible Assets" in Item 1 - "Financial Statements" for further details. 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 $26.0$9.5 million and $28.1$7.0 million for the ninethree months ended June 30,December 31, 2021 and June 30,December 31, 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).
Adjusted EBITDA was $175.7$53.3 million for the ninethree months ended June 30,December 31, 2021 and $139.0$54.8 million for the ninethree months ended June 30,December 31, 2020. Adjusted EBITDA for the SGK Brand Solutions segment was $75.4$15.4 million for the first ninethree months of fiscal 20212022 compared to $61.8$21.8 million for the same period a year ago. The increasedecrease in segment adjusted EBITDA primarily reflected the impact of unfavorable changes in sales mix, higher travel and entertainment costs, and production inefficiencies related to the COVID-19 remote-work environment. These decreases were partially offset by the impact of higher sales, and benefits from cost-reduction initiatives, reduced T&E costs resulting from COVID-19, and improved margins for cylinders and engineered products.initiatives. Changes in foreign currency exchange rates had a favorablean unfavorable impact of $2.0 million$684,000 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. Memorialization segment adjusted EBITDA was $132.1$43.4 million for the first ninethree months of fiscal 20212022 compared to $103.0$44.1 million for the first ninethree months of fiscal 2020. The increase in2021. Fiscal 2022 segment adjusted EBITDA primarily reflected the impactbenefits of higher sales benefits fromand productivity initiatives, and lower T&E costs. These increaseswhich were partially offset by the impact of higher material, labor and transportation costs, increased performance-based compensation compared to fiscal 2020, and lower margins on U.K. based cremation and incineration projects.costs. Adjusted EBITDA for the Industrial Technologies segment was $15.2$7.2 million for the ninethree months ended June 30,December 31, 2021 andcompared to $3.0 million for the ninethree months ended June 30,December 31, 2020. Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales of purpose-built engineered products and warehouse automation solutions, improved margins for surfaces and product identification sales,engineered products, and benefits from cost-reduction initiatives, and reduced T&E costs, which were offset by increased performance-based compensation expense and higher product development costs.initiatives. Changes in foreign currency exchange rates had a favorablean unfavorable impact of $512,000$191,000 on the segment's adjusted EBITDA compared to the prior year.
Investment income was $3.0$1.0 million for the ninethree months ended June 30,December 31, 2021 and $1.4$1.1 million for the ninethree months ended June 30,December 31, 2020. Investment income for both periods 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 the first ninethree months of fiscal 20212022 was $21.7$6.5 million, compared to $26.9$7.7 million for the same period last year. 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 ninethree months ended June 30,December 31, 2021 represented a decrease in pre-tax income of $6.8$31.7 million, compared to a decrease in pre-tax income of $7.4$1.7 million for the same period last year. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $5.7$31.1 million and $6.7$1.9 million for
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
the ninethree months ended June 30,December 31, 2021 and 2020, 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 10, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the ninefirst three months ended June 30, 2021of fiscal 2022 were a benefit of $6.6 million, compared to an expense of $2.6 million, compared to a benefit of $22.7$4.0 million for the first ninethree months of fiscal 2020.2021. The difference between the Company’s consolidated income taxes for the first ninethree months of fiscal 20212022 compared to the same period for fiscal 20202021 primarily resulted from a consolidated pre-tax loss in fiscal 2022 compared to pre-tax income in fiscal 2021 compared2021. Additionally, fiscal 2022 included discrete tax expenses related to a pre-tax loss in fiscal 2020. Additionally, fiscalthe addition of uncertain tax liabilities. Fiscal 2021 included discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a net operating loss (“NOL”) carryback to tax years where the U.S. federal statutory rate was 35%, and additional foreign tax credits. Fiscal 2020 included discreteThe Company’s fiscal 2022 three month effective tax benefits resultingrate varied from the closureU.S. statutory tax rate of several21.0% primarily due to state taxes, foreign statutory rate differentials, and tax audits.credits. The Company’s fiscal 2021 nine-monththree-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to discrete tax expenses related to foreign operating losses, discrete tax benefits related to the resolution of uncertain tax liabilities, a NOL carryback to tax years where the U.S. federal statutory rate was 35%, and additional foreign tax credits. Additionally, state taxes, foreign statutory rate differentials, and tax credits all affected the fiscal 2021 effective tax rate. The Company’s fiscal 2020 nine-month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, tax credits, the goodwill write-down, the expected NOL carryback, and discrete tax benefits recognized in fiscal 2020.
Net losses attributable to noncontrolling interests were $60,000$7,000 for the ninethree months ended June 30,December 31, 2021 and $491,000$234,000 for the ninethree months ended June 30,December 31, 2020. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
The reconciliation of net income to adjusted EBITDA is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollar amounts in thousands) |
Net income (loss) | $ | 3,366 | | | $ | 1,849 | | | $ | 6,526 | | | $ | (95,052) | |
Income tax (benefit) provision | (2,325) | | | (6,209) | | | 2,627 | | | (22,672) | |
Income (loss) before income taxes | 1,041 | | | (4,360) | | | 9,153 | | | (117,724) | |
Net (income) loss attributable to noncontrolling interests | (11) | | | 420 | | | 60 | | | 491 | |
Interest expense | 6,748 | | | 8,082 | | | 21,709 | | | 26,935 | |
Depreciation and amortization * | 35,389 | | | 30,168 | | | 97,919 | | | 88,418 | |
Acquisition related items (1)** | 398 | | | 355 | | | 38 | | | 2,576 | |
ERP integration costs (2)** | 118 | | | 745 | | | 477 | | | 2,160 | |
Strategic initiatives and other charges: (3)** | | | | | | | |
Workforce reductions and related costs | 1,826 | | | 776 | | | 10,644 | | | 4,425 | |
Other cost-reduction initiatives | 4,871 | | | 4,743 | | | 12,339 | | | 20,951 | |
Gain on sale of ownership interest in a subsidiary (4) | — | | | (11,208) | | | — | | | (11,208) | |
Legal matter reserve (5) | — | | | 10,566 | | | — | | | 10,566 | |
Non-recurring / incremental COVID-19 costs (6) | 1,993 | | | 1,871 | | | 4,689 | | | 2,534 | |
Goodwill write-down (7) | — | | | — | | | — | | | 90,408 | |
Joint Venture depreciation, amortization, interest expense and other charges (8) | — | | | 2,473 | | | — | | | 4,732 | |
Stock-based compensation | 5,713 | | | 2,539 | | | 12,960 | | | 7,078 | |
| | | | | | | |
Non-service pension and postretirement expense (9) | 1,929 | | | 2,227 | | | 5,730 | | | 6,682 | |
Total Adjusted EBITDA | $ | 60,015 | | | $ | 49,397 | | | $ | 175,718 | | | $ | 139,024 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, |
| | | | | 2021 | | 2020 |
| | | | | (Dollar amounts in thousands) |
Net loss | | | | | $ | (19,810) | | | $ | (1,992) | |
Income tax (benefit) provision | | | | | (6,628) | | | 3,980 | |
(Loss) income before income taxes | | | | | (26,438) | | | 1,988 | |
Net loss attributable to noncontrolling interests | | | | | 7 | | | 234 | |
Interest expense | | | | | 6,507 | | | 7,728 | |
Depreciation and amortization * | | | | | 33,501 | | | 27,351 | |
Strategic initiatives and other charges (1)** | | | | | 3,823 | | | 11,192 | |
Non-recurring / incremental COVID-19 costs (2)*** | | | | | 690 | | | 1,124 | |
Defined benefit plan termination related costs (3) | | | | | 426 | | | — | |
Stock-based compensation | | | | | 3,709 | | | 3,246 | |
| | | | | | | |
Non-service pension and postretirement expense (4) | | | | | 31,108 | | | 1,900 | |
Total Adjusted EBITDA | | | | | $ | 53,333 | | | $ | 54,763 | |
| | |
(1) Includes certain non-recurring items associated with recent acquisition activities. |
(2) Representsactivities, costs associated with global ERP system integration efforts.
|
(3) Includesefforts, and certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels.
|
(4) Represents a gain on the sale of an ownership interest in a subsidiary within the Memorialization segment.
|
(5) Represents a reserve established for a legal matter involving a letter of credit for a customer in Saudi Arabia within the Memorialization segment.
|
(6)(2) 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.
|
(7)(3) Represents costs associated with the goodwill write-down for two reporting units withintermination of the SGK Brand Solutions segment.Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan.
|
(8) 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.
|
(9)(4) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and curtailmentlosses, 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.benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans.
|
* Depreciation and amortization was $26.8$23.7 million and $21.8$17.8 million for the SGK Brand Solutions segment, $5.8 million and $5.5 million for the Memorialization segment, $1.4$2.7 million and $1.5$2.7 million for the Industrial Technologies segment, and $1.3 million and $1.3 million for Corporate and Non-Operating, for the three months ended June 30, 2021 and 2020, respectively. Depreciation and amortization was $72.7 million and $65.3 million for the SGK Brand Solutions segment, $17.0 million and $15.0 million for the Memorialization segment, $4.2 million and $4.3 million for the Industrial Technologies segment, and $4.0 million and $3.8 million for Corporate and Non-Operating, for the nine months ended June 30,December 31, 2021 and 2020, respectively.
** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3.8$1.2 million and $1.8$4.7 million for the SGK Brand Solutions segment, income of $484,000$671,000 and charges of $697,000$1.1 million for the Memorialization segment, $32,000 and charges of $2.9$2.7 million for the Industrial Technologies segment, and $1.9 million and $4.1$2.7 million for Corporate and Non-Operating, for the three months ended June 30,December 31, 2021 and 2020, respectively. Acquisition
*** Non-recurring/incremental COVID-19 costs ERP integration costs,were $220,000 and strategic initiatives and other charges were $14.1 million and $9.1 million$409,000 for the SGK Brand Solutions segment, $1.3 million$464,000 and $1.8 million$650,000 for the Memorialization segment, $4,000 and $8.1 million$18,000 for the Industrial Technologies segment, and $19.0 million$2,000 and $47,000 for Corporate and Non-Operating, for the ninethree months ended June 30,December 31, 2021 and 2020, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $268,000 for the Industrial Technologies segment, for the nine months ended June 30, 2020.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
LIQUIDITY AND CAPITAL RESOURCES:
Net cash used in operating activities was $27.2 million for the first three months of fiscal 2022, compared to net cash provided by operating activities was $106.9of $35.3 million for the first ninethree months of fiscal 2021, compared to $123.6 million for the first nine months of fiscal 2020.2021. Operating cash flow for both periods principally included net income (loss)loss adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains (losses)losses (gains) related to investments, non-cash pension expense, other non-cash adjustments, and changes in working capital items. Fiscal 20212022 operating cash flow also reflected a $15.0$35.7 million discretionary contributionof DB Plan contributions to fully fund the Company's principal retirement plan.settlement of the DB Plan obligations. Net changes in working capital items decreasedreduced operating cash flow by $7.5$40.8 million and $3.7 million in fiscal 2021,2022 and contributed $41.7 million to operating cash flow in fiscal 2020.2021,respectively. The fiscal 20212022 change in working capital primarily reflected increased fiscal year-end compensation-related payments, of certain payroll tax amounts that were deferred due to COVID-19, an increase inand higher inventory due to higher material costs, and delayed refunds of federal taxes.levels reflecting increased commodity costs.
Cash used in investing activities was $22.9$12.5 million for the ninethree months ended June 30,December 31, 2021, compared to cash provided by investing activities of $7.4$5.8 million for the ninethree months ended June 30,December 31, 2020. Investing activities for the first ninethree months of fiscal 20212022 primarily reflected capital expenditures of $24.5 million, acquisitions payments (net of cash acquired and holdback amounts) totaling $15.6 million, proceeds from the sale of investments of $15.0$12.6 million and proceeds from the sale of assets of $2.2 million.$301,000. Investing activities for the first ninethree months of fiscal 2020 primarily2021 reflected capital expenditures of $25.5$7.5 million and proceeds of $42.2 million from the sale of an ownership interest in a Memorialization business, and investments and advancesassets of $9.7$1.7 million.
Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $38.6$35.6 million for the last three fiscal years. Capital spending for fiscal 20212022 is currently estimated to be approximately $40$60 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.
Cash provided by financing activities for the three months ended December 31, 2021 was $62.4 million, primarily reflecting proceeds, net of repayments, on long-term debt of $72.3 million, treasury stock purchases of $2.4 million and dividends of $6.8 million to the Company's shareholders. Cash used in financing activities for the ninethree months ended June 30, 2021December 31, 2020 was $79.8$31.4 million, primarily reflecting repayments, net of proceeds, on long-term debt of $49.0$18.0 million, treasury stock purchases of $6.1$4.2 million, dividends of $20.9$6.8 million to the Company's shareholders, and $1.6 million of holdback and deferred payments related to acquisitions from prior years. Cash used in financing activities for the nine months ended June 30, 2020 was $123.1 million, primarily reflecting repayments, net of proceeds, on long-term debt of $92.1 million, treasury stock purchases of $2.4 million, dividends of $19.8 million to the Company's shareholders, $4.7 million of holdback and contingent consideration payments related to acquisitions from prior years, and payment of deferred financing fees of $2.0 million.years.
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 2021.2025. 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% (1.00% at June 30,December 31, 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 $2.4$2.0 million and $2.7$2.2 million at June 30,December 31, 2021 and September 30, 2020,2021, respectively.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $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 June 30,December 31, 2021 and September 30, 20202021 were $259.2$405.0 million and $257.4$349.8 million, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at June 30, 2021 and September 30, 2020 were €97.0 million ($115.2 million) and €117.0 million ($137.2 million), respectively. There were no outstanding borrowings on the term loan as of June 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 June 30,December 31, 2021 and 2020 was 1.94%1.86% and 2.44%2.07%, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
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 the 2025 Senior Notes. Unamortized costs were $2.3$2.1 million and $2.7$2.2 million at June 30,December 31, 2021 and September 30, 2020,2021, 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
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
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 June 30,December 31, 2021 and September 30, 20202021 were $90.7$104.7 million and $67.7$96.0 million, respectively. At June 30,December 31, 2021 and 2020, the interest rate on borrowings under this facility was 0.85% and 0.91%0.89% respectively.
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges (dollar amounts in thousands):
| | | June 30, 2021 | | September 30, 2020 | | December 31, 2021 | | September 30, 2021 |
Pay fixed swaps - notional amount | Pay fixed swaps - notional amount | | $ | 250,000 | | | $ | 312,500 | | Pay fixed swaps - notional amount | | $ | 250,000 | | | $ | 250,000 | |
Net unrealized loss | Net unrealized loss | | $ | (2,982) | | | $ | (7,792) | | Net unrealized loss | | $ | (102) | | | $ | (2,062) | |
Weighted-average maturity period (years) | Weighted-average maturity period (years) | | 2.5 | | 2.6 | Weighted-average maturity period (years) | | 2.0 | | 2.2 |
Weighted-average received rate | Weighted-average received rate | | 0.10 | % | | 0.15 | % | Weighted-average received rate | | 0.10 | % | | 0.08 | % |
Weighted-average pay rate | Weighted-average pay rate | | 1.34 | % | | 1.34 | % | Weighted-average pay rate | | 1.34 | % | | 1.34 | % |
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 $3.0 millionunrealized gains of $102,000 ($2.3 million77,000 after tax) at June 30,December 31, 2021 and an unrealized loss net of $7.8unrealized gains of $2.1 million ($5.91.6 million after tax) at September 30, 20202021, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at June 30,December 31, 2021, a loss (net of tax) of approximately $1.8 million$663,000 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 borrowing available under this facility is €25.0 million ($29.728.4 million), which includes €8.0 million ($9.59.1 million) for bank guarantees. The creditIn the first quarter of fiscal 2022, the Company extended this facility matures into a current maturity of December 20212022 andthe Company intends to continue to extend this facility. There were no outstanding borrowings under the credit facility at December 31, 2021. Outstanding borrowings under the credit facility totaled €6.6 million€704,000 ($7.8 million) and €18.9 million ($22.2 million)817,000) at June 30, 2021 and September 30, 2020, respectively.2021. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2021 and 2020 was 2.25% and 1.25%, respectively.at December 31, 2020.
Other borrowings totaled $20.3 million and $10.2 million at December 31, 2021 and September 30, 2021, respectively. The weighted-average interest rate on these borrowings was 1.88% and 2.11% at December 31, 2021 and 2020, respectively.
The Company uses certain foreignhas a U.S. Dollar/Euro cross currency debt instrumentsswap with a notional amount of $94.5 million as of December 31, 2021, which has been designated as a net investment hedgeshedge of foreign operations. Currency lossesThe swap contract matures in September 2028. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A gain of $6.0$2.1 million (net of income taxes of $1.9 million)$675,000) and currency lossesa gain of $4.4 million$29,000 (net of income taxes of $1.4 million)$10,000), which representrepresented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at June 30,December 31, 2021 and September 30, 2020,2021, respectively.
Income of $365,000, 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 the three months ended December 31, 2021. At December 31, 2021 and September 30, 2021, the swap, which is included in other assets in the Consolidated Balance Sheets, totaled $2.8 million and
$39,000, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
The Company has a stock repurchase program. The Company's Board of Directors had authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 324,861 shares remained available for repurchase as of June 30, 2021. On July 28, 2021, the Company's Board of Directors authorized an additional 2,500,000 shares for repurchase under the 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, 2,595,881 shares remain available for repurchase as of December 31, 2021.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
Consolidated working capital of the Company was $291.3$345.6 million at June 30,December 31, 2021, compared to $258.7$269.9 million at September 30, 2020.2021. Cash and cash equivalents were $46.2$71.0 million at June 30,December 31, 2021, compared to $41.3$49.2 million at September 30, 2020.2021. The Company's current ratio was 1.92.0 at June 30,December 31, 2021 and 1.8 at September 30, 2020.2021.
Long-Term Contractual Obligations:
The following table summarizes the Company's contractual obligations at December 31, 2021, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due in fiscal year: |
| Total | | 2022 (1) Remainder | | 2023 to 2024 | | 2025 to 2026 | | After 2026 |
Contractual Cash Obligations: | (Dollar amounts in thousands) |
Revolving credit facilities | $ | 405,000 | | | $ | — | | | $ | — | | | $ | 405,000 | | | $ | — | |
Securitization Facility | 104,690 | | | 104,690 | | | — | | | — | | | — | |
| | | | | | | | | |
2025 Senior Notes | 360,931 | | | 7,875 | | | 31,500 | | | 321,556 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
Finance lease obligations (2) | 8,797 | | | 2,830 | | | 3,347 | | | 1,025 | | | 1,595 | |
Non-cancelable operating leases (2) | 85,063 | | | 19,851 | | | 38,958 | | | 20,821 | | | 5,433 | |
Other | 50,403 | | | 3,596 | | | 34,336 | | | 2,169 | | | 10,302 | |
Total contractual cash obligations | $ | 1,014,884 | | | $ | 138,842 | | | $ | 108,141 | | | $ | 750,571 | | | $ | 17,330 | |
(1) The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $104.7 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 supplemental retirement plan ("SERP") and postretirement benefit plan are made 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 three months ended December 31, 2021. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan.
During the three months ended December 31, 2021 contributions of $199,000 and $83,000 were made under the SERP and postretirement benefit plan, respectively. The Company currently anticipates contributing an additional $561,000 and $801,000 under the SERP and postretirement benefit plan, respectively, for the remainder of fiscal 2022. The Company also expects to make payments totaling approximately $24.2 million in fiscal 2023 to fully settle the SERP and defined benefit portion of the officers retirement restoration plan 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 December 31, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.3 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
REGULATORY MATTERS:
The Company’s operations are subject to various federal, state and local laws and regulations requiring strict compliance, including, but not limited to, the protection of the environment. The Company has established numerous internal compliance programs to further ensure lawful satisfaction of the applicable regulations. In addition, the Company is party to specific environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at operating and non-operating sites. The Company is currently performing environmental assessments and remediation at certain sites, as applicable.
ACQUISITIONS:
Refer to Note 14, "Acquisitions" in Item 1 - "Financial Statements" for further details on the Company's acquisitions.
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 strategic and 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. Additionally, the retail-based businesses in the SGK Brand Solutions segment continue to recover from the unfavorable sales impacts of the pandemic (see below). 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. Order rates and backlogs in the warehouse and product identification businesses are expected to support continued sales growth for the Industrial Technologies segment in fiscal 2022. In addition, sales for the energy solutions business in the Industrial Technologies segment, which supports the electric vehicle market, grew significantly in fiscal 2021 and, based on current backlogs and significant interest from multiple well-known auto manufacturers, are expected to significantly grow again in fiscal 2022.
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 leastthroughout the remainder of 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
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 eventually resulting from COVID-19.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
CRITICAL ACCOUNTING POLICIES:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021.
A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020.2021. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition.
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 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.
LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The following table summarizes the Company's contractual obligations at June 30, 2021, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due in fiscal year: |
| Total | | 2021 Remainder | | 2022 (1) to 2023 | | 2024 to 2025 | | After 2025 |
Contractual Cash Obligations: | (Dollar amounts in thousands) |
Revolving credit facilities | $ | 382,253 | | | $ | — | | | $ | 7,786 | | | $ | 374,467 | | | $ | — | |
Securitization Facility | 90,710 | | | — | | | 90,710 | | | — | | | — | |
| | | | | | | | | |
2025 Senior Notes | 368,536 | | | — | | | 31,500 | | | 31,500 | | | 305,536 | |
| | | | | | | | | |
| | | | | | | | | |
Finance lease obligations (2) | 11,024 | | | 1,232 | | | 5,967 | | | 1,780 | | | 2,045 | |
Non-cancelable operating leases (2) | 89,820 | | | 7,096 | | | 45,950 | | | 24,926 | | | 11,848 | |
Other | 20,609 | | | 984 | | | 11,459 | | | 2,132 | | | 6,034 | |
Total contractual cash obligations | $ | 962,952 | | | $ | 9,312 | | | $ | 193,372 | | | $ | 434,805 | | | $ | 325,463 | |
(1) The Company maintains certain debt facilities with maturity dates of twelve months or less that it intends and has the ability to extend beyond twelve months totaling $98.5 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.
A significant portion of the loans included in the table above bear interest at variable rates. At June 30, 2021, the weighted-average interest rate was 1.94% on the Company's domestic credit facility, 0.85% on the Company's Securitization Facility and 2.25% on the credit facility through the Company's European subsidiaries.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued
Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. During the nine months ended June 30, 2021 contributions of $15.0 million, $607,000 and $436,000 were made under the principal retirement plan, supplemental retirement plan and postretirement plan, respectively. Under IRS regulations, no further contributions are required to be made to the Company's principal retirement plan during fiscal 2021. The Company currently anticipates contributing an additional $298,000 and $395,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2021.
During the third quarter of fiscal 2021, the Compensation Committee of the Company's Board of Directors approved a resolution to freeze all future benefit accruals for all participants in the Company’s supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan, effective April 30, 2021. Consequently, participants in these plans will no longer earn additional benefits after April 30, 2021.
Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of June 30, 2021, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $8.1 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company’s market risk during the three and nine months ended June 30,December 31, 2021. For additional information see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021.
Item 4. Controls and Procedures
The Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that information required to be disclosed in our reports filed under that Act (the "Exchange Act"), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. These disclosure controls and procedures also are designed to provide reasonable assurance that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of June 30,December 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30,December 31, 2021, the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, and that such information is recorded, summarized and properly reported within the appropriate time period, relating to the Company and its consolidated subsidiaries, required to be included in the Exchange Act reports, including this Quarterly Report on Form 10-Q.
There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended June 30,December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
PART II ‑ OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Management does not expect that the results of any of these legal proceedings will have a material adverse effect on Matthews' financial condition, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021. The risk factors disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, in addition to the other information set forth in this report, could adversely affect the Company's operating performance and financial condition. Additional risks not currently known or deemed immaterial may also result in adverse effects on the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchase Plan
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 ofset forth in the Company's Restated Articles of Incorporation. The Company's Board of Directors had authorizedUnder the repurchase of a total of 5,000,000current authorization, 2,595,881 shares of Matthews' common stock under the program, of which 324,861shares remainedremain available for repurchase as of June 30,December 31, 2021. On July 28, 2021, the Company's Board of Directors authorized an additional 2,500,000 shares for repurchase under the program.
The following table shows the monthly fiscal 20212022 stock repurchase activity: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Weighted-average price paid per share | | Total number of shares purchased as part of a publicly announced plan | | Maximum number of shares that may yet be purchased under the plan |
October 2020 | | 40,000 | | | $ | 22.25 | | | 40,000 | | | 498,736 | |
November 2020 | | 34,789 | | | 25.82 | | | 34,789 | | | 463,947 | |
December 2020 | | 87,502 | | | 27.99 | | | 87,502 | | | 376,445 | |
January 2021 | | — | | | — | | | — | | | 376,445 | |
February 2021 | | — | | | — | | | — | | | 376,445 | |
March 2021 | | 6,000 | | | 41.36 | | | 6,000 | | | 370,445 | |
April 2021 | | — | | | — | | | — | | | 370,445 | |
May 2021 | | — | | | — | | | — | | | 370,445 | |
June 2021 | | 45,584 | | | 36.53 | | | 45,584 | | | 324,861 | |
Total | | 213,875 | | | $ | 28.76 | | | 213,875 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Weighted-average price paid per share | | Total number of shares purchased as part of a publicly announced plan | | Maximum number of shares that may yet be purchased under the plan |
October 2021 | | — | | | $ | — | | | — | | | 2,658,627 | |
November 2021 | | — | | | — | | | — | | | 2,658,627 | |
December 2021 | | 62,746 | | | 38.79 | | | 62,746 | | | 2,595,881 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | 62,746 | | | $ | 38.79 | | | 62,746 | | | |
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
| | | | | | | | | | | |
(a) | Exhibits | | |
| | | |
| Exhibit No. | Description | Method of Filing |
| | | |
| 3.1 | Restated Articles of Incorporation* | Exhibit Number 3.1 to the Annual Report on Form 10-K for the year ended September 30, 1994 (filed in paper format) |
| 3.2 | | Exhibit Number 3.1 to the Current Report on Form 8-K filed on January 14, 2021 |
| 31.1 | | Filed herewith |
| 31.2 | | Filed herewith |
| 32.1 | | Furnished herewith |
| 32.2 | | Furnished herewith |
| 101.INS | XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | Filed herewith |
| 101.SCH | XBRL Taxonomy Extension Schema | Filed herewith |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) | Filed herewith |
* Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | MATTHEWS INTERNATIONAL CORPORATION |
| | | (Registrant) |
| | | |
Date: | July 30, 2021January 28, 2022 | | By: /s/ Joseph C. Bartolacci |
| | | Joseph C. Bartolacci, President |
| | | and Chief Executive Officer |
| | | |
| | | |
Date: | July 30, 2021January 28, 2022 | | By: /s/ Steven F. Nicola |
| | | Steven F. Nicola, Chief Financial Officer |
| | | and Secretary |
| | | |