UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
10-K | | | | | |
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☒ | Annual Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 |
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 20172023
or
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☐ | Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
☐ 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. 0‑091150-09115
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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PENNSYLVANIAPennsylvania | | 25‑064432025-0644320 |
| (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) | | | | | | | | | | | | | | |
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TWO NORTHSHORE CENTER, PITTSBURGH, PA | | 15212‑5851 |
(Address of principal executive offices) | | (Zip Code) |
(412) 442-8200 |
(Registrant's telephone number, including area code) |
| 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 |
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| Securities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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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.
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| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Accelerated filer | ☐ | | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Class A Common Stock on the Nasdaq Global Select Market on March 31, 2017,2023, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $2.1$1.10 billion.
As of October 31, 2017,2023, shares of common stock outstanding were: Class A Common Stock 32,148,57930,384,251 shares.
Documents incorporated by reference: Specified portions of the Proxy Statement for the 20182024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.
CAUTIONARY STATEMENTSTATEMENTS REGARDING FORWARD-LOOKING INFORMATION:FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES:
Any forward-looking statements contained in this Annual Report on Form 10-K (specifically(including, but not limited to, those contained in Item 1, "Business," Item 1A, "Risk Factors" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations") are included in this report pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding the expectations, hopes, beliefs, intentions or strategies of Matthews International Corporation (“Matthews” or the “Company”) regarding the future, and may be identified by the use of words such as “expects,” “believes,” “intends,” “projects,” “anticipates,” estimates,” “plans,” “seeks,” “forecasts,” “predicts,” “objective,” “potential,” “outlook,” “may,” “will,” “could” or the negative of these terms, other comparable terminology and variations thereof. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results of Matthews International Corporation ("Matthews" or the "Company") 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. In addition to the risk factors previously disclosed and those discussed elsewhere in this Annual Report on Form 10-K, 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 interest rates, changes in the cost of materials used in the manufacture of the Company's products, any impairment of goodwill or intangible assets, environmental liability and limitations on the Company’s operations due to environmental laws and regulations, disruptions to certain services, such as telecommunications, network server maintenance, cloud computing or transaction processing services, provided to the Company by third-parties, 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 and divestitures, cybersecurity concerns and costs arising with management of cybersecurity threats, 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, the impact of global conflicts, such as the current war between Russia and Ukraine, and other factors described in Item 1A, "Risk Factors" in this Form 10-K. 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. Matthews posts important information on its investor relations website, available at matw.com/investors. The Company's shareholders are encouraged to review the contents of such website. Notwithstanding the foregoing, the contents of such website are not incorporated into this Annual Report on Form 10-K.
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. Refer to "Non-GAAP Financial Measures" in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 1. BUSINESS.
Matthews, founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider principally of brand solutions, memorialization products, industrial technologies and industrial technologies. Brand solutions include brand development, deployment and delivery (consisting of brand management, pre-media services, printing plates and cylinders, and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services).solutions. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial Technologies includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions; product identification and warehouse automation technologies include marking and coding equipment and consumables, industrial automation solutions, andincluding order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.products; and coating and converting lines for the packaging, pharma, foil, décor and tissue industries. SGK Brand Solutions consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.
At October 31, 2017, the Company and its majority-owned subsidiaries had approximately 11,000 employees. The Company's principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212, its telephone number is (412) 442-8200 and its website is www.matw.com. The Company files or furnishes all required reports with the Securities and Exchange Commission ("SEC") in accordance with the Exchange Act. The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge on the Company's website as soon as reasonably practicable after being filed or furnished to the SEC. The Company's reports filed or furnished with the SEC, including exhibits attached to such reports, are also available to read and copy at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by contacting the SEC at 1-800-732-0330. All Company reports filed with or furnished to the SEC can be found on its website at www.sec.gov.
ITEM 1.BUSINESS, (continued)
The Company hasmanages its business under three reporting segments, Memorialization, Industrial Technologies, and SGK Brand Solutions, Memorialization, and Industrial Technologies.Solutions. The following table sets forth reported sales and operating profit for the Company's business segments for the past three fiscal years. Detailed financial information relating to business segments and to domestic and international operations is presented in Note 18,20, "Segment Information" in Item 8 - "Financial Statements and Supplemental Data."
ITEM 1.BUSINESS, (continued) | | | | | | | | | | | | | | | | | |
| | Years Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Sales to external customers: | (Dollar amounts in thousands) |
| Memorialization | $ | 842,997 | | | $ | 840,124 | | | $ | 769,016 | |
| Industrial Technologies | 505,751 | | | 335,523 | | | 284,495 | |
| SGK Brand Solutions | 532,148 | | | 586,756 | | | 617,519 | |
| Consolidated Sales | $ | 1,880,896 | | | $ | 1,762,403 | | | $ | 1,671,030 | |
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| | Years Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | (Amounts in thousands) |
| Sales to unaffiliated customers: | | | | | |
| SGK Brand Solutions | $ | 770,181 |
| | $ | 755,975 |
| | $ | 798,339 |
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| Memorialization | 615,882 |
| | 610,142 |
| | 508,058 |
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| Industrial Technologies | 129,545 |
| | 114,347 |
| | 119,671 |
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| Consolidated | $ | 1,515,608 |
| | $ | 1,480,464 |
| | $ | 1,426,068 |
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| Operating profit: | | | | | |
| SGK Brand Solutions | $ | 24,919 |
| | $ | 42,909 |
| | $ | 21,864 |
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| Memorialization | 80,652 |
| | 68,252 |
| | 70,064 |
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| Industrial Technologies | 7,032 |
| | 7,654 |
| | 13,095 |
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| Consolidated | $ | 112,603 |
| | $ | 118,815 |
| | $ | 105,023 |
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In fiscal 2017,2023, approximately 67%65% of the Company's sales were made from the United States, 26%North America, 30% were made from Europe, 3% were made from Asia, and 4%2% were made from other regions. For further information on segments, see Note 18,20, "Segment Information" in Item 8 - "Financial Statements and Supplementary Data" on page 69 of this Report.Data." Memorialization segment products are sold throughout the world, with the segment's principal operations located in North America, Europe, and Australia. The Industrial Technologies segment sells equipment and consumables directly to industrial consumers and distributors in North America and internationally through the Company's subsidiaries in Sweden, Germany and China, and other foreign distributors. Matthews owns a minority interest in Industrial Technologies product distributors in Asia, Australia and Europe. Products and services of the SGK Brand Solutions segment are sold throughout the world, with principal locations in the United States, Europe and Asia. Memorialization segment products are sold throughout the world, with the segment's principal operations located in the United States, Europe, Canada, and Australia. The Industrial Technologies segment sells equipment and consumables directly to industrial consumers and distributors in the United States and internationally through the Company's subsidiaries in Canada, Sweden, Germany and China, and through other foreign distributors. Matthews owns a minority interest in Industrial Technologies product distributors in Asia, Australia and Europe.
SGK Brand Solutions:
The SGK Brand Solutions segment provides brand development, deployment and delivery (consisting of brand management, pre-media services, printing plates and cylinders, and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services). The Company has extensive product offerings and capabilities related to brand development and brand management, serving the consumer packaged goods and retail industries. The primary packaging industry consists of manufacturers of printed packaging materials such as boxes, flexible packaging, folding cartons and bags commonly displayed at retailers of consumer goods. The corrugated packaging industry consists of manufacturers of printed corrugated containers. Other major industries served include the wallpaper, flooring, automotive, and textile industries.
The principal products and services of this segment include brand development, deployment, delivery, brand management, pre-media graphics services, 3-D graphics renderings, printing plates, gravure cylinders, steel bases, embossing tools, special purpose machinery, engineering assistance, print process assistance, print production management, digital asset management, content management, and package design. These products and services are used by brand owners and packaging manufacturers to develop and print packaging graphics that help identify and sell the product in the marketplace. Other packaging graphics can include nutritional information, directions for product use, consumer warning statements and UPC codes. The primary packaging manufacturer produces printed packaging from paper, film, foil and other composite materials used to display, protect and market the product. The corrugated packaging manufacturer produces printed containers from corrugated sheets. Using the Company's products, these sheets are printed and die cut to make finished containers.
ITEM 1.BUSINESS, (continued)
The segment offers a wide array of value-added services and products. These include print process and print production management services; print engineering consultation; pre-media preparation, which includes computer-generated art, film and proofs; plate mounting accessories and various press aids; and press-side print production assurance. The segment also provides creative digital graphics services to brand owners and packaging markets.
The segment's sales are also derived from the design, engineering, manufacturing and execution of merchandising and display systems. These systems include permanent and temporary displays, custom store fixtures, brand concept shops, interactive media, custom packaging, and screen and digitally printed promotional signage. Design and engineering services include concept and model development, graphics design and prototyping. Merchandising and display systems are manufactured to specifications developed by the segment in collaboration with the customer.
The Company works closely with manufacturers to provide the proper printing forms and tooling required to print the packaging to the user's specifications. The segment's printing plate products are made principally from photopolymer resin and sheet materials. Upon customer request, plates can be pre-mounted press-ready in a variety of configurations that maximize print quality and minimize press set‑up time. Gravure cylinders, manufactured from steel, copper and chrome, can be custom engineered for multiple print processes and specific customer print applications.
The SGK Brand Solutions segment customer base consists primarily of brand owners and packaging industry converters. Brand owners are generally large, well-known consumer products companies and retailers with a national or global presence. These types of companies tend to purchase their graphics needs directly, and supply the printing forms, or the electronic files to make the printing plates and gravure cylinders, to the packaging printer for their products. The SGK Brand Solutions segment serves customers throughout the world, with principal locations in the United States, Europe, Australia and Asia.
Major raw materials for this segment's products include photopolymers, steel, copper, film, wood, particleboard, corrugated materials, structural steel, plastic, laminates, inks and graphic art supplies. All such materials are presently available in adequate supply from various industry sources.
The SGK Brand Solutions segment is one of several providers of brand management, brand development and pre-media services and manufacturers of printing plates and cylinders with an international presence. The combination of the Company's businesses in North America, Europe and Asia is an important part of Matthews' strategy to be a worldwide leader in the graphics industry by providing consistent service to multinational customers on a global basis. Competition is on the basis of product quality, timeliness of delivery and price. The merchandising and display business operates in a fragmented industry consisting primarily of a number of small, locally operated companies. The segment competes on the basis of reliability, creativity and ability to provide a broad array of merchandising products and services. The segment is unique in its ability to provide in-depth marketing and merchandising services as well as design, engineering and manufacturing capabilities. These capabilities allow the segment to deliver complete turnkey merchandising solutions quickly and cost effectively. The Company differentiates itself from the competition by consistently meeting these customer demands, providing service to customers both nationally and globally, and providing a variety of value-added support services.Asia.
Memorialization:
The Memorialization segment manufactures and markets a full line of memorialization products used primarily in cemeteries, funeral homes and crematories. The segment's products, which are sold principally in the United States,North America, Europe Canada and Australia, include cast bronze memorials, granite memorials, caskets, cremation-related products, cremation and incineration equipment and other memorialization products. The segment also manufactures and markets architectural products that are used to identify or commemorate people, places, events and accomplishments.
ITEM 1.BUSINESS, (continued)
Memorial products include flush bronze and granite memorials, upright granite memorials and monuments, concrete burial vaults, cremation memorialization products, granite benches, flower vases, crypt plates and letters, cremation urns, niche units, cemetery features and statues, along with other related products and services. Flush memorials are bronze plaques or granite memorials whichthat contain personal information about a deceased individual (such as name, birth date and death date), photos and emblems. Flush bronze and granite memorials are even or "flush" with the ground and therefore are preferred by many cemeteries for easier lawn mowing and general maintenance. The segment's memorial products also include community and family mausoleums within North America. In addition, theThe segment's other memorial products include bronze plaques, letters, emblems, vases, lights and photo ceramics that can be affixed to granite monuments, mausoleums, crypts and flush memorials. Principal customers for memorial products are cemeteries and memorial parks, which in turn sell the Company's products to the consumer.
The Memorialization segment manufactures a full line of cremation-related products, including cremation urns in a variety of sizes, styles and shapes as well as standard and custom designed granite cremation pedestals and benches. Manufactured bronze and granite niche units are comprised of numerous compartments used to display cremation urns in mausoleums and churches. The Company also markets turnkey cremation gardens that include design and all related products for a cremation memorial garden.
Customers of the Memorialization segment can also purchase memorials and vases on a "pre-need" basis. The "pre-need"This concept permits families to arrange for these purchases in advance of their actual need. Upon request, the Company will manufacture the memorial to the customer's specifications (e.g., name and birth date) and place it in storage for future delivery. Memorials in storage have been paid in full with title conveyed to each pre-need purchaser.
The segment is also a leading manufacturer and distributor of caskets and other funeral home products in North America. The segment producesAmerica, producing and marketsmarketing metal, wood and cremation caskets. Caskets are offered in a variety of colors, interior designs, handles and trim in order to accommodate specific religious, ethnic or other personal preferences. The segmentpreferences and can also markets otherbe personalized. Other specialized funeral home products such as urns, jewelry, interior panels, and stationery. The segment offers individually personalized caskets through its distribution network.stationery are also offered.
ITEM 1.BUSINESS, (continued)
Metal caskets are made from various gauges of cold-rolled steel, stainless steel, copper and bronze. Metal caskets are generally categorized by whether the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper, or steel) and in the case of steel, by the gauge (thickness) of the metal. Wood caskets are primarily manufactured from nine different species of wood. The species of wood used are poplar, pine, ash, oak, pecan, maple, cherry, walnut and mahogany. The Memorialization segment is a leading manufacturer of all-wood constructed caskets, which are manufactured using pegged and dowelled construction, and include no metal parts. Cremation caskets are made primarily from wood or cardboard covered with cloth or veneer. These caskets appeal primarily to cremation consumers, environmentally concerned consumers and value buyers.
The Memorialization segment also produces casket components. Casket components, which include stamped metal parts, metal locking mechanisms for gasketed metal caskets and adjustable beds and interior panels.beds. Metal casket parts are produced by stamping cold-rolled steel, stainless steel, copper and bronze sheets into casket bodycomponent parts. Locking mechanisms and adjustable beds are produced by stamping and assembling a variety of steel parts. The segment purchases various species of uncured wood from sawmills and lumber distributors, various species of uncured wood, which it dries and cures. The cured wood iscures before being processed into casket components.
In addition, theThe segment provides product and service assortment planning, as well as merchandising and display products to funeral service businesses. The Memorialization segment develops and sells technology solutions that help funeral homes manage their businesses and serve families through these digital platforms. Solutions are delivered as software as a service and include funeral home management systems and web-based arrangement and presentation systems. These products assist funeral service professionals in providing information, value and satisfaction to their client families.
The segment also providesoffers cremation systems, crematory management, and cremation service and supplies waste management and incineration systems, and environmental and energy solutions to the pet and human petsector, and standard and specialized incineration markets.systems, including abated filtration systems to satisfy strict environmental requirements. The primary market areas for these products and services are North America and Europe, although the segment also sells into Latin America and the Caribbean, Australia, Africa, the Middle East and Asia.
ITEM 1.BUSINESS, (continued)
Cremation systems include flame-based systems for cremation of humans and pets, as well as equipment for processing the cremated remains and other related equipment (ventilated work stations,workstations, loading systems, tables, cooler racks, vacuums). The principal markets for these products are funeral homes, cemeteries, crematories, pet crematories, animal disposers and veterinarians. These products primarily are marketed directly by segment personnel. Human crematory management/operations represent the actual operation and management of client-owned crematories. Currently the segment provides these services primarily to municipalities in Europe and private operators in the United States.Europe. Cremation service and supplies consist of operator training, preventative maintenance and "at need"on-demand service work performed on various makes and models of equipment. This work can be as simple as replacing defective bulbs or as complex as complete reconstruction and upgrading or retro-fittingretrofitting on site. Supplies are consumable items and replacement parts associated with normal crematory operations.
Waste management/incineration systems encompass both batch load and continuous feed, static, stepped-hearth and rotary systems for incineration of allmany waste types, as well as equipment for in-loading waste, out-loading ash and energy recovery. The principal markets for these products are animal and medical waste disposal, oil and gas "work camp" wastes, industrial wastes and bio-mass generators.generators, as well as destruction of low-volume, high-value waste types such as contraband and pharmaceutical products. Environmental and energy systems include emissions filtration units, waste heat recovery equipment, waste gas treatment products, as well as energy recovery. The segment also provides commissioning, training and user support for customers of incineration systems. The principal markets are municipalities or public/state agencies, the cremation industry and other industries whichthat utilize incinerators for waste reduction and energy production.
The Memorialization segment also manufactures a full line of other products, including urns in a variety of sizes, styles and shapes as well as standard and custom designed granite cremation pedestals and benches. The segment manufactures bronze and granite niche units, which are comprised of numerous compartments used to display cremation urns in mausoleums and churches. The Company also markets turnkey cremation gardens, which include the design and all related products for a cremation memorial garden.
Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate and identify people, places, events and accomplishments. The Company's plaques are frequently used to identify the name of a building, or the names of companies or individuals located within a building. Such products are also used to commemorate events or accomplishments, such as military service or financial donations. The principal markets for the segment's architectural products are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies. These products are sold to and distributed through a network of independent dealers including sign suppliers, awards and recognition companies, and trophy dealers.
ITEM 1.BUSINESS, (continued)
Raw materials used by the Memorialization segment to manufacture memorials consist principally of bronze and aluminum ingot, granite, sheet metal, coating materials, photopolymers and construction materials and are generally available in adequate supply. Ingot is obtained from various North American, European and Australian smelters. The primary materials required for casket manufacturing are cold-rolled steel and lumber. The segment also purchases copper, bronze, stainless steel, particleboard, corrugated materials, paper veneer, cloth, ornamental hardware and coating materials. Purchase orders or supply agreements are typically negotiated with large, integrated steel producerssuppliers that have demonstrated timely delivery, high quality material and competitive prices. Lumber is purchased from a number of sawmills and lumber distributors. Raw materials used to manufacture cremation and incineration products consist principally of structural steel, sheet metal, electrical components, combustion devices and refractory materials. These are generally available in adequate supply from numerous suppliers.
Competition from other manufacturers of memorial products is based on the basis of reputation, product quality, delivery, price, and design availability. The Company believes that its superior quality, broad product lines, innovative designs, delivery capability, customer responsiveness, experienced personnel and consumer-oriented merchandising systems are competitive advantages in its markets. Competition in the mausoleum construction industry includes various construction companies throughout North America and is based on the basis of design, quality and price. Competitors in the architectural market are numerous and include companies that manufacture cast and painted signs, plastic materials, sand-blasted wood and other fabricated products.
ITEM 1.BUSINESS, (continued)
The Memorialization segment markets its casket products in the United States through a combination of Company-owned and independent casket distribution facilities. The Company operates approximately 100 distribution centers in the United States. Approximately 85% of the segment's casket products are currentlyprimarily sold through Company-owned distribution centers.centers throughout the United States. The casket business is highly competitive and the Company competes with other manufacturers based on the basis of product quality, price, service, design availability and breadth of product line. The Memorialization segment provides a line of casket products that it believes is as comprehensive as any of its major competitors. There are a large number of casket industry participants operating in North America, and also a few foreign casket manufacturers, primarily from China, participating in the North American market.
The Company competes with several manufacturers in the cremation and accessory equipment market principally based on the basis of product design, quality and price. The Memorialization segment and its three largest global competitors account for a substantial portion of the U.S.United States and European cremation equipment market.
The Memorialization segment works to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets. The Company's memorial and casket products serve the relatively stable casketed and in-ground burial death market, while its memorial products and cremation and incineration equipment also serve the growing cremation market.
Industrial Technologies:
The Industrial Technologies segment designs, manufacturesincludes the design, manufacturing, service and distributes a wide rangedistribution of markinghigh-tech custom energy storage solutions; product identification and coding equipmentwarehouse automation technologies and consumables, industrial automation solutions, andincluding order fulfillment systems. Manufacturers, supplierssystems for identifying, tracking, picking and distributors worldwide relyconveying consumer and industrial products; and coating and converting lines for the packaging, pharma, foil, décor and tissue industries.
The energy storage solutions business produces engineered calendering, laminating, and coating equipment used in the manufacturing of lithium-ion batteries and components of fuel cells. The segment currently delivers products to several major vehicle producers and is actively pursuing opportunities with several other electric vehicle and tier-one battery manufacturers. The segment also offers service, spare parts, calender- and coating-roller refurbishing and retrofits of complete production lines.
The coating and converting solutions business produces both complete production lines and individual units for drying, treating, coating, laminating and winding for the packaging, paper, labeling and foil industry as well as technical textiles and pharma industry but also for embossing, finishing, smoothing, perforating and calibrating web materials. The business supplies high-tech machines to large global customers and develops solutions collaboratively with them to make their processes more resource-efficient and their products more sustainable.
Production capabilities are available in Germany, the Czech Republic and the United States, with design and assembly in Germany, Switzerland, Czech Republic, Canada and the United States. The business is globally active with well-established customer relations.
ITEM 1.BUSINESS, (continued)
The energy storage solutions business has experienced significant growth primarily reflecting increasing demand for electric vehicles, as well as the expansion of renewable energy production globally. The segment has nearly a decade of experience in developing dry electrode battery solutions. Dry electrode technology makes producing lithium-ion batteries less expensive than the wet electrode process, and dry electrode manufacturing is also less impactful on Matthews' integrated systemsthe environment. These factors could contribute to identify, track, conveyincreased utilization of dry electrode batteries in the electric vehicle market, and pick their products.thus greater demand for this form of battery in the future.
MarkingProduct identification systems range from mechanicalstand-alone marking solutionsproducts to microprocessor-basedcomplex ink-jet printing systems that integrate into a customer's manufacturing, inventory tracking and material handling control systems.production process. The Company manufactures and markets products and systems that employ different marking technologies, including contact printing, indenting, etching, laser and ink-jet printing. Customers frequently use a combination of these methods to achieve an appropriate mark. These technologies apply product information required for identification and traceability, as well as to facilitate inventory and quality control, regulatory compliance and brand name communication. The segment also develops innovative, custom solutions to address specific customer requirements in a variety of industries, including oil field services and security scanning.
FulfillmentWarehouse automation systems complement the tracking and distribution of a customer's products with automated order fulfillment technologies, motor-driven rollers for product conveyance, and controls for material handling systems. Material handling customers include some of the largest automated assemblyretail, e-commerce, and distributionthird-party logistics companies in the United States. The Company also
engineers innovative, custom solutions to address specific customer requirements in a variety of industries, including oil exploration and security scanning.
A significant portion of the revenue of the Industrial Technologies segment is attributable to the sale of consumables and replacement parts required by the marking, coding and tracking products sold by Matthews. The Company develops inks rubber and steel consumables in conjunctionexclusively for the use with theits marking equipment, in which they are used, which is critical to ensure ongoing equipment reliability and mark quality.
The principal customers for the Company's marking and fulfillment systems products are manufacturers, suppliers and distributors of durable goods, building products, consumer goods manufacturers (including food and beverage processors) and producers of pharmaceuticals. The Company also serves a wide variety of industrial markets, including metal fabricators, manufacturers of woven and non-woven fabrics, plastic, rubber and automotive products.
A portion of this segment's sales are outside the United States, with distribution sourced through the Company's subsidiaries in Canada, Sweden, Germany, Malaysia and China in addition to other international distributors. The Company owns a minority interest in distributors in Asia, Australia and Europe.
ITEM 1.BUSINESS, (continued)
Major raw materials for this segment's products include precision components, electronics, printing components, tool steels, rubberchemicals, steel, copper, and chemicals,film all of which are presently available in adequate supply from various sources.
Competitors in the marking and fulfillment systems industries are diverse, with some companies offering limited product lines for well-defined specialty markets, while others operate similarly to the Company, offering a broad product line and competing in multiple product markets and countries. CompetitionCompetitive differentiation for marking and fulfillment systems products is based on product performance, ease of integration into the manufacturing and/or distribution process, service and price. The Company typically competes with specialty companies in specific brand marking solutions and traceability applications. In the energy storage solutions business, the Company has patents and pending patent applications on its dry electrode calendering equipment. The Company believes that, in general, its Industrial Technologies segment offers one of the broadest lines of products to address a wide variety of marking, codinghigh-tech custom energy storage solutions, product identification and industrialwarehouse automation applications.
SGK Brand Solutions:
The SGK Brand Solutions segment provides packaging and brand experience solutions that simplify marketing, amplify brands and deliver value. Matthews has more than 100 years in the packaging business, which is comprised of broad technical, engineering, and artistic expertise relating to the creation and production of graphics, their workflows and best practices for the commercial packaging and retail channels. This combination of knowledge, experience and skill helps the SGK Brand Solutions segment differentiate itself from competitors.
The SGK Brand Solutions segment helps companies to define, create, produce and transform their packaging and marketing supply chains and the brand assets that flow through them. By simplifying marketing, the segment helps deliver greater speed through workflow efficiency, enabling clients to get new product introductions and campaigns to market faster which can result in a competitive advantage for the brand. By amplifying brands, the segment helps brands create meaningful experiences online and offline that enable them to stand out in the marketplace which can result in a stronger connection between consumers and the brand. The SGK Brand Solutions segment also helps clients deliver improved marketing productivity and profitability through innovative technology solutions.
ITEM 1.BUSINESS, (continued)
The packaging solutions part of its business integrates all packaging-related services from the beginning to the end of the packaging development workflow process. Clients may purchase stand-alone services or a combination of services that are designed to fulfill larger, more strategic objectives. These services include design and adaptive packaging design, production art, photography, retouching, the creation of e-commerce assets, premedia, print technical services, cylinder and flexo printing plate production, workflow efficiency consulting, change management and technology workflow solutions. Historically a print media based business, the business leverages their 100+ years of packaging expertise to create packaging assets required for the e-commerce channel. The business has evolved from creating and delivering graphic brand assets for a single medium (package on shelf) which required output for printing, into one that is deeply entrenched in a brand’s journey across multiple mediums, requiring an almost infinite array of digital asset output across an ever-expanding multi-channel universe.
The brand experience part of the business integrates all marketing-related services from the beginning to the end of the marketing development workflow process. Clients may purchase stand-alone services or a combination of services that are designed to fulfill larger, more strategic objectives. These services include all the services that help create brand experiences: consumer insights, brand strategy, brand identity, content marketing strategy, marketing content creation, campaign strategy and development, online and in-store retail experiences and merchandising fabrication, creative process management and technology workflow solutions. Largely, an ideation and digital media-based business, the business leverages its branding expertise to drive the creation of digital experiences that “stick” with consumers.
The SGK Brand Solutions segment’s principal clients are global, multinational and regional companies in highly regulated industries such as food and beverage, pharmaceutical and healthcare, beauty and cosmetics, and alcohol and tobacco. The segment also serves clients in a diverse range of sectors that includes leaders in home improvement, personal care, technology and electronics, snack food and confections, telecommunications, and apparel, as well as a diverse range of shopping formats that include big-box stores, department stores, specialty stores, grocery stores, pharmacy chains and online retailers. These large, well-known companies represent a variety of brands across the marketplace covering both national and private label brands with numerous packaging and marketing requirements. The segment is also a leading international supplier of pre-press, rotogravure and embossing tooling, with principal clients representing brand manufacturers, printers and converters.
The segment’s products, services and solutions are purchased in part or whole by companies with operations in and/or across the North America, Europe and Asia regions. A large portion of these purchases result in annual or multi-year contracts; others are initiative-based. The segment generates new business opportunities through referrals and relationships, marketing and lead generation and select industry partnerships. The Company has many long-standing relationships among its client base that span decades and has new relationships with well-known global technology companies that are driving change in how consumers engage with brands and use devices like smartphones to shop and buy online and in-store.
Major raw materials for this segment’s products include photopolymers, steel, copper, film, wood, corrugated materials, structural steel, plastic, laminates, inks and graphic art supplies. All such materials are presently available in adequate supply from various industry sources. Competition is on the basis of product quality, timeliness of delivery and price, and increasingly, the ability to provide a holistic solution for brand content beyond its use for packaging, while at the same time elevating the role of packaging in the marketing mix. The segment's ability to offer consistent service on a global basis is a key differentiator.
The segment competes in an industry that is constantly challenged by emerging technologies that impact packaging and marketing. These challenges can create new opportunities for the segment to create, produce and manage large volumes of brand content. They also provide the segment with opportunities to advise its clients on how to plan for, manage and execute the digital transformation of their packaging and marketing operations. Increasingly, with the growing awareness and commitment by its clients to environmental sustainability, the SGK Brand Solutions segment is providing solutions that enable its clients to advance their own sustainability initiatives.
PATENTS, TRADEMARKS AND LICENSES:
The Company holds a number of trademarks and in excess of 100 domestic and foreign patents for its products and related technologies. However,In addition, the Company maintains numerous trade secrets that further comprise its portfolio of intellectual property assets. The Company continues to assess, refine and expand its intellectual property portfolio, considering options to pursue additional patent filings and to further develop and continue to maintain processes to identify, inventory and safeguard evolving trade secrets and other intellectual property assets. The Company also enters into agreements with customers that authorizes the use of certain intellectual property through various licensing arrangements.
ITEM 1.BUSINESS, (continued)
HUMAN CAPITAL RESOURCES:
Introduction:
The Company’s culture of Inspired Possibilities empowers global teams to think creatively to inspire change that favorably impacts outcomes for the Company's customers, clients, and one another. Matthews’ human resource strategies align with the business strategies to enable and optimize internal talent to achieve business and financial performance. At every stage of the employee lifecycle, the Company’s people programs are rooted in a set of organizational competencies and capabilities, aligned with the Company's core values, that collectively build talent, enhance employee engagement, sustain retention, inspire innovation and drive results.
Workforce Composition:
As of October 31, 2023, the Company and its majority-owned subsidiaries employed approximately 12,000 people globally in 6 continents and more than 300 locations and 30 countries around the world. Its diverse team of talented employees possess a vast array of skills including engineering, manufacturing, research and development, plant operations, production, logistics, creative design, photography and corporate functional services, including legal, information technology, human resources and finance. Many of Matthews’ employees have highly specialized skills and subject-matter expertise in their respective disciplines, enabling the Company to deliver industry leading products and services to its customers throughout the world.
Diversity and Inclusion:
Matthews views diversity and inclusion (“D&I”) as a priority to be valued and promoted throughout its business. The Company understands and firmly believes in the value that diverse experiences, perspectives, and ideas bring to the workforce and offer to clients. Matthews knows its employees deserve equal opportunities regardless of race, national origin, gender, gender expression, age, disability, religion, sexual orientation and more. Matthews has consistently advocated that mutual respect, valuing the worth of all people, doing what's right and celebrating diversity is essential to how the Company operates and the way it does business.
Matthews’ D&I strategy focuses on priorities across seven key areas including: Talent Acquisition, Employee Engagement, Learning and Awareness, Supplier Diversity, Connection to Customers, Normalizing Courageous Conversations, and Community Engagement. A global council representative of a diverse workforce exists to help shape plans and program priorities, and seven additional councils across the organization support the program within local/regional markets to champion the work. A full time D&I leader is actively focused on driving the overarching program and building progress across all seven focus areas. Matthews is a unique organization, diverse in culture, talent and geography. The Company stands committed to a culture reflecting the people, clients, customers, and communities it serves.
Talent Acquisition and Total Rewards:
To continue to grow and compete in a highly competitive labor market, Matthews works hard to attract and select top talent through a compelling employment value proposition. The Company’s employment brand highlights its values including innovation, commitment to people culture, diversity, equity and inclusion, employee development, and wellbeing. The Company's selection process includes key behavioral questions that help select the right people for the right roles which helps to ensure cultural alignment.
Matthews understands the highly competitive market for talent and believes that to attract and retain top talent, it must offer competitive pay and benefit programs. The Company evaluates roles to ensure pay is at market rate, and offers annual incentive pay and a competitive benefit package. As a global company, adjustments are made for global and regional market demands.
ITEM 1.BUSINESS, (continued)
Talent Development/Management:
From onboarding to leadership development, Matthews believes investing in its people leads to greater success. The Company’s onboarding program reinforces its values and culture, supports its managers in creating a positive employee experience during the first 90 days and builds early commitment with all new hires.
Matthews knows that when employees have opportunities to learn and grow, see how their goals and objectives lead to something greater and understand their part in the organization’s success, it helps build a place where people want to stay. Matthews’ competency-based learning center helps employees select learning programs to continue their growth, and the Company facilitates both formal and informal mentoring that reinforces and supports its leaders during key developmental periods and beyond.
The Company’s future success depends upon tomorrow’s leaders. Matthews has implemented a robust talent review process that identifies critical talent and serves as the basis for succession planning. Each year, at the conclusion of this review, the executive team selects a cohort of critical talent by level to participate in comprehensive leadership programs designed to prepare leaders for enterprise roles. The Company believes this investment, which includes classroom learning, external assessments, coaching/mentoring, and project application, both prepares and strengthens the organization for the future, while deepening the commitment of its top talent.
Performance Management:
Connecting employees to the strategy ensures individual effort to a larger goal and strengthens commitment to the organization. The Company supports an annual leadership strategy cascade where each segment, division, group and team identify and align goals and objectives which serve as the basis for individual performance objectives, keeping employees firmly connected to the work and the Company’s collective success. This process is rooted in ongoing coaching and feedback, and measures not just what was accomplished, but how it was accomplished because Matthews believes staying true to its values and key behaviors serves clients better, strengthens culture and keeps employees engaged.
Change Management:
Matthews is a constantly evolving multi-national company, leveraging new ways of working to improve its quality, service and delivery systems to better help customers and clients succeed. Building change capability to support employees through changes accelerates new ways of working, minimizes productivity loss, and accelerates improvement measures. The Company has a trained global change network embedded in the business to support transformational projects to help realize the goals and benefits of any individual or a significant numberorganizational changes.
Health and Safety:
Employee health and safety in the workplace remains the Company’s highest priority and is one of patents or trademarks would not have a material impact on consolidated operations or revenues.the Company’s core values. Safety efforts are led by the global health and safety team and supported by individuals at the local site level. Hazards in the workplace are timely identified and management actively tracks incidents so remedial actions may be implemented to improve workplace safety.
BACKLOG:
Because the nature of the Company's SGK Brand Solutions, Memorialization and Industrial Technologies businesses are primarily custom products made to order and services with short lead times, backlogs are not generally material except for roto-gravure engineering projects in the SGK Brand Solutions segment, mausoleums and cremation equipment in the Memorialization segment and industrial automation and order fulfillment systems in the Industrial Technologies segment. Backlogs vary in a range of approximately six to twelve months of sales for roto-gravure engineering projects and mausoleums. Cremation equipment sales backlogs vary in a range of eight to ten months of sales. Backlogs for Industrial Technologies segment sales generally vary in a range of up to six weeks for standard products and twelve weeks for custom systems. The Company's current backlog is expected to be substantially filled in fiscal 2018.2024. Cremation and incineration equipment sales backlogs vary in a range of four to six months of sales. Backlogs vary in a range of approximately twelve to eighteen months of sales for mausoleums. Backlogs are generally in excess of a year for purpose-built machinery projects. Backlogs for warehouse automation and fulfillment systems generally vary in a range of up to four weeks for standard products, and are currently in the range of ten to twelve months for custom systems.
ITEM 1.BUSINESS, (continued)
REGULATORY MATTERS:
The Company'sCompany’s operations are subject to various federal, state and local laws and regulations relatingrequiring 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 variousspecific environmental matters which include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at thesecertain sites, as appropriate. Referapplicable.
AVAILABLE INFORMATION:
The Company's principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212, its telephone number is (412) 442-8200 and its website is www.matw.com. The Company files or furnishes all required reports with the Securities and Exchange Commission ("SEC") in accordance with the Exchange Act. The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to Note 16, "Environmental Matters" in Item 8 - "Financial Statements and Supplementary Data," for further details.those reports are available free of charge on the Company's website as soon as reasonably practicable after being filed or furnished to the SEC. The Company's reports filed or furnished with the SEC, including exhibits attached to such reports, are also available on the SEC's website at www.sec.gov.
ITEM 1A.RISK FACTORS, (continued)
ITEM 1A. RISK FACTORS.
There are inherent risks and uncertainties associated with the Company's businesses that could adversely affect its operating performance and financial condition. Set forth below are descriptions of those risks and uncertainties that the Company currently believes to be material.material as of the date of this Annual Report on Form 10-K. Additional risks not currently known to the Company as of such date or risks that the Company deemed immaterial may also result in adverse effects on the Company.
Changes in Economic Conditions. Generally, changes in domestic and international economic conditions affect the industries in which the Company and its customers and suppliers operate. These changes include changes in the rate of consumption or use of the Company's products due to economic downturns, volatility in currency exchange rates, and changes in raw material prices resulting from supply and/or demand conditions.future.
Uncertainty about current global economic conditions poses a risk, as consumers and businesses may continue to postpone or cancel spending. Other factors that could influence customer spending include energy costs, conditions in the credit markets, consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have an effect on demand for the Company's products and services and negatively impact the Company's financial condition and results of operations.Company-Specific Risk Factors:
Foreign Operations. The Company conducts business in more than 2530 countries around the world, and in fiscal 20172023 approximately 33%37% of the Company's sales to external customers were to customers outside the United States. In addition, the Company's manufacturing operations, suppliers and employees are located in many places around the world. As such, the Company's future success depends in part on its ability to grow sales in non-U.S. markets. Sales and operations outside of the United States are subject to certain inherent risks, including fluctuations inrisks. The Company anticipates that future sales to international customers will continue to account for a significant percentage of its revenues. Risks associated with the value of the U.S. dollar relative to foreign currencies, global economic uncertainties, tariffs, quotas, taxesCompany’s international sales and other market barriers,operations include, but are not limited to:
•currency exchange rate fluctuations;
•global political and economic instability and uncertainty;
•international terrorism;
•export controls, including by the United States;
•failure to comply with anti-bribery legislation, including the U.S. Foreign Corrupt Practices Act (the “FCPA”);
•changes in legal and regulatory requirements;
•policy changes by the United States and foreign governments affecting the markets for the Company’s products;
•changes in tax laws, quotas, tariffs and other market barrier;
•difficulties in protection and enforcement of intellectual property rights;
•restrictions on the export or import of technology;
•failure to comply with the foreign data protection laws, including the European Union’s General Data Protection Regulation (the “GDPR”);
•inadvertent transfers of export-controlled information due to increased cross-border technology potentially limited intellectual property protection, difficultiestransfers and the use of offshore computer servers;
•transportation, including piracy in staffinginternational waters; and
•challenges relating to managing a global workforce with diverse cultures, backgrounds and labor laws.
It also is possible that certain international contracts may include industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or other financial obligations (known as offset obligations) and may provide for penalties if the Company fails to meet such requirements.
ITEM 1A.RISK FACTORS, (continued)
The impact of these risks is difficult to predict, but the occurrence of one or more of them could have a material adverse effect on the Company’s financial position, results of operations, potentially adverse tax consequences, and required compliance with non-U.S. laws and regulations.or cash flows.
Changes in Foreign Currency Exchange Rates.ManufacturingProduction and sales of a significant portion of the Company's products are outside the United States, and accordingly, the Company holds assets, incurs liabilities, earns revenue and pays expenses in a variety of currencies. The Company's consolidated financial statements are presented in U.S. dollars, and therefore, the Company must translate the reported values of its foreign assets, liabilities, revenue and expenses into U.S. dollars. Increases or decreases in the value of the U.S. dollar compared to foreign currencies may negatively affect the value of these items in the Company's consolidated financial statements, even though their value has not changed in local currency.
Changes in Interest Rates. Interest rate fluctuations could increase the Company's financing costs to the extent such interest rates are not hedged. In addition, increases in interest rates could limit the Company's ability to obtain additional indebtedness or debt refinancing on terms that the Company deems attractive, or at all, which could have a material and adverse effect on the Company's borrowing costs, profitability, liquidity and capital resources. Borrowings under the Company’s credit facilities, including the domestic credit facility, are subject to variable rates of interest and expose the Company to interest rate risk. The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. To the extent that some or all of the Company’s variable interest rate debt is not subject to interest rate swaps, if interest rates were to increase, the Company’s interest expense would increase, negatively affecting earnings and reducing cash flows available for working capital, capital expenditures and other investments.
The Company also has $299.6 million 5.25% senior unsecured notes due December 1, 2025 (the “2025 Senior Notes”). In the event the Company seeks to refinance indebtedness under the domestic credit facility or the 2025 Senior Notes, or obtain additional financing, higher interest rates may limit the Company’s ability to incur such indebtedness on terms that it deems attractive, if at all. If the Company is unable to incur indebtedness on terms that it deems attractive, it could have a material and adverse effect on the Company’s borrowing costs, profitability, liquidity and capital resources.
Increased Prices for Raw Materials. The Company's profitability is affected by the prices of the raw materials used in the manufacture of its products. These prices may fluctuate based on a number of factors, including changes in supply and demand, domestic and global economic conditions, volatility in commodity markets, currency exchange rates, labor costs, tariffs and fuel-related costs. If suppliers increase the price of critical raw materials, alternative sources of supply, or alternative materials, may not exist or be readily available. In addition, disruptions in the global supply chain may cause prices for raw materials to increase. See "Disruptions to the global supply chain."
The Company has standard selling price structures (i.e., list prices) in certain of its segments, which are reviewed for adjustment generally on an annual basis. In addition, the Company has established pricing terms with several of its customers through contracts or similar arrangements. Based on competitive market conditions and to the extent that the Company has established pricing terms with customers, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited. Significant raw material price increases that cannot be mitigated by selling price increases or productivity improvements will negatively affect the Company's results of operations.
ITEM 1A.RISK FACTORS, (continued)
Impairment of Goodwill and Intangible Assets. The Company has recorded a significant amount of goodwill and intangible assets in its consolidated financial statements resulting from acquisition activities and has in the past recorded, and may in the future record, significant charges for impairment of goodwill and intangible assets. The Company tests, at least annually, the carrying value of goodwill for impairment. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. For example, during the fiscal year ended September 30, 2022, Matthews recorded an $82.5 million goodwill write-down with respect to its SGK Brand Solutions reporting unit. See Note 22, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data” for further details. If Matthews concludes that any further goodwill or intangible asset values are impaired, for reasons that may include, but are not limited to, underperformance in one or more reporting segments against forecast levels; changes in the Company’s business strategy, structure, and/or the allocation of resources; the inability of acquisitions to achieve expected operating results; a decline in the Company’s stock price for a sustained period; a potential recession or other disruption; or interest rate increases or other factors, any resulting non-cash impairment charge could have a material adverse effect on Matthews’ business, results of operations and financial condition.
Changes in Mortality and Cremation Rates. Generally, life expectancy in the United States and other countries in which the Company's Memorialization segment operates has increased steadily for several decades and is expected to continue to do so in the future.future, absent events related to pandemics or similar outbreaks. The increase in life expectancy is also expected to impact the number of deaths in the future. Additionally, cremations have steadily grown as a percentage of total deaths in the United States since the 1960's, and are expected to continue to increase in the future. The Company expects that these trends will
ITEM 1A.RISK FACTORS, (continued)
continue in the future and sales of the Company's Memorialization segment may benefit from the continued growth in the number of cremations; however, such trends may adversely affect the volume of bronze and granite memorialization products and burial caskets sold in the United States.
Changes in Product Demand or Pricing. The Company's businesses have and will continue to operate in competitive markets. Changes in product demand or pricing are affected by domestic and foreign competition and an increase in consolidated purchasing by large customers operating in both domestic and global markets. The Memorialization businesses generally operate in markets with ample supply capacity and demand which is correlated to death rates. The SGK Brand Solutions businesses serve global customers
that are requiring their suppliers to be global in scope and price-competitive. Additionally, in recent years the Company has witnessed an increase in products manufactured offshore, primarily in China, and imported into the Company's U.S. markets. It is expected that these trends will continue and may affect the Company's future results of operations.
Changes in the Distribution of the Company's Products or the Loss of a Large Customer. Although the Company does not have any customer that is individually significant to consolidated sales, it does have contracts with several large customers in both the Memorialization and SGK Brand Solutionseach of its business segments. While these contracts provide important access to large purchasers of the Company's products, they can obligate the Company to sell products at contracted prices for extended periods of time.time, or, in the event of a dispute with a large customer, cause disruptions to the units sold to such customer, if any. Additionally, any significant divestiture of business properties or operations by current customers could result in a loss of business if the Company is not able to maintain the business with the subsequent owners of the businesses.
Disruptions to the global supply chain. The Company purchases components and materials to manufacture its products from a large number of suppliers, some of which may be critical to operations. The Company’s product offerings are impacted by such suppliers' lead times, volume constraints and increasing costs. The Company has experienced and may continue to experience extended lead times and product unavailability due to manufacturing disruptions or closures as well as delays and unanticipated costs associated with the sourcing of materials. Matthews’ supply chain operations span several geographies globally and are heavily dependent upon third party logistics and transportation services to deliver the Company’s products to customers. Extended lead times and shortages could impair the Company’s ability to meet its customer requirements, require the Company to pay higher prices or incur expedite fees or cause its customers to delay or forgo projects, which would harm Matthews’ business and negatively impact the Company’s gross margin and results of operations.
Pandemics or similar outbreaks. Pandemics or similar outbreaks could adversely affect the economies of developed and emerging markets, potentially resulting in an economic downturn that could affect customers’ demand for the Company’s products and services, as well as the Company's ability to access capital at acceptable interest rates. The spread of pandemics or similar outbreaks may also disrupt the Company’s manufacturing and production operations, as well as its distribution systems, which include import and export for delivery of the Company’s products to its customers. These factors could materially and adversely affect the Company’s business, financial condition and results of operations. See also "Disruptions to the global supply chain."
Due to the uncertainty relating to a pandemic or similar outbreak, the Company, its customers or its suppliers may be required, or believe that it is advantageous, to take precautionary measures intended to minimize the risk of a virus or disease spreading to employees, customers, and the communities in which they operate, and these measures could negatively impact the Company’s business. Further, if the scope and severity of an outbreak worsens and the Company’s contingency plans prove ineffective, its global operations could potentially experience disruptions, such as temporary closure of facilities or delays or suspensions in product offerings and services, which may materially and adversely affect the Company’s business, financial condition and results of operations.
Global conflicts may impact the business of the Company and the markets in which it operates. Global conflicts, such as the war in Ukraine, could impact the Company and its operations in a number of different ways, which are yet to be fully assessed and are therefore uncertain. The Company’s principal concern is for the safety of its employees and other personnel, specifically those who are based in the affected region. The Company has employees who are based in Eastern Europe, including Russia and Ukraine, who may be affected by the ongoing hostilities. The Company additionally has property, plant and equipment in or around the affected region. The continuing impact of this war and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, is still evolving and unknown; however it could disrupt the Company’s ability to work with certain parties. Similarly, the Company has employees based in the affected region and works with third-party providers from other parts of the world that may be affected by hostilities.
Due to the uncertainty relating to war or similar conflicts, the current war between Russia and Ukraine may adversely affect the Company's business, of which could materially and adversely affect the Company's results of operations. Such risks include,
ITEM 1A.RISK FACTORS, (continued)
but are not limited to, adverse effects on macroeconomic conditions, including inflation and business and consumer spending; disruptions to the Company's global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; disruptions in global supply chains; exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets. Similar uncertainties may arise in connection with other ongoing hostilities or future hostilities.
For so long as the hostilities continue, and perhaps even thereafter as the situation unfolds, the Company may see increased volatility in financial markets, which may impact equity markets generally, including the Company’s stock price, and make it more difficult for the Company to raise additional capital at a strategically advantageous time, or for financing to be available upon acceptable terms. All or any of these risks separately, or in combination could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
Risks in Connection with Acquisitions and Divestitures. The Company has grown, in part, through acquisitions and continues to evaluate acquisition or divestiture opportunities that have the potential to support and strengthen its businesses. There is no assurance, however, that future acquisition opportunities will arise, or that if they do, that they will be consummated. In addition, acquisitions and divestitures involve inherent risks that the businesses acquired, or the remaining business, will not perform in accordance with expectations, or that synergies expected from the integration of the acquisitionsan acquisition will not be achieved as rapidly as expected, ifor at all. The Company's pre-acquisition diligence review may not discover or accurately quantify certain undisclosed liabilities, and the Company may not be indemnified for such liabilities which could have an adverse effect on the acquired business. Failure to effectively integrate acquired businesses could prevent the realization of expected rates of return on the acquisition investment, including the achievement of cost-reduction objectives, and could have a negative effect on the Company's results of operations and financial condition.
Protection of Intellectual Property. Certain of the Company's businesses rely on various intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish proprietary rights. If the Company does not enforce, or is unsuccessful in enforcing, its intellectual property rights successfully, its competitive position may suffer, which could harm the Company's operating results. In addition, the Company's patents, copyrights, trademarks and other intellectual property rights, including its trade secrets, may not provide a significant competitive advantage. The Company may need to spend significant resources monitoring its intellectual property rights and may or may not be able to detect infringement by third parties. The Company's competitive position may be harmed if it cannot detect infringement and enforce its intellectual property rights quickly or at all. In some circumstances, the Company may choose to not pursue enforcement because an infringer has a dominant intellectual property position or for other business reasons.reasons, such as the expense of litigation against a well-resourced adversary. In addition, competitors might avoid infringement by designing around the Company's intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and the Company's ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues.
Intellectual property infringement assertions by third parties could result in significant costs and adversely affect the Company's business, financial condition, operating results and reputation. The Company cannot guarantee that the operation of its business does not infringe, misappropriate or otherwise violate the intellectual property rights of third parties, nor can the Company assure that third parties will not assert claims, meritorious or otherwise. The Company cannot predict whether other assertions of third-party intellectual property rights or claims arising from such assertions would substantially adversely affect the Company's business, financial condition and operating results. The defense of these claims and any future infringement claims, whether they are with or without merit or are determined in the Company's favor, may result in costly litigation and diversion of technical and management personnel. Further, an adverse outcome of a dispute may require the Company to pay damages, cease making, licensing, or using products or offering services that are alleged to incorporate the intellectual property of others, expend additional development resources to redesign the Company's offerings, or enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary intellectual property, which may be unavailable on terms acceptable to the Company, or at all. Even if these matters do not result in litigation or are resolved in the Company's favor or without significant cash settlements, the time and resources necessary to resolve them could adversely affect the Company's business, reputation, financial condition and operating results.
ITEM 1A.RISK FACTORS, (continued)
Environmental Remediation and Compliance. The Company is subject to the risk of environmental liability and limitations on its operations due to environmental laws and regulations. The Company is subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations concerning matters such as air emissions, wastewater discharges, solid and hazardous waste handling and disposal and the investigation and remediation of contamination. The risks of potentially substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of the Company's business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs. Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than the Company anticipates, and there is no assurance that significant expenditures related to such compliance may not be required in the future.
From time to time, the Company may be subject to legal proceedings brought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged noncompliance with or liability under environmental, health and safety laws, property damage or personal injury. New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require the Company to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on the Company's business, financial condition or results of operations.
Reliance on Third-Party Service Providers. The Company has entered into agreements with a variety of third-party providers for information technology services, including telecommunications, network server maintenance, cloud computing and transaction processing services. In addition, Matthews has agreements through which it has outsourced certain activities related to the operations of the Company’s business segments. A provider’s ability to provide services could be disrupted for a variety of reasons, including, among others, software errors or design faults, human error, security breaches, power loss, telecommunications failures, equipment failures, electrical disruptions, labor issues, vandalism, fire, flood, extreme weather, terrorism and other events beyond their control. If one or more of Matthews’ providers is unable to provide adequate or timely services, the Company’s ability to deliver products and services to customers could be adversely affected. Matthews cannot completely eliminate the risk of such disruptions, many of which are impacted by events outside of the Company’s control. Any significant disruption could harm the Company’s business, including damage to brands and loss of customers. Additionally, although Matthews believes that most of these services are available from numerous sources, a failure to perform by one or more of the providers could cause a material disruption in the Company’s business and an increase in expense while it works to obtain alternative services. Additionally, while the Company has policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance and compliance, thereby potentially increasing the profiles of Matthews’ financial, legal, reputational and operational risks.
Technological Factors Beyond the Company's Control. The Company operates in certain markets in which technological product development contributes to its ability to compete effectively. There can be no assurance that the Company will be able to develop new products, that new products can be manufactured and marketed profitably, or that new products will successfully meet the expectations of customers.
CybersecurityChanges in Laws and Regulations Governing Data Privacy and Data Breaches. InProtection. The Company is subject to many data privacy, data protection, and data breach notification laws, including the courseGDPR, which became effective in May of business,2018, and the California Consumer Privacy Act (the "CCPA"), which became effective in January 2020. The GDPR and the CCPA contain comprehensive data protection compliance requirements. Complying with the GDPR and the CCPA may continue to cause the Company collectsto incur substantial operational costs or require the Company to change certain of its business practices in certain jurisdictions. The Company’s measures to assess the requirements of, and stores sensitive datato comply with, the GDPR and proprietary business information.the CCPA, as well as new and existing data-related laws and regulations of other jurisdictions, could be challenged, including by authorities that regulate data-related compliance. The Company’s ongoing compliance measures could result in the incurrence of significant expense in facilitating and responding to regulatory investigations, and if the measures initiated by the Company are deemed to be inadequate, the Company could be subject to service outageslitigation or breachesenforcement actions that may require operational changes, fines, penalties or damages, which could have an adverse impact on the Company’s business or results of security systems whichoperations.
Changes in Tax Rules. Matthews is subject to domestic and international tax laws and cannot predict the scope or effect of future tax law changes. Domestically, the U.S. Department of Treasury has broad authority to issue regulations and interpretive guidance. The Company has applied available guidance to estimate its tax obligations, but new guidance may result in disruption, unauthorized access, misappropriation, or corruption of this information. Security breaches of the Company's network or data including physical or electronic break-ins, vendor service outages, computer viruses, attacks by hackers or similar breaches can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Althoughcause the Company is not aware of any significant incidents to date, if it is unablemake adjustments to prevent such security or privacy breaches, its operations could be disrupted or the Company may suffer legal claims, loss of reputation, financial loss, property damage, or regulatory penalties because of lost or misappropriated information.tax estimates in future periods.
ITEM 1A.RISK FACTORS, (continued)
Compliance with Foreign Laws and Regulations. Due to the international scope of the Company's operations, Matthews is subject to a complex system of commercial and trade regulations around the world, and the Company's foreign operations are governed by laws, rules and business practices that often differ from those of the United States. The Company cannot predict the nature, scope or effect of future regulatory requirements to which the Company's operations might be subject or the manner in which existing laws might be administered or interpreted, which could have a material and negative impact on the Company's business and results of operation. For example, recent years have seen an increase in the development and enforcement of laws and regulations regarding trade compliance, economic sanctions, anti-money laundering, and anti-corruption, such as the U.S. Foreign Corrupt Practices ActFCPA and similar laws in other countries. While Matthews maintains a variety of internal policies and controls and takes steps, including periodic training and internal audits, that the Company believes are reasonably calculated to discourage, prevent and detect violations of such laws, the Company cannot guarantee that such actions will be effective or that individual employees will not engage in inappropriate behavior in contravention of the Company's policies and instructions. Such conduct, or even the allegation thereof, could result in costly investigations and the imposition of severe criminal or civil sanctions, could disrupt the Company's business, and could materially and adversely affect the Company's reputation, business and results of operations or financial condition.
ITEM 1A.RISK FACTORS, (continued)
Further, the Company is subject to laws and regulations worldwide affecting its operations outside the United States in areas including, but not limited to, intellectual property ownership and infringement, tax, customs, import and export requirements, economic sanctions, anti-money laundering, anti-corruption and anti-bribery, foreign exchange controls and cash repatriation restrictions, foreign investment, data privacy requirements, anti-competition, pensions and social insurance, employment, and environment, health, and safety. Compliance with these laws and regulations may be onerous and expensive and requirements may differ among jurisdictions. Further, the promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative impact on the Company's business and prospects. In addition, certain laws and regulations are relatively new and their interpretation and enforcement involve significant uncertainties. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, results of operations or financial condition.
General Risk Factors:
Changes in Economic Conditions. Generally, changes in domestic and international economic conditions affect the industries in which the Company and its customers and suppliers operate. These changes include changes in the rate of consumption or use of the Company's products due to economic downturns, volatility in currency exchange rates, and changes in raw material prices resulting from supply and/or demand conditions.
Uncertainty about current global economic conditions poses a risk, as consumers and businesses may continue to postpone or cancel spending. Other factors that could influence customer spending include energy costs, conditions in the credit markets, consumer confidence, global pandemics, and other factors affecting consumer spending behavior. These and other economic factors could have an effect on demand for the Company's products and services and negatively impact the Company's financial condition and results of operations.
Labor shortages, turnover and labor cost increases. Labor is a significant component of the Company's operations. Several factors may adversely affect the labor force available to Matthews or increase labor costs (i.e., labor rates and overtime levels), including high employment levels, unemployment subsidies, increased wages offered by other employers, vaccine mandates and other government regulations and the Company’s responses thereto. An overall labor shortage, lack of skilled labor, increased turnover, or labor inflation, caused by pandemics or as a result of general macroeconomic factors, could have a material adverse impact on the Company’s business and operating results.
Cybersecurity and Data Breaches. In the course of business, the Company collects and stores sensitive data and proprietary business information. The Company could be subject to service outages or breaches of security systems which may result in disruption, unauthorized access, misappropriation, or corruption of this information. Security breaches of the Company's network or data including physical or electronic break-ins, vendor service outages, computer viruses, attacks by hackers or similar breaches can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Although the Company is not aware of any significant incidents to date, if it is unable to prevent, detect and timely remediate such security or privacy breaches, its operations could be disrupted or the Company may suffer legal claims, loss of reputation, financial loss, property damage, or regulatory penalties because of lost or misappropriated information.
The Company expects that compliance with laws governing data privacy and data protection will require ongoing investment in systems, policies and personnel and will continue to impact Matthews’ business in the future by increasing legal, operational and compliance costs. There can be no assurance that the Company’s efforts will meet the evolving standards imposed by governmental and regulatory agencies, including data protection authorities, with respect to standards that may be adopted in
ITEM 1A.RISK FACTORS, (continued)
the future. If the Company is found or suspected to have violated data privacy or data protection laws, it may be subject to potential private consumer, business partner or securities litigation, regulatory inquiries, governmental investigations and proceedings, and may incur damage to its reputation. Any such developments may subject Matthews to material fines and other monetary penalties and damages, divert management’s time and attention, and lead to enhanced regulatory oversight, all of which could have a material adverse effect on the Company’s business and results of operations.
Effectiveness of Internal Controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires a comprehensive evaluation of the Company's internal control over financial reporting. To comply with this statute, the Company is required to document and test its internal control over financial reporting, management is required to assess and issue a report concerning internal control over financial reporting, and the Company's independent registered public accounting firm is required to attest to and report on the Company's assessment of the effectiveness of internal control over financial reporting. Any failure to maintain or implement required new or improved controls could cause the Company to fail to meet its periodic reporting obligations or result in material misstatements in the consolidated financial statements, and substantial costs and resources may be required to rectify these or other internal control deficiencies. If the Company cannot produce reliable financial reports, investors could lose confidence in the Company's reported financial information, the market price of the Company's common stock could decline significantly, and its business, financial condition, and reputation could be harmed.
Compliance with Securities Laws and Regulations; Conflict Minerals Reporting. The Company is required to comply with various securities laws and regulations, including but not limited to the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). Dodd-Frank contains provisions, among others, designed to improve transparency and accountability concerning the supply chains of certain minerals originating from the Democratic Republic of Congo and adjoining countries that are believed to be benefiting armed groups ("Conflict Minerals"). While Dodd-Frank does not prohibit companies from using Conflict Minerals, the SEC mandates due diligence, disclosure and reporting requirements for companies for which Conflict Minerals are necessary to the functionality or production of a product. The Company's efforts to comply with Dodd-Frank and other evolving laws, regulations and standards could result in increased costs and expenses related to compliance and potential violations.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.applicable.
16
ITEM 2.PROPERTIES, (continued)
ITEM 2. PROPERTIES.
PrincipalThe Company's facilities provide adequate space for meeting its near-term production requirements. Significant principal properties of the Company and its majority-owned subsidiaries as of October 31, 20172023 were as follows (properties, which are unencumbered, are owned by the Company except as noted):
| | | | | | | | | | | |
| Location | | Description of Property | |
| Memorialization: | | | |
| Pittsburgh, PA | | Manufacturing / Division Offices | |
| Apopka, FL | | Manufacturing / Division Offices | |
| Aurora, IN | | Manufacturing | |
| Colorno, Italy | | Manufacturing | |
| Dallas, TX | | Distribution Hub | (1) |
| Dandenong, Australia | | Manufacturing | (1) |
| Elberton, GA | | Manufacturing | |
| Fontana, CA | | Distribution Hub | (1) |
| Harrisburg, PA | | Distribution Hub | (1) |
| Indianapolis, IN | | Distribution Hub | (1) |
| Monterrey, Mexico | | Manufacturing | (1) |
| Richmond, IN | | Manufacturing | |
| Searcy, AR | | Manufacturing | |
| Stone Mountain, GA | | Distribution Hub | (1) |
| York, PA | | Manufacturing | |
| Industrial Technologies: | | | |
| Bocholt, Germany | | Manufacturing / Division Offices | |
| Cincinnati, OH | | Manufacturing / Distribution | |
| Fribourg, Switzerland | | Manufacturing | (1) |
| Gothenburg, Sweden | | Manufacturing / Distribution | (1) |
| Holoubkov, Czech Republic | | Manufacturing | |
| Lima, Costa Rica | | Manufacturing | (1) |
| Mönchengladbach, Germany | | Manufacturing | (1) |
| Pewaukee, WI | | Manufacturing | (1) |
| Pittsburgh, PA | | Division Offices | |
| San Antonio, TX | | Manufacturing | |
| Wilsonville, OR | | Manufacturing | |
| Vreden, Germany | | Manufacturing | (2) |
| SGK Brand Solutions: | | | |
| Battle Creek, MI | | Production Facility | (1) |
| Chennai, India | | Production Facility | (1) |
| Dachnow, Poland | | Manufacturing | (1) |
| East Butler, PA | | Production Facility | (1) |
| East Java, Indonesia | | Production Facility | (1) |
| Goslar, Germany | | Production Facility | (1) |
| Izmir, Turkey | | Manufacturing | |
| Jülich, Germany | | Production Facility | (1) |
| Manchester, England | | Production Facility | (1) |
| Minneapolis, MN | | Production Facility | |
| Mississauga, Canada | | Production Facility | (1) |
| | | |
LocationPenang, Malaysia | | Description of PropertyProduction Facility | |
| Tigard, OR | | | |
SGK Brand Solutions: | | | |
Antwerp, Belgium | | Manufacturing | |
Chennai, India | | Operating facilityProduction Facility | (1) |
Chicago, IL | | Operating facilities | (1) |
Cincinnati, OH | | Operating facility | (1) |
Cleckheaton, England | | Operating facility | (1) |
Des Plaines, IL | | Operating facility | (1) |
Dachnow, Poland | | Manufacturing | |
Gateshead, England | | Operating facility | (1) |
East Butler, PA | | Manufacturing | |
Goslar, Germany | | Manufacturing | (1) |
Grenzach-Wyhlen, Germany | | Manufacturing | |
Istanbul, Turkey | | Manufacturing | (1) |
Izmir, Turkey | | Manufacturing | |
Julich, Germany | | Manufacturing | |
Kalamazoo, MI | | Operating facility | |
Kempen, Germany | | Manufacturing | (1) |
Kowloon, Hong Kong | | Operating facility | (1) |
London, England | | Operating facility | (1) |
Manchester, England | | Manufacturing | (1) |
Marietta, GA | | Manufacturing | |
Minneapolis, MN | | Operating facility | |
Mississauga, Canada | | Operating facility | (1) |
Monchengladbach, Germany | | Manufacturing | |
Monchengladbach, Germany | | Manufacturing | (1) |
Munich, Germany | | Manufacturing | (1) |
New Berlin, WI | | Manufacturing | (1) |
Novgorod, Russia | | Manufacturing | |
Nuremberg, Germany | | Manufacturing | (1) |
Penang, Malaysia | | Operating facility | |
Portland, OR | | Operating facility | (1) |
Queretaro, Mexico | | Operating facility | |
Redmond, WA | | Operating facility | (1) |
St. Louis, MO | | Manufacturing | |
San Francisco, CA | | Operating facility | (1) |
Shanghai, China | | Operating facilities | (1) |
Shenzhen, China | | Operating facility | (1) |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
ITEM 2.PROPERTIES, (continued)
|
| Corporate and Administrative Offices: | | | |
Location | | Description of Property | |
| | | |
SGK Brand Solutions, (continued): | | | |
Tarnowo Podgorne, Poland | | Manufacturing | (1) |
Vreden, Germany | | Manufacturing | |
Vreden, Germany | | Operating facility | |
Wilsonville, OR | | Operating facility | (1) |
| | | |
Memorialization (2): | | | |
| Pittsburgh, PA | | Manufacturing / DivisionGeneral Offices | |
Pittsburgh, PA | | Division Offices | (1) |
Apopka, FL | | Manufacturing / Division Offices | |
Apopka, FL | | Operating facility | |
Aurora, IN | | Manufacturing | |
Bristol, TN | | Distribution | |
Colorno, Italy | | Manufacturing | (1) |
Dallas, TX | | Distribution Hub | (1) |
Dandenong, Australia | | Manufacturing | (1) |
Edmunston, Canada | | Manufacturing | |
Elberton, GA | | Manufacturing | (1) |
Fontana, CA | | Distribution Hub | (1) |
Harrisburg, PA | | Distribution Hub | (1) |
Hyde, England | | Manufacturing | (1) |
Indianapolis, IN | | Distribution Hub | (1) |
Kingwood, WV | | Manufacturing | |
Kingwood, WV | | Manufacturing | (1) |
Monterrey, Mexico | | Manufacturing | (1) |
Richmond, IN | | Manufacturing | (1) |
Richmond, IN | | Manufacturing | |
Searcy, AR | | Manufacturing | |
Stone Mountain, GA | | Distribution Hub | (1) |
Udine, Italy | | Manufacturing | (1) |
Vestone, Italy | | Manufacturing | (1) |
West Point, MS | | Distribution | |
Whittier, CA | | Manufacturing | (1) |
York, PA | | Manufacturing | |
| | | |
Industrial Technologies: | | | |
Pittsburgh, PA | | Manufacturing / Division Offices | |
Beijing, China | | Manufacturing | (1) |
Cincinnati, OH | | Manufacturing | (1) |
Cincinnati, OH | | Manufacturing | |
Germantown, WI | | Manufacturing | (1) |
Gothenburg, Sweden | | Manufacturing / Distribution | (1) |
Lima, Costa Rica | | Manufacturing | (1) |
Portland, OR | | Manufacturing | |
Tianjin City, China | | Manufacturing | (1) |
| | | |
| | | |
| | | |
ITEM 2.PROPERTIES, (continued)
|
| | | |
Location | | Description of Property | |
| | | |
Corporate Office: | | | |
Pittsburgh, PA | | General Offices | |
| |
(1) | (1)These properties are leased by the Company under operating lease arrangements. |
| |
(2) | In addition to the properties listed, the Memorialization segment leases warehouse facilities totaling approximately 1.1 million square feet in 38 states under operating leases. |
Rent expense incurred by the Company under operating lease arrangements.
(2)The Vreden, Germany location represents a shared facility for all leased facilities was approximately $36.4 million in fiscal 2017.both the Industrial Technologies and SGK Brand Solutions segments.
17
All of the owned properties are unencumbered. The Company believes its facilities are generally well suited for their respective uses and are of adequate size and design to provide the operating efficiencies necessary for the Company to be competitive. The Company's facilities provide adequate space for meeting its near-term production requirements and have availability for additional capacity. The Company intends to continue to expand and modernize its facilities as necessary to meet the demand for its products.
ITEM 3. LEGAL PROCEEDINGS.
Matthews 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 4. MINE SAFETY DISCLOSURES.
Not applicable.
OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
The following information is furnished with respect to officers and executive management as of October 31, 2017:2023:
|
| | | | | | | | | | | | | |
| Name | | Age | | Positions with Registrant |
| Joseph C. Bartolacci | | 5763 | | President and Chief Executive Officer |
| Ronald C. Awenowicz | | 54 | | Senior Vice President, Global Compliance, Operations and N.A. Human Resources |
| Gregory S. Babe | | 5966 | | Chief Technology Officer and Group President, Industrial Technologies |
David F. BeckDavor Brkovich | | 6555 | | Vice PresidentHead of IT and ControllerChief Information Officer |
Marcy L. CampbellSteven D. Gackenbach | | 5460 | | Group President, Memorialization |
| Reena Gurtner | | 49 | | Senior Vice President, Human Resources |
Brian J. DunnGary R. Kohl | | 60 | | Executive Vice President, Strategy and Corporate DevelopmentSGK Brand Solutions |
Steven D. GackenbachLee Lane | | 5455 | | Group President, MemorializationMatthews Industrial Automation and Matthews Environmental Solutions |
Robert M. Marsh | | 49 | | Vice President and Treasurer |
| Steven F. Nicola | | 5763 | | Chief Financial Officer and Secretary |
Paul F. Rahill | | 60 | | President, Environmental Solutions Division |
David A. Schawk | | 61 | | Group President, SGK Brand Solutions |
| Brian D. Walters | | 4854 | | Executive Vice President and General Counsel |
Joseph C. Bartolacci was appointed President and Chief Executive Officer effective October 2006.
Ronald C. Awenowicz was appointed Senior Vice President, Global Compliance, Operations and North America Human Resources effective July 2021. Prior thereto, he served as Vice President of Americas Human Resources since May 2020 and prior thereto he served as Global Head of Human Resources Operations since February 2015, when he joined the Company.
Gregory S. Babe was appointed Chief Technology Officer and Group President, Industrial Technologies effective October 2022. Prior thereto, he served as Chief Technology Officer since November 2015.
Davor Brkovich was appointed Head of IT and Chief Information Officer effective November 2015.2019. Prior thereto, he had been the interim Executive Vice President,Head of IT and Chief Information Officer since February 2019 and prior thereto he served as Director, Global Information Technology and IntegrationIT Infrastructure since November 2014January 2017, when he joined the Company. Prior to joining the Company, Mr. Babe was the President and Chief Executive Officer of Liquid X Printed Metals, Inc., from June 2013 to November 2014 and Chief Executive Officer of Orbital Engineering, Inc., from July 2012 to June 2013.
David F. Beck was appointed Vice President and Controller effective February 2010.
Marcy L. Campbell was appointed Vice President, Human Resources effective November 2014. Ms. Campbell served as Director, Regional Human Resources from January 2013, and as Manager, Regional Human Resources from November 2005 to December 2012.
Brian J. Dunn was appointed Executive Vice President, Strategy and Corporate Development effective July 2014. Prior thereto, he served as Group President, Brand Solutions since February 2010.
Steven D. Gackenbach was appointed Group President, Memorialization effective October 31, 2011.
Robert M. MarshReena Gurtner was appointed Senior Vice President, and Treasurer in February 2016. HeHuman Resources effective July 2021. Prior thereto, she served as TreasurerVice President, Human Resources APAC, Middle East and Africa since December 2014 whenMay 2020 and prior thereto she served as Regional Director of Human Resources APAC since January 2013.
Gary R. Kohl was appointed President, SGK Brand Solutions effective May 2017.
Lee Lane was appointed Group President for Matthews’ Product Identification and Warehouse Automation businesses as well as Matthews Environmental Solutions effective October 2022. Prior thereto, he joined the Company.served as Senior Vice President of Matthews Automation since June 2022. Prior to joining the Company, Mr. Marsh was a partner of PNC Mezzanine Capital, the principal mezzanine investment business of The PNC Financial Services Group, LLC ("PNC"). Mr. Marsh joined PNC in 1997.he served as Vice President General Manager Sensing, Safety & Industrial Components Business at Rockwell Automation, Inc. since October 2020, and prior thereto he served as Vice President / General Manager Safety, Sensing & Connectivity Business at Rockwell Automation, Inc. since March 2017.
Steven F. Nicola was appointed Chief Financial Officer and Secretary effective December 2003.
Paul F. RahillBrian D. Walters was appointed President, Environmental Solutions Division in October 2002.
David A. Schawk joined the Company in July 2014 as President, SGK Brand Solutions upon Matthews' acquisition of Schawk. Mr. Schawk served as Schawk's Chief Executive Officer from July 2012 and was a member of the Schawk Board of Directors since 1992.
Brian D. Walters was appointed Vice President and General Counsel effective February 2009.2023. Prior thereto, he served as Senior Vice President and General Counsel since February 2018.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information:
The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1.00 par value. At September 30, 2017, 32,148,5792023, 30,469,213 shares were outstanding. The Company's Class A Common Stock is traded on the NASDAQNasdaq Global Select Market under the symbol "MATW". The following table sets forth the high, low and closing prices as reported by Nasdaq for the periods indicated:
|
| | | | | | | | | | | |
| | High | | Low | | Close |
| Fiscal 2017: | | | | | |
| Quarter ended: September 30, 2017 | $ | 66.65 |
| | $ | 57.40 |
| | $ | 62.25 |
|
| June 30, 2017 | 72.60 |
| | 60.40 |
| | 61.25 |
|
| March 31, 2017 | 77.85 |
| | 64.45 |
| | 67.65 |
|
| December 31, 2016 | 77.10 |
| | 57.65 |
| | 76.85 |
|
| Fiscal 2016: | | | | | |
| Quarter ended: September 30, 2016 | $ | 62.85 |
| | $ | 54.76 |
| | $ | 60.76 |
|
| June 30, 2016 | 56.05 |
| | 49.37 |
| | 55.64 |
|
| March 31, 2016 | 54.80 |
| | 45.00 |
| | 51.47 |
|
| December 31, 2015 | 61.10 |
| | 46.05 |
| | 53.45 |
|
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. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 1,816,1461,195,013 shares remain available for repurchase as of September 30, 2017.2023. All purchases of the Company's common stock during fiscal 20172023 were part of this repurchase program.
In May 2016, the Company purchased 970,000 common shares under the buy-back program from members of the Schawk family, including David A. Schawk (who is a member of the Board of Directors of the Company and the Company's President, SGK Brand Solutions) and certain family members of Mr. Schawk and/or trusts established for the benefit of Mr. Schawk or his family members. The purchase price for the shares purchase was $50.6921625 per share, which was equal to 96.76% of the average of the high and low trading prices for the common stock as reported on the Nasdaq Global Select Market on May 12, 2016.
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
The following table shows the monthly fiscal 20172023 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 2022 | | — | | | $ | — | | | — | | | 1,294,842 | |
| November 2022 | | 88,042 | | | 27.54 | | | 88,042 | | | 1,206,800 | |
| December 2022 | | 983 | | | 27.54 | | | 983 | | | 1,205,817 | |
| January 2023 | | — | | | — | | | — | | | 1,205,817 | |
| February 2023 | | 549 | | | 37.09 | | | 549 | | | 1,205,268 | |
| March 2023 | | 7,057 | | | 37.79 | | | 7,057 | | | 1,198,211 | |
| April 2023 | | — | | | — | | | — | | | 1,198,211 | |
| May 2023 | | — | | | — | | | — | | | 1,198,211 | |
| June 2023 | | 2,068 | | | 38.86 | | | 2,068 | | | 1,196,143 | |
| July 2023 | | — | | | — | | | — | | | 1,196,143 | |
| August 2023 | | 1,130 | | | 32.79 | | 1,130 | | | 1,195,013 | |
| September 2023 | | — | | | — | | | — | | | 1,195,013 | |
| Total | | 99,829 | | | $ | 28.61 | | | 99,829 | | | |
|
| | | | | | | | | | | | | |
| 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 2016 | | — |
| | $ | — |
| | — |
| | 2,028,570 |
|
| November 2016 | | 83,293 |
| | 67.49 |
| | 83,293 |
| | 1,945,277 |
|
| December 2016 | | 11,936 |
| | 73.63 |
| | 11,936 |
| | 1,933,341 |
|
| January 2017 | | — |
| | — |
| | — |
| | 1,933,341 |
|
| February 2017 | | 39,918 |
| | 66.98 |
| | 39,918 |
| | 1,893,423 |
|
| March 2017 | | — |
| | — |
| | — |
| | 1,893,423 |
|
| April 2017 | | 126 |
| | 67.66 |
| | 126 |
| | 1,893,297 |
|
| May 2017 | | 38,499 |
| | 63.70 |
| | 38,499 |
| | 1,854,798 |
|
| June 2017 | | 260 |
| | 62.55 |
| | 260 |
| | 1,854,538 |
|
| July 2017 | | 5,500 |
| | 65.60 |
| | 5,500 |
| | 1,849,038 |
|
| August 2017 | | 13,666 |
| | 65.45 |
| | 13,666 |
| | 1,835,372 |
|
| September 2017 | | 19,226 |
| | 58.22 |
| | 19,226 |
| | 1,816,146 |
|
| Total | �� | 212,424 |
| | $ | 66.03 |
| | 212,424 |
| | |
|
Holders:
Based on records available to the Company, the number of record holders of the Company's common stock was 611 473at October 31, 2017.2023.
Dividends:
A quarterly dividend of $0.19 per share was declared to shareholders of record on November 16, 2017. The Company paid quarterly dividends of $0.17, $0.15, and $0.13 per share for each of the quarters during fiscal 2017, 2016, and 2015, respectively.
Cash dividends have been paid on common shares in every year for at least the past forty-eight years. It is the present intention of the Company to continue to pay quarterly cash dividends on its common stock. However, there is no assurance that dividends will be declared and paid as the declaration and payment of dividends is at the discretion of the Board of Directors of the Company and is dependent upon many factors, including but not limited to the Company's financial condition, results of operations, cash requirements, future prospects and other factors deemed relevant by the Board.
Securities Authorized for Issuance Under Equity Compensation Plans:
See Equity Compensation Plans in Item 12 "Security Ownership of Certain Beneficial Owners and Management" on page 77of this report.Management."
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN *
AMONG MATTHEWS INTERNATIONAL CORPORATION,
S&P 500 INDEX S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600RUSSELL 2000 VALUE INDEX
* TotalThis graph compares the return assumes dividend reinvestment
Note: Performanceon Matthews’ common stock with that of the Standard & Poor’s 500 Index and Russell 2000 Value Index for the period from October 1, 2018 through September 30, 2023. The graph assumes $100 investedthat on October 1, 20122018, $100 was invested in Matthews International Corporation Common Stock,each of the Company’s common stock, Standard & Poor's (S&P)Poor’s 500 Index S&P MidCap 400and Russell 2000 Value Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
The following graph compares the total return on the Company’s common stockwith that of the Standard & Poor’s 500 Index and S&P SmallCap 600 Index.the Russell 2000 Value Index. The results are not necessarily indicative of future performance.
*Total return assumes dividend reinvestment
ITEM 6. SELECTED FINANCIAL DATA.
[Reserved].
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30, |
| | 2017(1) | | 2016(2) | | 2015(3) | | 2014(4) | | 2013(5) |
| | (Amounts in thousands, except per share data) (Unaudited) |
| Net sales | $ | 1,515,608 |
| | $ | 1,480,464 |
| | $ | 1,426,068 |
| | $ | 1,106,597 |
| | $ | 985,357 |
|
| | | | | | | | | | |
| Operating profit | 112,603 |
| | 118,815 |
| | 105,023 |
| | 81,522 |
| | 94,615 |
|
| | | | | | | | | | |
| Interest expense | 26,371 |
| | 24,344 |
| | 20,610 |
| | 12,628 |
| | 12,925 |
|
| | | | | | | | | | |
Net income attributable to Matthews shareholders | $ | 74,368 |
| | $ | 66,749 |
| | $ | 63,449 |
| | $ | 42,625 |
| | $ | 54,121 |
|
| | | | | | | | | | |
| Earnings per common share: | | | | | | | | | |
| Basic | $ | 2.31 |
| | $ | 2.04 |
| | $ | 1.93 |
| | $ | 1.51 |
| | $ | 1.96 |
|
| Diluted | 2.28 |
| | 2.03 |
| | 1.91 |
| | 1.49 |
| | 1.95 |
|
| | | | | | | | | | |
| Weighted-average common | | | | | | | | | |
| shares outstanding: | | | | | | | | | |
| Basic | 32,240 |
| | 32,642 |
| | 32,939 |
| | 28,209 |
| | 27,255 |
|
| Diluted | 32,570 |
| | 32,904 |
| | 33,196 |
| | 28,483 |
| | 27,423 |
|
| | | | | | | | | | |
| Cash dividends per share | $ | 0.68 |
| | $ | 0.60 |
| | $ | 0.54 |
| | $ | 0.46 |
| | $ | 0.41 |
|
| | | | | | | | | | |
| Total assets | $ | 2,244,649 |
| | $ | 2,091,041 |
| | $ | 2,143,611 |
| | $ | 2,008,026 |
| | $ | 1,209,245 |
|
| Long-term debt, non-current | 881,602 |
| | 844,807 |
| | 891,217 |
| | 714,027 |
| | 351,068 |
|
| |
(1) | Fiscal 2017 included net pre-tax charges of $38,458 and income of $10,483, which impacted operating profit and other deductions, respectively. These pre-tax charges primarily consisted of acquisition-related costs, and strategic cost-reduction initiatives. The pre-tax income primarily consisted of loss recoveries, net of related costs, related to the previously disclosed theft of funds by a former employee. |
| |
(2) | Fiscal 2016 included net pre-tax charges of $36,057 and income of $78, which impacted operating profit and other deductions, respectively. These amounts primarily consisted of acquisition-related costs and strategic cost-reduction initiatives. |
| |
(3) | Fiscal 2015 included pre-tax charges of $36,883 and income of $8,726, which impacted operating profit and other deductions, respectively, and also included the unfavorable effect of related adjustments of $1,334 to income tax expense. These amounts primarily consisted of acquisition-related costs, trade name write-offs, strategic cost-reduction initiatives, and losses related to a theft of funds, partially offset by a gain on the settlement of a multi-employer pension plan obligation, and the impact of the favorable settlement of litigation, net of related expenses. |
| |
(4) | Fiscal 2014 included net pre-tax charges of approximately $41,289, primarily related to acquisition-related costs, strategic cost-reduction initiatives, and litigation expenses related to a legal dispute in the Memorialization segment. Charges of $38,598 and $2,691 impacted operating profit and other deductions, respectively. In addition, fiscal 2014 included the unfavorable effect of adjustments of $1,347 to income tax expense related to non-deductible expenses related to acquisition activities. |
| |
(5) | Fiscal 2013 included net pre-tax charges of approximately $15,352, which primarily related to strategic cost-reduction initiatives, incremental costs related to an ERP implementation in the Memorialization segment, acquisition-related costs and an impairment charge related to the carrying value of a trade name. The charges were partially offset by a gain on the final settlement of the purchase price of the remaining ownership interest in one of the Company's subsidiaries and the benefit of adjustments to contingent consideration. |
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated financial statements of Matthews and related notes thereto. In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS:
The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand Solutions. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions; product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products; and coating and converting lines for the packaging, pharma, foil, décor and tissue industries. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.
The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition and divestiture 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.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The following table sets forth sales and operating profitadjusted EBITDA for the Company's Memorialization, Industrial Technologies and SGK Brand Solutions Memorialization and Industrial Technologies segments for each of the last three fiscal years. Refer to Note 20, "Segment Information" in Item 8 - "Financial Statements and Supplemental Data" for the Company's financial information by segment.
| | | | | | | | | | | | | | | | | |
| | Years Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| | (Dollar amounts in thousands) |
| Sales to external customers: | | | | | |
| Memorialization | $ | 842,997 | | | $ | 840,124 | | | $ | 769,016 | |
| Industrial Technologies | 505,751 | | | 335,523 | | | 284,495 | |
| SGK Brand Solutions | 532,148 | | | 586,756 | | | 617,519 | |
| Consolidated Sales | $ | 1,880,896 | | | $ | 1,762,403 | | | $ | 1,671,030 | |
| | | | | |
| Adjusted EBITDA: | | | | | |
| Memorialization | $ | 163,986 | | | $ | 151,849 | | | $ | 165,653 | |
| Industrial Technologies | 66,278 | | | 56,762 | | | 34,889 | |
| SGK Brand Solutions | 57,128 | | | 60,120 | | | 91,435 | |
| Corporate and Non-Operating | (61,583) | | | (58,323) | | | (64,227) | |
Total Adjusted EBITDA(1) | $ | 225,809 | | | $ | 210,408 | | | $ | 227,750 | |
|
| | | | | | | | | | | |
| | Years Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Sales to unaffiliated customers: | | | | | |
| SGK Brand Solutions | $ | 770,181 |
| | $ | 755,975 |
| | $ | 798,339 |
|
| Memorialization | 615,882 |
| | 610,142 |
| | 508,058 |
|
| Industrial Technologies | 129,545 |
| | 114,347 |
| | 119,671 |
|
| Consolidated | $ | 1,515,608 |
| | $ | 1,480,464 |
| | $ | 1,426,068 |
|
| | | | | | |
| Operating Profit: | | | | | |
| SGK Brand Solutions | $ | 24,919 |
| | $ | 42,909 |
| | $ | 21,864 |
|
| Memorialization | 80,652 |
| | 68,252 |
| | 70,064 |
|
| Industrial Technologies | 7,032 |
| | 7,654 |
| | 13,095 |
|
| Consolidated | $ | 112,603 |
| | $ | 118,815 |
| | $ | 105,023 |
|
Comparison of Fiscal 20172023 and Fiscal 2016:2022:
Sales for the year ended September 30, 20172023 were $1.52$1.88 billion, compared to $1.48$1.76 billion for the year ended September 30, 2016.2022, representing an increase of $118.5 million. The increase in fiscal 20172023 sales of $35.1 million principally reflected higher sales in the Industrial Technologies and Memorialization segments, partially offset by lower sales in the SGK Brand Solutions segment. On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of cemetery memorial products$23.6 million on fiscal 2023 sales compared to the prior year.
Memorialization segment sales for fiscal 2023 were $843.0 million, compared to $840.1 million for fiscal 2022. The sales increase reflected improved price realization, higher sales of mausoleums and cremation equipment increased sales in the U.K.U.S., and Asia Pacific brand markets, higher sales of marking products, and the benefits from recently completed acquisitionsthe acquisition of Eagle Granite Company (see "Acquisitions"Acquisitions and Divestitures below). These increases were partially offset by slower market conditions in North America and Europe for the SGK Brand Solutions segment, lower unit sales of caskets and thebronze memorial products, reflecting a decrease in coronavirus disease 2019 ("COVID-19") related deaths in fiscal 2023, and lower sales of cremation and incineration products in Europe. Changes in foreign currency exchange rates had an unfavorable impact of changes in foreign currencies against$1.8 million on the U.S. dollar of $12.8segment's sales compared to the prior year. Industrial Technologies segment sales for fiscal 2023 were $505.8 million, compared to a year ago.
$335.5 million for fiscal 2022. The sales increase primarily reflected the impact of the fiscal 2022 acquisitions of OLBRICH GmbH (“OLBRICH”) and R+S Automotive GmbH (“R+S Automotive”) (see Acquisitions and Divestitures below). The increase in sales also reflected higher sales of purpose-built engineered products (primarily energy storage solutions for the electric vehicle market) and higher product identification sales. These increases were partially offset by lower sales of warehouse automation solutions. Changes in foreign currency exchange rates had an unfavorable impact of $5.7 million on the segment's sales compared to the prior year. In the SGK Brand Solutions segment, sales for fiscal 20172023 were $770.2$532.1 million, compared to $756.0$586.8 million in fiscal 2016.2022. Changes in foreign currency exchange rates had an unfavorable impact of $16.1 million on the segment's sales compared to the prior year. The increasedecrease in sales also reflected sales growth in the U.K. and Asia Pacific markets, and the completion of three acquisitions during the second quarter of fiscal 2017. These sales increases were partially offset by slowerlower brand market conditionssales in the U.S. and Europe (including lower retail-based sales) and the unfavorable impact of changesa decline in foreign currency values against the U.S. dollar of approximately $12.1 million. Memorialization segment sales for fiscal 2017 were $615.9 million compared to $610.1 million for fiscal 2016. The sales increase reflected higher sales of cemetery memorialcylinder (packaging) products and cremation equipment,in Europe. These decreases were partially offset by lower unithigher brand sales of caskets (reflecting an estimated decline in U.S. casketed deaths). Industrial Technologies segment sales for fiscal 2017 were $129.5 million, compared to $114.3 million for fiscal 2016. The increase reflected higher sales of marking productsthe Asia-Pacific market and OEM solutions, and the favorable impact of recently completed acquisitions, partially offset by lower sales of fulfillment systems and the unfavorable impact of changes in foreign currency values against the U.S. dollar of approximately $690,000.improved price realization.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Gross profit for the year ended September 30, 20172023 was $563.4$577.7 million, compared to $556.5$522.3 million for fiscal 2016.2022. Consolidated gross profit as a percent of sales was 30.7% and 29.6% in fiscal 2023 and fiscal 2022, respectively. The increase in gross profit primarily reflected the impact of higher sales (including benefits from recent acquisitions,acquisitions), lower transportation costs, and benefits from the benefitsrealization of productivity initiatives,improvements and realization of acquisition synergies,other cost-reduction initiatives. These increases in gross profit were partially offset by unfavorable changes in foreign currency values against the U.S. dollar,impact of higher material and slower market conditions in North Americalabor costs, and Europe for the SGK Brand Solutions segment. Fiscal 2017 grosslower margins on purpose-built engineered products. Gross profit also included an expenseacquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $12.2 million and $12.6 million in fiscal 2023 and 2022, respectively. Fiscal 2022 gross
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
profit included $9.7 million of $2.0 million for the write-off of inventory step-up valueasset write-downs related to the current year acquisitions. Fiscal 2016 gross profit included an expense of approximately $4.0 millionwar between Russia and Ukraine (see Note 23, "Asset Write-downs" in Item 8 - "Financial Statements and Supplementary Data" for the partial write-off of inventory step-up value related to the acquisition of Aurora Products Group, LLC ("Aurora") in August 2015.further details).
Selling and administrative expenses for the year ended September 30, 20172023 were $450.8$447.5 million, compared to $437.6$426.7 million for fiscal 2016.2022. Consolidated selling and administrative expenses, as a percent of sales, were 29.7%23.8% for fiscal 2017,2023, compared to 29.6%24.2% in fiscal 2016. The increase in2022. Fiscal 2023 selling and administrative expenses reflected the impact of recently completed acquisitions, partially offset by the benefitshigher salaries and wage rates, higher travel and entertainment ("T&E") costs, increased performance-based compensation compared to fiscal 2022, additional expenses from cost-reduction initiatives, including acquisition integration synergies. Selling and administrative expenses in fiscal 2017 also included an increase of $3.7 million in intangible asset amortization related to recently completed acquisitions, and $3.3 million of incremental stock-based compensation expense that was recognizedfees associated with a receivables purchase agreement and factoring arrangement (see Liquidity and Capital Resources below). These increases in the first fiscal quarter of fiscal 2017 as a result of required accounting treatment for retirement-eligible employees.selling and administrative expenses were partially offset by benefits from ongoing cost-reduction initiatives. Selling and administrative expenses also included acquisition integration and related systems-integration costs, and other charges primarily in connection with cost structurecost-reduction initiatives totaling $35.2$12.5 million in fiscal 2017,2023, compared to $32.1$27.1 million in fiscal 2016.
Operating profit2022. Intangible amortization for fiscal 2017the year ended September 30, 2023 was $112.6$42.1 million, compared to $118.8$57.1 million for fiscal 2016. The SGK Brand Solutions segment operating profit for2022. Fiscal 2022 intangible amortization included $9.5 million of amortization related to certain trade names that have been discontinued. In the fiscal 2017 was $24.92022 fourth quarter, the Company recorded a goodwill write-down of $82.5 million comparedrelated to $42.9 million for fiscal 2016. Fiscal 2017 operating profit for the SGK Brand Solutions segment included acquisition integration costsreporting unit (formerly the Graphics Imaging reporting unit). Refer to Note 22, "Goodwill and other charges totaling $29.7Other Intangible Assets" in Item 8 - "Financial Statements and Supplementary Data" for further details.
Adjusted EBITDA for fiscal 2023 was $225.8 million, compared to $25.0$210.4 million infor fiscal 2016. Segment operating profit in fiscal 2017 also included an increase of $3.1 million in intangible asset amortization related to recently completed acquisitions. Additionally, fiscal 2017 operating profit for SGK Brand Solutions reflected slower market conditions in North America and Europe, and the unfavorable impact of changes in foreign currencies against the U.S. dollar of approximately $1.3 million, partially offset by the favorable impact of recent acquisitions.2022. Memorialization segment operating profitadjusted EBITDA for fiscal 20172023 was $80.7$164.0 million, compared to $68.3$151.8 million for fiscal 2016.2022. The increase in segment operating profitadjusted EBITDA reflected the impact of higher cemetery memorialsales, lower transportation costs, benefits from the acquisition of Eagle Granite Company, and cremation equipment sales, and the benefits of acquisition synergies and otherfrom productivity initiatives,initiatives. These increases were partially offset by the impact of lower casket sales. Fiscal 2017 operating profit for the Memorialization segment also included acquisition integrationhigher material, labor and T&E costs, and other charges totaling $7.8 million,increased performance-based compensation compared to $10.4 million in fiscal 2016. Operating profit2022. Adjusted EBITDA for the Industrial Technologies segment for fiscal 20172023 was $7.0$66.3 million, compared to $7.7$56.8 million in fiscal 2016.2022. The benefitsincrease in segment adjusted EBITDA primarily reflected the impact of higher sales, werepartially offset by the impact of higher investmentslabor and T&E costs, increased performance-based compensation compared to fiscal 2022, and unfavorable contributions from recent acquisitions. Changes in foreign currency exchange rates had an unfavorable impact of $1.3 million on the segment's product development, and an increase in acquisition related charge.
Investment incomeadjusted EBITDA compared to the prior year. Adjusted EBITDA for the year ended September 30, 2017SGK Brand Solutions segment for fiscal 2023 was $2.5$57.1 million, compared to $2.1$60.1 million for fiscal 2022. The decrease in segment adjusted EBITDA primarily reflected the year ended September 30, 2016. The increase reflectedimpact of lower sales and higher material, labor and T&E costs, partially offset by benefits from cost reduction initiatives. Changes in foreign currency exchange rates had an unfavorable impact of return$2.0 million on investments held in trust for certain of the Company's benefit plans. segment's adjusted EBITDA compared to the prior year.
Interest expense for fiscal 20172023 was $26.4$44.6 million, compared to $24.3$27.7 million in fiscal 2016.2022. The increase in interest expense primarily reflected higher average interest rates in the current fiscal year and an increase in average borrowing levels, primarily related to acquisitions.year. Other income (deductions), net for the year ended September 30, 20172023 represented an increasea decrease in pre-tax income of $7.6$2.6 million, compared to a decrease in pre-tax income of $1.3$32.6 million in fiscal 2016.2022. Other income (deductions), net includes the non-service components of pension and deductions generally includepostretirement expense, which totaled $1.6 million and $31.8 million in fiscal years 2023 and 2022, respectively. Fiscal 2023 non-service pension expense included a $1.3 million non-cash charge resulting from the settlement of the Company's supplemental retirement plan ("SERP") and defined benefit portion of the officers retirement restoration plan ("ORRP") obligations. Fiscal 2022 non-service pension expense included a $30.9 million non-cash charge resulting from the full settlement of the Company's principal defined benefit retirement plan ("DB Plan") obligations. Refer to Note 15, "Pension and Other Postretirement Plans" in Item 8 - "Financial Statements and Supplementary Data" for further details. Other income (deductions), net also includes investment income, banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances. Fiscal 2017 otherOther income (deductions), net included currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey totaling $1.4 millionand deductions also included loss recoveries of $11.3$1.5 million related to the previously disclosed theft of funds by a former employee initially identified in fiscal 2015.years 2023 and 2022, respectively (see Note 2, "Summary of Significant Accounting Policies" in Item 8 - "Financial Statements and Supplementary Data" for further details).
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company's effective tax rateconsolidated income taxes for the year ended September 30, 2023 were an expenseof $1.8million, compared to a benefit of $4.4 million for fiscal 2017 was 23.2%, compared to 30.5% for fiscal 2016. Fiscal 2017 reflects the benefits from lower foreign taxes, organizational structure changes, primarily initiated in connection with acquisition integration, increased benefits from credits and incentives, and the impact of other tax benefits specific to the current year.2022. The difference between the Company's consolidated income taxes for fiscal 2023 compared to fiscal 2022 partially resulted from fiscal 2023 having consolidated income before income taxes compared to fiscal 2022 having a consolidated loss before income taxes. The fiscal 2023 tax rate was negatively impacted by share-based compensation. Additionally, the fiscal 2023 tax rate benefited from research and development and foreign tax credits and the utilization of foreign tax net operating losses with a valuation allowance. The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible. The fiscal 2022 effective tax rate also benefited from research and the Federal statutorydevelopment and foreign tax credits. The fiscal 2022 effective tax rate of 35.0% primarily reflected lowerwas negatively impacted by foreign income taxes and the benefit of credits and incentives, offset by the impact of state taxes.net operating losses requiring a full valuation allowance.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Net losses attributable to noncontrolling interests was $435,000were $155,000 in fiscal 2017,2023, compared to $588,000$54,000 in fiscal 2016.2022. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned Memorialization and Industrial Technologies businesses.
Comparison of Fiscal 20162022 and Fiscal 2015:2021:
SalesFor a comparison of the Company's results of operations for the fiscal years ended September 30, 2022 and September 30, 2021, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation" of the Company's annual report on Form 10-K for the fiscal year ended September 30, 2016 were $1.48 billion, compared2022 filed with the SEC on November 18, 2022.
NON-GAAP FINANCIAL MEASURES:
Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to $1.43 billionassist in comparing its performance on a consistent basis for the year ended September 30, 2015. The increase in fiscal 2016 salespurposes of $54.4 million principally reflected the acquisition of Aurora and higher sales volume of memorial products. The unfavorable impact of changes in foreign currencies against the U.S. dollar of approximately $25.2 million partially offset this increase.
In the SGK Brand Solutions segment, sales for fiscal 2016 were $756.0 million, compared to $798.3 million in fiscal 2015. The decrease in sales reflected the unfavorable impact of changes in foreign currency values against the U.S. dollar of approximately $21.4 million and the fiscal 2015 divestiture of a small software business. In addition, the segment experienced slower market conditions in the U.S. and Europe during fiscal 2016. Memorialization segment sales for fiscal 2016 were $610.1 million compared to $508.1 million for fiscal 2015. The increase in sales resulted principally from the acquisition of Aurora ($113.3 million) and higher sales of bronze and granite memorials, partially offsetbusiness decision-making by lower unit sales of caskets and the unfavorable impact of changes in foreign currency values against the U.S. dollar of approximately $2.8 million. Based on published CDC data, the Company estimated that the number of casketed deaths in the U.S. declined compared to fiscal 2015. Industrial Technologies segment sales for fiscal 2016 were $114.3 million, compared to $119.7 million for fiscal 2015. Industrial Technologies segment sales reflected lower fulfillment systems sales primarily due to slower market conditions in the current year. Changes in foreign currency values against the U.S. dollar also had an unfavorable impact of approximately $1.0 million on the segment's sales. These declines in segment sales were partially offset by the favorable impact of the Digital Designs, Inc. ("DDI") acquisition.
Gross profit for the year ended September 30, 2016 was $556.5 million, compared to $529.4 million for fiscal 2015. Consolidated gross profit as a percent of sales was 37.6% and 37.1% for fiscal 2016 and fiscal 2015, respectively. The increase in gross profit primarily reflectedremoving the impact of higher sales. Gross profit included expenses forcertain items that management believes do not directly reflect the write-off of inventory step-up valueCompany’s core operations including acquisition and divestiture costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the Aurora acquisition totaling $4.0 millionnon-service portion of pension and $1.8 millionpostretirement 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 fiscal 2016evaluating 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 2015, respectively. 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 improvement in gross profit as a percent of sales reflected the favorable impact of cost-reduction initiatives (including acquisition synergy realization),Company believes that adjusted EBITDA provides relevant and lower commodity costs, partially offsetuseful information, which is used by the write-offCompany’s management in assessing the performance of Aurora inventory step-up value.
Sellingits business. Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and administrative expenses forcertain 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 year ended September 30, 2016 were $437.6 million, compared to $424.4 million for fiscal 2015. Consolidated sellingnon-service portion of pension and administrative expenses as a percent of sales were 29.6% for fiscal 2016, compared to 29.8% in fiscal 2015. The increase in sellingpostretirement expense, acquisition and administrative expenses was primarily attributable to the acquisition of Aurora, partially offset by benefits from cost-reduction initiatives in the SGK Brand Solutions segment, resulting primarily from acquisition integration activities. In addition, fiscal 2016 selling and administrative expenses included acquisitiondivestiture costs, ERP integration costs, and strategic initiatives and other charges totaling $32.1 million, andcharges. Adjusted EBITDA provides the Company with an increaseunderstanding of $3.1 million in intangible asset amortization related to the Aurora acquisition. Fiscal 2015 selling and administrative expenses included acquisition-related expenses of $37.1 million primarily related to the Schawk, Inc. ("Schawk") acquisition integration activities and Aurora transaction expenses, trade name write-offs of $4.8 million and expenses related to strategic cost-reduction initiatives of $2.2 million, partially offset byearnings before the impact of investing and financing charges and income taxes, and the favorable settlementeffects of litigation,certain acquisition and divestiture costs, and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations. This measure may be useful to an investor in evaluating operating performance. It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance. Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of related expenses, in the Memorialization segmentCompany's liquidity. The Company's definition of $9.0 million.adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The reconciliation of net income to adjusted EBITDA is as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended September 30, |
| 2023 | | 2022 | | 2021 |
| (Dollar amounts in thousands) |
| Net income (loss) | $ | 39,136 | | | $ | (99,828) | | | $ | 2,858 | |
| Income tax provision (benefit) | 1,774 | | | (4,391) | | | 6,375 | |
| Income (loss) before income taxes | 40,910 | | | (104,219) | | | 9,233 | |
| Net loss attributable to noncontrolling interests | 155 | | | 54 | | | 52 | |
Interest expense, including Receivables Purchase Agreement ("RPA") and factoring financing fees (1) | 48,690 | | | 28,771 | | | 28,684 | |
Depreciation and amortization * | 96,530 | | | 104,056 | | | 133,512 | |
| | | | | |
Acquisition and divestiture related items (2)** | 5,293 | | | 7,898 | | | 541 | |
Strategic initiatives and other charges (3)** | 13,923 | | | 28,060 | | | 28,998 | |
| | | | | |
Non-recurring / incremental COVID-19 costs (4)*** | — | | | 2,985 | | | 5,312 | |
Highly inflationary accounting losses (primarily non-cash) (5) | 1,360 | | | 1,473 | | | — | |
Defined benefit plan termination related items (6) | — | | | (429) | | | — | |
Asset write-downs, net (7) | — | | | 10,050 | | | — | |
Goodwill write-downs (8) | — | | | 82,454 | | | — | |
| | | | | |
| | | | | |
| Stock-based compensation | 17,308 | | | 17,432 | | | 15,581 | |
Non-service pension and postretirement expense (9) | 1,640 | | | 31,823 | | | 5,837 | |
| Total Adjusted EBITDA | $ | 225,809 | | | $ | 210,408 | | | $ | 227,750 | |
Operating profit for fiscal 2016 | | |
(1) Includes fees for receivables sold under the RPA and factoring arrangements totaling$4.0 millionand $1.0 million for the fiscal years ended September 30, 2023 and 2022, respectively. |
(2) Includes certain non-recurring costs associated with recent acquisition and divestiture activities, and also includes a gain of $1.8 million in fiscal year 2023 related to the divestiture of a business in the Industrial Technologies segment. |
(3) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels and costs associated with global ERP system integration efforts, net of loss recoveries of $2.2 million in fiscal year 2023 related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. |
|
(4) Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19. |
(5) Represents exchange losses associated with highly inflationary accounting related to the Company's Turkish subsidiaries (see Note 2, "Summary of Significant Accounting Policies" in Item 8 - “Financial Statements and Supplementary Data”). |
(6) Represents items associated with the termination of the Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan. |
(7) Represents asset write-downs, net of recoveries within the SGK Brand Solutions segment (see Note 23, "Asset Write-Downs" in Item 8 - “Financial Statements and Supplementary Data”). |
(8) Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 22, "Goodwill and Other Intangible Assets" in Item 8 - “Financial Statements and Supplementary Data”). |
|
|
(9) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and losses, and settlement gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. Curtailment gains and losses and settlement gains and losses are excluded from adjusted EBITDA since they generally result from certain non-recurring events, such as plan amendments to modify future benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans. |
* Depreciation and amortization was $118.8$23.7 million, compared to $105.0$23.2 million, and $23.0 million, for fiscal 2015. The SGK Brand Solutionsthe Memorialization segment, operating profit for fiscal 2016 was $42.9$23.2 million, compared to $21.9$11.4 million, and $11.4 million for fiscal 2015. The increase inthe Industrial Technologies segment, operating profit principally resulted from cost reductions primarily as a result of acquisition integration activities, partially offset by a decline in sales,$44.8 million, $64.2 million, and the unfavorable impact of changes in foreign currency values against the U.S. dollar of approximately $1.2 million. Additionally, operating profit$93.7 million for the SGK Brand Solutions segment, included expenses of $25.0and $4.8 million, $5.3 million, and $5.4 million for cost reductionCorporate and Non-Operating, for the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives (primarily related to acquisition integration) in fiscal 2016. SGK Brand Solutions operating profit in fiscal 2015 includedand other charges totaling $39.5were $1.0 million, representing acquisition integration expenses, trade name write-offs,$3.5 million, and expenses related to strategic cost-reduction initiatives.$1.9 million for the Memorialization segment, operating profit for fiscal 2016 was $68.3$4.1 million, compared to $70.1$5.6 million, for fiscal 2015. Segment operating profit was favorably impacted by the Aurora acquisition, which was more than offset by charges totaling $10.4and $4.0 million primarily representing acquisition integration costs, a $3.1 million increase in intangible asset amortization as a result of the Aurora acquisition, and lower casket sales. Memorialization segment operating profit in fiscal 2015 was unfavorably impacted by charges totaling $6.4 million, primarily consisting of acquisition-related costs, and expenses related to productivity improvements and strategic cost-reduction initiatives. Memorialization segment operating profit in fiscal 2015 also reflected the favorable impact of the settlement of litigation, net of related expenses, of $9.0 million. Operating profit for the Industrial Technologies segment, for fiscal 2016 was $7.7$10.9 million, compared to $13.1$19.4 million, in fiscal 2015, primarily reflecting lower sales and an unfavorable change in product mix in fiscal 2016.
Investment income$12.3 million for the yearSGK Brand Solutions segment, and $3.2 million, $7.5 million, and $11.3 million for Corporate and Non-Operating, for the fiscal years ended September 30, 2016 was $2.12023, 2022, and 2021, respectively.
*** Non-recurring/incremental COVID-19 costs were $1.3 million. and $3.6 million compared to $175,000 for the yearMemorialization segment, $6,000, and $38,000 for the Industrial Technologies segment, $1.2 million, and $1.5 million for the SGK Brand Solutions segment, $466,000, and $89,000 for Corporate and Non-Operating, for the fiscal years ended September 30, 2015. The increase reflected higher rates of return on investments held in trust for certain of the Company's benefit plans. Interest expense for fiscal 2016 was $24.3 million, compared to $20.6 million in fiscal 2015. The increase in interest expense primarily reflected higher average debt levels resulting from the acquisition of Aurora in August 2015. Other income (deductions), net, for the year ended September 30, 2016 represented a decrease in pre-tax income of $1.3 million, compared to an increase in pre-tax income of $5.1 million in fiscal 2015. Other income2022, and deductions generally include banking-related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated receivables and payables. Fiscal 2015 other income and deductions included an $11.5 million gain on the settlement of a multi-employer pension plan installment payment obligation, and $2.3 million of losses related to a theft of funds by an employee that had occurred over a multi-year period.2021, respectively.
The Company's effective tax rate for fiscal 2016 was 30.5%, compared to 29.4% for fiscal 2015. The effective tax rates for both years primarily reflected the favorable impact of the utilization of certain tax attributes with the Company’s U.S. and foreign legal entity structure. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected lower foreign income taxes offset by the impact of state taxes.
Net losses attributable to noncontrolling interests was $588,000 in fiscal 2016, compared to $161,000 in fiscal 2015. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned Memorialization and Industrial Technologies businesses.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $149.3$79.5 million for the year ended September 30, 2017,2023, compared to $140.3$126.9 million and $141.1$162.8 million for fiscal years 20162022 and 2015,2021, respectively. Operating cash flow for fiscal 20172023 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, and non-cash pension expense, gain on divestitures and a decreasesale of assets, and other non-cash adjustments, and changes in working capital items,items. Fiscal 2023 operating cash flow also reflected $24.2 million of contributions to fund the settlement of the Company's SERP and ORRP obligations, and $10.5 million of proceeds from the settlement of cash flow hedges. The change in working capital in fiscal 2023 primarily reflected higher inventory levels, lower trade accounts payable, and changes in contract assets and liabilities related to products and services provided to customers over time, partially offset by cash contributionsproceeds from the sale of $8.7 million to the Company's pensionreceivables under a receivables purchase agreement and other postretirement plans.a non-recourse factoring arrangement (see below for further discussion). Operating cash flow for fiscal 20162022 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, goodwill and other asset write-downs, non-cash pension expense, gain on divestitures and a decreasesale of assets, and other non-cash adjustments, and changes in working capital items,items. Fiscal 2022 operating cash flow also reflected $35.7 million of contributions to fully fund the settlement of the Company's DB Plan obligations. The favorable movements in working capital in fiscal 2022 primarily reflected proceeds from the sale of receivables under a receivables purchase agreement, partially offset by cash contributions of $18.9 million to the Company's pensionhigher inventory levels reflecting increased commodity costs, lower performance-based compensation accruals, and changes in other postretirement plans.accounts. Operating cash flow for fiscal 20152021 principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, trade name write-offs,net gains related to investments, and an increase in deferred taxes, partially offset by an increasenon-cash pension expense, and changes in working capital items anditems. Fiscal 2021 operating cash contributions of $3.3flow also reflected a $15.0 million discretionary contribution to fund the Company's pension and other postretirement plans.DB Plan. The favorable movements in working capital in fiscal 2021 primarily reflected increased trade accounts payable.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Cash used in investing activities was $141.6$58.7 million for the year ended September 30, 2017,2023, compared to $47.1$80.9 million and $263.2$13.0 million for fiscal years 20162022 and 2015,2021, respectively. Investing activities for fiscal 20172023 primarily reflected capital expenditures of $44.9$50.6 million, and acquisition payments (net of cash acquired or received from sellers) of $98.2$15.3 million, (see "Acquisitions" below). purchases of investments of $1.6 million, proceeds from the sale of assets of $2.1 million, and proceeds from divestitures of $6.7 million. Investing activities for fiscal 20162022 primarily reflected capital expenditures of $41.7$61.3 million, and acquisition payments (net of cash acquired or received from sellers) of $6.9$44.5 million, primarily forpurchases of investments of $2.2 million, proceeds from the DDI acquisition.sale of assets of $5.0 million, proceeds from the sale of investments of $8.8 million, and proceeds from the settlement of net investment hedges of $13.1 million. Investing activities for fiscal 20152021 primarily reflected capital expenditures of $48.3$34.3 million, acquisition payments (net of cash acquired)acquired or received from sellers) of $213.5$15.6 million, primarily for the Aurora acquisition, net proceeds of $10.4 million from the sale of a subsidiary,assets of $2.8 million, and paymentproceeds from the sale of $12.9 million related to a letterinvestments of credit issued for a customer (see discussion below).$34.2 million.
Capital expenditures were $44.9$50.6 million for the year ended September 30, 2017,2023, compared to $41.7$61.3 million and $48.3$34.3 million for fiscal 2016years 2022 and 2015,2021, respectively. Capital expenditures in each of the last three fiscal years reflected reinvestments in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements. Capital spending for property, plant and equipment has averaged $45.0$48.7 million for the last three fiscal years. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for fiscal 20182024 is currently expectedestimated to be approximately $75 million. Capital spending in fiscal years 2022 through 2024 reflects additional capital projects to support new production capabilities and increased efficiencies within the range of $45 million to $50 million. Memorialization and Industrial Technologies segments. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.
Cash used in financing activities for the year ended September 30, 20172023 was $7.2$50.2 million, and principally reflected proceeds,repayments, net of repayments,proceeds, on long-term debt of $28.6$18.2 million, purchases of treasury stock of $14.0$2.9 million, and payment of dividends to the Company's shareholders of $21.8$28.2 million ($0.680.92 per share). Cash used in financing activities for the year ended September 30, 20162022 was $108.8$37.2 million, and principally reflected proceeds, net of repayments, on long-term debt of $35.7 million, purchases of treasury stock of $41.7 million, payment of dividends to the Company's shareholders of $27.7 million ($0.88 per share), and $725,000 of holdback and contingent consideration payments related to acquisitions from prior years. Cash used in financing activities for the year ended September 30, 2021 was $122.9 million, and principally reflected repayments, net of proceeds, on long-term debt of $30.0$76.8 million, purchases of treasury stock of $58.0 million, proceeds from stock option exercises of $6.4$11.9 million, payment of dividends to the Company's shareholders of $19.4$27.7 million ($0.600.86 per share), $1.8 million of holdback and contingent consideration payments related to acquisitions from prior years, and $1.8 million of payments for the acquisition of noncontrolling interest of $5.6 million, and payment of deferred financing fees of $2.3 million. Cash provided by financing activities for the year ended September 30, 2015 was $131.2 million, and reflected proceeds, net of repayments, on long-term debt of $179.2 million, purchases of treasury stock of $14.6 million, payment of contingent consideration of $484,000, proceeds from stock option exercises of $4.0 million, payment of dividends to the Company's shareholders of $17.8 million ($0.54 per share), and payment of $18.2 million to settle a multi-employer pension plan installment payment obligation.interests.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900.0$750.0 million senior secured revolving credit facility, and a $250.0 million senior secured amortizing term loan. The term loan requires scheduled principal payments of 5.0% of the outstanding principalwhich matures in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments. The balanceMarch 2025. A portion of the revolving credit facility and(not to exceed $350.0 million ) can be drawn in foreign currencies. In March 2023, an amendment to the term loan are due ondomestic credit facility implemented SOFR as the maturity datereplacement of April 26, 2021.LIBOR as the benchmark interest rate under the facility. The Company accounted for the change in reference rate as a non-substantial modification. Borrowings under both the revolving credit facility andnow bear interest at SOFR, plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 0.75% to 2.00% (1.25% at September 30, 2023) based on the term loan bearCompany's secured leverage ratio. Previously, borrowings under the revolving credit facility bore interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.75% at September 30, 2017) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by adjusted 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 0.25%0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $949,000 and $1.5 million at September 30, 2023 and September 30, 2022, respectively.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35.0$55.0 million) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 20172023 and 20162022 were $525.0$405.0 millionand $608.0$428.0 million, respectively. Outstanding Euro denominated borrowings on the term loanrevolving credit facility at September 30, 20172023 and 20162022 were $232.5€55.0 million ($58.2 million) and $246.4€45.0 million ($44.1 million), respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps)swaps and Euro denominated borrowings) at September 30, 20172023 and 20162022 was 3.01%5.95% and 2.59%3.13%, respectively.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)The Company has$299.6 million of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $1.1 million and $1.7 million at September 30, 2023 and 2022, respectively.
During fiscal 2017, the Company entered into a two-year $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. Under the Securitization Facility, theThe Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. In March 2022, Matthews RFC in turn assignsentered into a collateral interest in thesereceivables purchase agreement (“RPA”) to sell up to $125.0 million of receivables to certain financial institutions,purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and then may borrow fundssales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the Securitization Facility. RPA, and is responsible for administering and collecting receivables.
The Securitization Facility does not qualify forproceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale treatment. Accordingly,of receivables was recorded. As of September 30, 2023, and 2022, the amount sold to the Purchasers was $101.8 million and $96.6 million, respectively which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $57.9 million and $44.3 million as of September 30, 2023 and 2022, respectively.
The following table sets forth a summary of receivables sold as part of the RPA:
| | | | | | | | | | | | | | |
| | For the Year Ended September 30, |
| | 2023 | | 2022 |
| Gross receivables sold | | $ | 393,493 | | | $ | 424,789 | |
| Cash collections reinvested | | (388,283) | | | (328,199) | |
| Net cash proceeds received | | $ | 5,210 | | | $ | 96,590 | |
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
In March 2023, the Company, through its U.K. subsidiary, entered into a non-recourse factoring arrangement. In connection with this arrangement, the Company periodically sells trade receivables and related debt obligations remain onto a third-party purchaser in exchange for cash. These transfers of financial assets are recorded at the time the Company surrenders control of the assets. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are de-recognized from the Company's Consolidated Balance Sheet. BorrowingsSheets upon transfer. The principal amount of receivables sold under this arrangement was $55.2 million during the Securitization Facility bear interest at LIBOR plus 0.75%. fiscal year ended September 30, 2023. The discounts on the trade receivables sold are included within administrative expense in the Consolidated Statements of Income. The proceeds from the sale of receivables are classified as operating activities in the Company's Consolidated Statements of Cash Flows. As of September 30, 2023, the amount of factored receivables that remained outstanding was $18.0 million.
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is required to pay an annual commitment fee ranging from 0.25% to 0.35%guaranteed by Matthews. The maximum amount of the unused portion of the Securitization Facility. The Company had $95.8borrowings available under this facility is €10.0 million in($10.6 million). This facility also provides €18.5 million ($19.6 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. There were no outstanding borrowings under the Securitization Facility as ofcredit facility at September 30, 2017. At2023. Outstanding borrowings under the credit facility totaled €8.2 million ($8,050) at September 30, 2017, the2022. The weighted-average interest rate on outstanding borrowings under this facility was 1.98%.2.25% at September 30, 2022.
Other borrowings totaled $19.2 million and $13.4 million at September 30, 2023 and 2022, respectively. The weighted-average interest rate on these borrowings was 2.95% and 1.85% at September 30, 2023 and 2022, respectively.
The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. The following table presents information related to interest rate contractsswaps entered into by the Company and designated as cash flow hedges:
| | | | | | | | September 30, 2023 | | September 30, 2022 |
| | | September 30, 2017 | | September 30, 2016 | | (Dollar amounts in thousands) |
| Notional amount | | Notional amount | | $ | 175,000 | | | $ | 125,000 | |
| | | (Dollars in thousands) | |
| Pay fixed swaps - notional amount | | $ | 414,063 |
| | $ | 403,125 |
| |
| Net unrealized gain (loss) | | $ | 3,959 |
| | $ | (5,834 | ) | |
| Weighted-average maturity period (years) | | 3.3 |
| | 3.9 |
| Weighted-average maturity period (years) | | 4.1 | | 3.1 |
| Weighted-average received rate | | 1.23 | % | | 0.53 | % | Weighted-average received rate | | 5.32 | % | | 3.14 | % |
| Weighted-average pay rate | | 1.34 | % | | 1.26 | % | Weighted-average pay rate | | 3.83 | % | | 1.04 | % |
The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. In order to transition the Company's swaps from LIBOR-based to SOFR-based rates, the LIBOR-based swaps were settled during the second quarter of fiscal 2023, resulting in cash proceeds of $10.5 million. Concurrently, the Company entered into new interest rate swaps with SOFR-based rates with a notional amount of $175.0 million. 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 ana net unrealized gain net of unrealized losses, of $4.0 million ($2.43.0 million after tax) and an unrealized loss, net of unrealized gains, of $5.8$10.7 million ($3.67.9 million after tax) at September 30, 20172023 and 2016,2022, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Unrecognized gains of $8.1 million ($6.0 million after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of September 30, 2023. Assuming market rates remain constant with the rates at September 30, 2017,2023, a gain (net of tax) of approximately $666,000$3.9 million included in AOCI is expected to be recognized in earnings over the next twelve months.
The Companyhas a U.S. Dollar/Euro cross currency swap with a notional amount of $81.4 million as of September 30, 2023 and 2022, which has been designated as a net investment hedge of foreign operations. The swap contract matures in September 2027. The Company through certainassesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A loss of its European subsidiaries, has$2.1 million (net of income taxes of $701,000) and a credit facility withgain of $2.8 million (net of income taxes of $940,000), which represented effective hedges of net investments, were reported as a European bank, which is guaranteed by Matthews International Corporation. The maximum amountcomponent of borrowings available under this facility is €35.0 million ($41.3 million). The credit facility matures in December 2018 and the Company intends to extend this facility. Outstanding borrowings under this facility were €22.1 million ($26.1 million)AOCI within currency translation adjustment at September 30, 2017. There were no outstanding borrowings under this facility at September 30, 2016. The weighted-average interest rate on this facility at September 30, 2017 was 1.75%.
In November 2016,2023 and 2022, respectively. Income of $1.2 million and $1.6 million, which represented the Company’s German subsidiary, Matthews Europe GmbH & Co. KG, issued €15.0 million ($17.7 million at September 30, 2017) of senior unsecured notes with European banks. The notes are guaranteed by Matthews International Corporation and mature in November 2019. Arecognized portion of the notes (€5.0 million) havefair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a fixedcomponent of interest rate of 1.40%,expense for fiscal 2023 and the remainder bear interest at Euro LIBOR plus 1.40%. The weighted-average interest rate on the notes atfiscal 2022, respectively. At September 30, 2017 was 1.40%.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
2023 and 2022, the swap totaled $2.8 million and $3.7 million, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.
The Company through its Italian subsidiary, Matthews International S.p.A.previously used certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $5.4 million (net of income taxes of $1.7 million), has several loans with various Italian banks. Outstanding borrowings on these loans totaled €2.6 million ($3.1 million) and €3.2 million ($3.5 million)which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2017 and 2016, respectively. 2021.
The maturity datesCompany enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for these loans range from October 2017 through November 2019. Matthews International S.p.A. also has multiple on-demand lineshedge accounting but which have the economic impact of credit totaling €11.3 million ($13.4 million) with the same Italian banks. Outstanding borrowings on these lines were €4.0 million ($4.7 million) and €5.2 million ($5.8 million) at September 30, 2017 and 2016, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at September 30, 2017 and 2016 was 2.2% and 1.8%, respectively.
Other debt totaled $1.0 million and $4.6 million at September 30, 2017 and 2016, respectively. The weighted-average interest rate on these outstanding borrowings was 5.04% and 3.31% at September 30, 2017 and 2016, respectively.
In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8.6 million ($11.5 million at September 30, 2017) with respect to a performance guarantee on a project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the courtlargely mitigating foreign currency exposure. Changes in the United Kingdom (the "Court"). Pursuant to this action, an order was issued by the Courtfair value of these economic hedges are recorded in January 2015 requiring that, upon receipt by the customer, the fundscurrent period earnings as a component of other income (deductions), net. During fiscal 2022, net gains from economic hedges (which largely offset losses from underlying foreign currency exposures) totaled $4.7 million. No such economic hedge contracts were to be remitted by the customer to the Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the Courtoutstanding as ordered. On June 14, 2016, the Court ruled completely in favor of Matthews following a trial on the merits. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations. As of September 30, 2017, the Company has determined that resolution of this matter may take an extended period of time and therefore has reclassified the funded letter of credit from other current assets to other assets on the Consolidated Balance Sheet. The Company will continue to assess collectability related to this matter as facts and circumstances evolve. As of September 30, 2016, the Company presented the funded letter of credit within other current assets on the Consolidated Balance Sheet.2023 or 2022.
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. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 1,816,1461,195,013 shares remain available for repurchase as of September 30, 2017.2023.
In May 2016, the Company purchased 970,000 common shares under the buy-back program from members of the Schawk family, including David A. Schawk (who is a member of the Board of Directors of the Company and the Company's President, SGK Brand Solutions) and certain family members of Mr. Schawk and/or trusts established for the benefit of Mr. Schawk or his family members. The purchase price for the shares purchase was $50.6921625 per share, which was equal to 96.76% of the average of the high and low trading prices for the common stock as reported on the Nasdaq Global Select Market on May 12, 2016.
At September 30, 2017, approximately $56.2 million of cash and cash equivalents were held by international subsidiaries whose undistributed earnings are considered permanently reinvested. The Company's intent is to reinvest these funds in our international operations and current plans do not demonstrate a need to repatriate them to fund U.S. operations. If the Company decides at a later date to repatriate these funds to the U.S., it may be required to provide taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid.
Consolidated working capital was $309.9$253.7 million at September 30, 2017,2023, compared to $314.8$217.2 million at September 30, 2016.2022. Cash and cash equivalents were $57.5$42.1 million at September 30, 2017,2023, compared to $55.7$69.0 million at September 30, 2016.2022. The Company's current ratio was 2.11.6 and 2.21.5 at September 30, 20172023 and 2016,2022, respectively.
Long-Term Contractual Obligations:
The following table summarizes the Company's contractual obligations at September 30, 2023, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due in fiscal year: |
| Total | | 2024 | | 2025 to 2026 | | 2027 to 2028 | | After
2028 |
| Contractual Cash Obligations: | (Dollar amounts in thousands) |
| Revolving credit facilities | $ | 463,168 | | | $ | — | | | $ | 405,000 | | | $ | — | | | $ | 58,168 | |
| | | | | | | | | |
| | | | | | | | | |
| 2025 Senior Notes | 337,875 | | | 15,750 | | | 322,125 | | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
Finance lease obligations (1) | 10,307 | | | 3,034 | | | 3,840 | | | 2,170 | | | 1,263 | |
Non-cancelable operating leases (1) | 79,413 | | | 26,123 | | | 36,646 | | | 13,169 | | | 3,475 | |
| | | | | | | | | |
| Other | 28,380 | | | 1,037 | | | 17,624 | | | 2,299 | | | 7,420 | |
| Total contractual cash obligations | $ | 919,143 | | | $ | 45,944 | | | $ | 785,235 | | | $ | 17,638 | | | $ | 70,326 | |
(1)Lease obligations have not been discounted to their present value.
In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24.2 million to fully settle the Company's non-qualified Supplemental Retirement Plan ("SERP") and defined benefit portion of the Company's Officers Retirement Restoration Plan ("ORRP") obligations. The settlement of these plan obligations resulted in the recognition of a non-cash charge of $1.3 million, which has been presented as a component of other income (deductions), net for the year ended September 30, 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP. During fiscal 2023, the remaining funds held in a rabbi trust associated with the SERP were transferred to the Company. Consequently, these amounts are no longer classified as restricted cash.
Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of September 30, 2023, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.8 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
ACQUISITIONS AND DIVESTITURES:
ENVIRONMENTAL MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. The Company is party to various environmental matters which include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at these sites, as appropriate. Refer to Note 16, "Environmental Matters" in Item 8 - "Financial Statements and Supplementary Data," for further details.
ACQUISITIONS:
Refer to Note 19, "Acquisitions"21, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data," for further details on the Company's acquisitions.acquisitions and divestitures.
FORWARD-LOOKING INFORMATION:
The Company's current strategy to attain annual growthManagement routinely develops and reviews with the Company’s Board of Directors strategic plans with the primary objective of continuous improvement in earnings per share primarily consists of the following: internal growth (which includesCompany’s consolidated sales and operating results. Strategic plans are developed at the business segment level and generally contain strategies for organic growth and acquisitions. Organic growth primarily reflects the Company’s internal efforts to grow its businesses including commercial activities, cost structure and productivity improvements, new product development, and the expansion into new markets with existing products),products. Growth through acquisitions reflects the benefits from acquired businesses and also includes related integration activities to achieve commercial and cost synergy benefits.
With respectThe significant factors influencing organic sales growth in the Industrial Technologies segment include economic/industrial market conditions, new product development, and the electric vehicles ("EV") and e-commerce trends. The Industrial Technologies segment received over $200 million of new orders during the fiscal 2023 first quarter for its energy storage solutions business. The orders have been received from multiple EV, fuel cell, and battery manufacturers and are expected to fiscal 2018,impact the segment’s sales through mid-fiscal 2024. For the Memorialization segment, the Company expects to continue to devote a significantthat sales growth will be influenced by North America death rates and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products. For the SGK Brand Solutions segment, the Company expects that sales growth will be influenced by global economic conditions, brand innovation, the level of effort tomarketing spending by the integration of recent acquisitions, including systems integration.Company's clients, and government regulation. Due to the sizeglobal footprint of these acquisitionsthe Company’s businesses, particularly the Industrial Technologies and the projected synergy benefits from integration, these effortsSGK Brand Solutions segments, currency fluctuations can also be a significant factor on Company’s U.S. dollar reported results.
Recent labor cost increases, supply chain challenges, and other inflation-related impacts are anticipatedexpected to continue for an extended period of time. The costs associated with these integrations will impact the Company's operating results for fiscal 2018. Consistent with its practice, the near future. The Company plansexpects to identifypartially mitigate these costs on a quarterly basis as incurred.cost increases through price realization and cost-reduction initiatives.
CRITICAL ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K.
The Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition. The following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's consolidated financial statements for the year ended September 30, 2017.2023.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Long-Lived Assets, including Property, Plant and Equipment:
Long-lived assets are recorded at their respective cost basis on the date of acquisition. Depreciation on property, plant and equipment is computed primarily on the straight-line method over the estimated useful lives of the assets. Intangible assets with finite useful lives are amortized over their estimated useful lives. The Company reviews long-lived assets, including property, plant and equipment, and intangibles with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during the years presented, except as disclosed in Note 23, “Asset Write-Downs" in Item 8 - "Financial Statements and Supplementary Data."
Goodwill and Indefinite-Lived Intangibles:
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may exist. In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets. For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including discounted cash flows.flows and other market indicators. A number of assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including sales volumes and pricing, costs to produce, tax rates, capital spending, working capital changes, and discount rates. The Company estimates future cash flows using volume and pricing assumptions based largely on existing customer relationships and contracts, and operating cost assumptions management believes are reasonable based on historical performance and projected future performance as reflected in its most recent operating plans and projections. The discount rates used in the discounted cash flow analyses are developed with the assistance of valuation experts and management believes the discount rates appropriately reflect the risks associated with the Company's operating cash flows. In order to further validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization is performed using a reasonable control premium.
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2017. The Company2023 (January 1, 2023) and determined that the estimated fair valuevalues for all goodwill reporting units exceeded their carrying value,values, therefore no adjustments toimpairment charges were necessary. The estimated fair value of the Company's SGK Brand Solutions reporting unit exceeded the carrying value (expressed as a percentage of carrying value) by approximately 9% as of January 1, 2023. In light of the limited excess fair value over carrying value and further declines experienced by the SGK Brand Solutions reporting unit, management determined that a triggering event occurred during the fourth quarter of fiscal 2023, resulting in an interim assessment of goodwill were necessary at March 31, 2017. There were no impairments identified duringfor the reporting unit, as of September 1, 2023. The results of this review indicated that the estimated fair value of the Company's annual assessmentSGK Brand Solutions reporting unit exceeded the carrying value (expressed as a percentage of indefinite-lived intangible assets.
Pension and Postretirement Benefits:
Pension assets and liabilities arecarrying value) by approximately 4%. The fair value for the reporting unit was determined on an actuarial basis and are affected by the market value of plan assets,using level 3 inputs (including estimates of the expected return on plan assetsrevenue growth, EBITDA contribution and the discount rate used to determinerates) and a combination of the present valueincome approach using the estimated discounted cash flows and a market-based valuation methodology. If current projections are not achieved or specific valuation factors outside the Company's control (such as discount rates and continued economic and industry challenges) significantly change, additional goodwill write-downs may be necessary in future periods.
In fiscal 2022, in its assessment of benefit obligations. Actualthe potential impacts of weakened economic conditions (particularly in Europe), increases in the cost of certain materials, labor, and other inflation-related pressures, and unfavorable changes in foreign exchange rates on the fair market value of plan assetsestimated future earnings and differences betweencash flows for the actual return on plan assets, the expected return on plan assetsSGK Brand Solutions reporting unit, and changes in the selected discount rate will affect the amount of pension cost.
The Company's principal pension plan maintains a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company's pension board. Based on an analysislight of the historical performancelimited excess fair value over carrying value for this reporting unit, management determined a triggering event occurred, resulting in a re-evaluation of goodwill for the plan's assets and information provided by its independent investment advisor,reporting unit, as of September 1, 2022. As a result of this interim assessment, the Company setrecorded a goodwill write-down totaling $82.5 million during the long-term rate of return assumption for these assets at 6.75% at September 30, 2016 for purposes of determining fiscal 2017 pension cost. The Company's discount rate assumption used in determining2022 fourth quarter. Subsequent to this write-down, the presentfair value of the projected benefit obligation is based upon published indices as ofSGK Brand Solutions reporting unit approximated its carrying value at September 30, 2017 and September 30, 20161, 2022. The fair value for the fiscal year end valuation. Thereporting unit was determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rate was 3.76%, 3.51%rates) and 4.25% in fiscal 2017, 2016a combination of the income approach using the estimated discounted cash flows and 2015, respectively. Refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K, for disclosure about the hypothetical impact of changes in actuarial assumptions.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
a market-based valuation methodology.
Income Taxes:
Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
income taxes for U.S. tax purposes have not been provided on certain undistributed earnings of foreign subsidiaries assince they have either been previously taxed, or are exempt from tax, or such earnings are considered to be reinvested indefinitely. To the extent earnings are expected to be returnedindefinitely in the foreseeable future, the associated deferred tax liabilities are provided. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable, due to the complexities of the hypothetical calculation.foreign operations.
INFLATION:
LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The following table summarizes the Company's contractual obligations at September 30, 2017,Recent labor cost increases and the effect such obligations are expected toother inflation-related pressures have on its liquidity and cash flows in future periods.
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments due in fiscal year: |
| | Total | | 2018 | | 2019 to 2020 | | 2021 to 2022 | | After 2022 |
| Contractual Cash Obligations: | (Dollar amounts in thousands) |
| Revolving credit facilities | $ | 551,126 |
| | $ | — |
| | $ | 26,126 |
| | $ | 525,000 |
| | $ | — |
|
| Securitization facility | 95,825 |
| | — |
| | 95,825 |
| | — |
| | — |
|
| Senior secured term loan | 232,479 |
| | 20,313 |
| | 50,000 |
| | 162,166 |
| | — |
|
| Notes payable to banks | 21,831 |
| | 3,375 |
| | 18,456 |
| | — |
| | — |
|
| Short-term borrowings | 4,735 |
| | 4,735 |
| | — |
| | — |
| | — |
|
| Capital lease obligations | 6,519 |
| | 1,281 |
| | 1,371 |
| | 1,074 |
| | 2,793 |
|
| Non-cancelable operating leases | 75,708 |
| | 21,939 |
| | 27,554 |
| | 13,835 |
| | 12,380 |
|
| Total contractual cash obligations | $ | 988,223 |
| | $ | 51,643 |
|
| $ | 219,332 |
| | $ | 702,075 |
| | $ | 15,173 |
|
A significant portion of the loans included in the table above bear interest at variable rates. At September 30, 2017, the weighted-average interest rate was 3.01%had an unfavorable impact on the Company's domestic credit facility, 1.98% on the Company's Securitization Facility, 1.75% on the credit facility through the Company's European subsidiaries, 1.40% on notes issued by the Company's wholly-owned subsidiary, Matthews Europe GmbH & Co. KG, 2.20% on bank loans to the Company's wholly-owned subsidiary, Matthews International S.p.A., and 5.04% on other outstanding debt.
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. Under I.R.S. regulations, the Company was required to make a $5.1 million contribution to its principal retirement plan in fiscal 2017.
The Company is not required to make any significant cash contributions to its principal retirement plan in fiscal 2018. The Company estimates that benefit payments to participants under its retirement plans (including its supplemental retirement plan) and postretirement benefit payments will be approximately $10.1 million and $1.0 million, respectively, in fiscal 2018. The amounts are expected to increase incrementally each year thereafter, to $12.8 million and $1.1 million, respectively, in 2022. 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 7.MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
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 statuteresults of limitations expires, then additional payments will not be necessary. As of September 30, 2017, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $8.0 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.
INFLATION:
Except for the volatility in the cost of bronze ingot, steel, wood and fueloperations (see "Results of Operations"),. Although recent economic conditions increase the level of uncertainty in the Company's near-term outlook, inflation hasis not had a material impact on the Company over the past three years nor is itcurrently anticipated to have a material impact for the foreseeable future.on a long-term basis.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Refer to Note 3, "Accounting Pronouncements" in Item 8 - "Financial Statements and Supplementary Data," for further details on recently issued accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The following discussion about the Company's market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates. The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.
Interest Rates - The Company's most significant long-term debt instrument is the domestic credit facility. U.S. dollar denominated debt under the domestic credit facility which bears interest at variable rates based on LIBOR.SOFR (LIBOR for periods prior to March 2023).
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 |
| | (Dollar amounts in thousands) |
| Pay fixed swaps - notional amount | | $ | 175,000 | | | $ | 125,000 | |
| | | | |
| Weighted-average maturity period (years) | | 4.1 | | 3.1 |
| Weighted-average received rate | | 5.32 | % | | 3.14 | % |
| Weighted-average pay rate | | 3.83 | % | | 1.04 | % |
|
| | | | | | | | |
| | | September 30, 2017 | | September 30, 2016 |
| | | (Dollars in thousands) |
| Pay fixed swaps - notional amount | | $ | 414,063 |
| | $ | 403,125 |
|
| Net unrealized gain (loss) | | $ | 3,959 |
| | $ | (5,834 | ) |
| Weighted-average maturity period (years) | | 3.3 |
| | 3.9 |
|
| Weighted-average received rate | | 1.23 | % | | 0.53 | % |
| Weighted-average pay rate | | 1.34 | % | | 1.26 | % |
The interest rate swaps have been designated as cash flow hedges of the future variable interest payments which are considered probable of occurring. Based on the Company's assessment, all the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.
The fair value of the interest rate swaps reflected ana net unrealized gain net of unrealized losses, of $4.0 million ($2.43.0 million after-tax) at September 30, 20172023 that is included in equity as part of AOCI. A hypothetical decrease of 10%in market interest rates (e.g., a decrease from 5.0% to 4.5%) would result in a decrease of approximately $223,800$502,000 in the fair value of the interest rate swaps.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, (continued)
Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to the purchases of certain materials and supplies (such as bronze ingot, steel, fuel and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available. In addition, based on competitive market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar arrangements, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited.
Foreign Currency Exchange Rates - The Company is subject to changes in various foreign currency exchange rates, primarily including the Euro, British Pound, Canadian Dollar, and Australian Dollar in the conversion from local currencies to the U.S. dollar of the reported financial position and operating results of its non-U.S. based subsidiaries. An adverse change (strengthening U.S. dollar) of 10% in exchange rates would have resulted in a decrease in reported sales of $50.1$69.5 million and a decrease in reported operating income of $4.2$3.4 million for the year ended September 30, 2017.2023.
As of September 30, 2023, the Company had a foreign currency derivative contract (U.S. Dollar/Euro cross currency swap) with a notional amount of $81.4 million designated as a net investment hedge of foreign operations. The net unrealized loss for this swap contract at September 30, 2023 was of $2.1 million (net of income taxes of $701,000). As of September 30, 2023, the potential gain or loss in the fair value of the swap contract assuming a hypothetical 10% fluctuation in the market rates would be approximately $9.0 million.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, (continued)
Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to the purchases of certain materials and supplies (such as bronze ingot, steel, granite, fuel and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available. In addition, based on competitive market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar arrangements, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited.
Actuarial Assumptions - As of September 30, 2023, all of the Company's defined benefit plans are unfunded. The most significant actuarial assumptionsassumption affecting pension expense and pension obligations include the valuationis discount rates. A hypothetical decrease of retirement plan assets, the1% in discount rates andwould result in an increase of approximately $2.1 million in the estimated return on plan assets. The estimated return on plan assets is currently based upon projections provided by the Company's independent investment advisor, considering the investment policy of the plan and the plan's asset allocation. The fair value of plan assets and discount rates are "point-in-time" measures, and the recent volatility of the debt and equity markets makes estimating future changes in fair value of plan assets and discount rates more challenging. The Company elected to value its principal retirement and other postretirementprojected benefit plan liabilities using a modified assumption of future mortality that reflects a significant improvement in life expectancy over the previous mortality assumptions.obligation. Refer to Note 12,15, "Pension and Other Postretirement Plans" in Item 8 – "Financial Statements and Supplementary Data" for additional information.
The following table summarizes the impact on the September 30, 2017 actuarial valuations of changes in the primary assumptions affecting the Company's retirement plans and supplemental retirement plan.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Impact of Changes in Actuarial Assumptions |
| | Change in Discount Rates | | Change in Expected Return | | Change in Market Value of Assets |
| | +1% | | -1% | | +1% | | -1% | | +5% | | -5% |
| | (Dollar amounts in thousands) |
| (Decrease) increase in net benefit cost | $ | (3,931 | ) | | $ | 4,830 |
| | $ | (1,502 | ) | | $ | 1,502 |
| | $ | (1,473 | ) | | $ | 1,473 |
|
| | | | | | | | | | | | |
| (Decrease) increase in projected benefit obligation | (31,982 | ) | | 39,902 |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
| Increase (decrease) in funded status | 31,982 |
| | (39,902 | ) | | — |
| | — |
| | 7,782 |
| | (7,782 | ) |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
| | | | | | | |
| Description | | Pages |
| | |
| Management's Report to Shareholders | | |
| | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | | |
| | |
| Report of Independent Registered Public Accounting Firm | | |
| | |
Report of Independent Registered Public Accounting FirmFinancial Statements: | | |
| | |
Financial Statements: | | |
| | |
Consolidated Balance Sheets as of September 30, 20172023 and 20162022 | | |
| | |
Consolidated Statements of Income (Loss) for the years ended September 30, 2017, 20162023, 2022 and 20152021 | | |
| | |
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2017, 20162023, 2022 and 20152021 | | |
| | |
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2017, 20162023, 2022 and 20152021 | | |
| | |
Consolidated Statements of Cash Flows for the years ended September 30, 2017, 20162023, 2022 and 20152021 | | |
| | |
| Notes to Consolidated Financial Statements | | |
| | |
Supplementary Financial Information (unaudited) | | |
| | |
| Financial Statement Schedule – Schedule II-Valuation and Qualifying | | |
Accounts for the years ended September 30, 2017, 20162023, 2022 and 20152021 | | |
MANAGEMENT'S REPORT TO SHAREHOLDERS
To the Shareholders and the Board of Directors of
Matthews International Corporation:Corporation
Management's Report on Financial Statements
The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the "Company") were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial statements.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a-15f. In order to evaluate the effectiveness of internal control over financial reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Internal controls over financial reporting is a process under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the Company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting based on criteria in Internal Control – Integrated Framework (2013) issued by the COSO, and has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2017.2023. The effectiveness of the Company's internal control over financial reporting as of September 30, 20172023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Management's Certifications
The certifications of the Company's Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in this Annual Report on Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Shareholders and the Board of Directors and Shareholders of
Matthews International Corporation and Subsidiaries:
Opinion on Internal Control Over Financial Reporting
We have audited Matthews International Corporation and Subsidiaries’ internal control over financial reporting as of September 30, 2017,2023, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Matthews International Corporation and Subsidiaries’Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated November 17, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion,/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 17, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Matthews International Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Matthews International Corporation and Subsidiaries maintained,(the Company) as of September 30, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, effective internal control overthe financial reporting asposition of the Company at September 30, 2017, based on2023 and 2022, and the COSO criteria.results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Matthews International Corporation and SubsidiariesCompany's internal control over financial reporting as of September 30, 2017 and 2016, and2023, based on criteria established in Internal Control-Integrated Framework issued by the related consolidated statementsCommittee of income, comprehensive income, shareholders' equity and cash flows forSponsoring Organizations of the years then ended of Matthews International Corporation and SubsidiariesTreadway Commission (2013 framework) and our report dated November 21, 201717, 2023 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLPBasis for Opinion
Pittsburgh, Pennsylvania
November 21, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Matthews International Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Matthews International Corporation and Subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements referredthat was communicated or required to above present fairly,be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in all material respects, the consolidated financial position of Matthews International Corporation and Subsidiaries at September 30, 2017 and 2016, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basicconsolidated financial statements, taken as a whole, presents fairly in all material respectsand we are not, by communicating the information set forth therein.critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Matthews International Corporation and Subsidiaries’ internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 21, 2017 expressed an unqualified opinion thereon.
| | | | | | | | |
| | Valuation of SGK Brand Solutions Reporting Unit Goodwill |
| Description of the Matter | | As more fully described in Note 22 to the consolidated financial statements, during 2023, the Company performed its annual goodwill impairment test as of January 1, 2023 and determined that the estimated fair value of the SGK Brand Solutions reporting unit, within the SGK Brand Solutions segment, exceeded the carrying value (expressed as a percentage of carrying value) by approximately 9%. Because of the limited excess fair value over carrying value and further declines experienced by the SGK Brand Solutions reporting unit, the Company determined that a triggering event occurred during the fourth quarter of fiscal 2023, resulting in an interim assessment of goodwill for the reporting unit as of September 1, 2023. The results of this review indicated that the estimated fair value of the Company's SGK Brand Solutions reporting unit exceeded the carrying value (expressed as a percentage of carrying value) by approximately 4%. The Company utilized a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology. Significant assumptions used in the Company’s fair value estimate included estimates of revenue growth, EBITDA contribution and the discount rates.
Auditing the annual and interim goodwill impairment analyses was complex, as it included estimating the fair value of the reporting unit. In particular, the fair value estimates are sensitive to the significant assumptions named above, which are affected by expected future market or economic conditions.
|
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s goodwill impairment review process. These controls include management’s assessment of indicators of impairment, management's review of the assumptions utilized to develop the estimate, and management’s verification of the completeness and accuracy of the underlying data utilized to project future operating results for the reporting unit.
To test the fair value of the reporting unit, our audit procedures included, among others, involving our valuation specialists to assist in assessing the valuation methodologies utilized by the Company and its valuation expert and testing the significant assumptions and underlying data used by the Company. We compared the significant assumptions used by management to current industry and economic trends, changes in the Company’s business model, and other relevant factors. We also assessed the historical accuracy of management’s estimates. We performed sensitivity analyses of significant assumptions to evaluate the sensitivity of the fair value of the reporting unit resulting from changes in key assumptions. We reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company and assessed the resulting control premium.
|
/s/ Ernst & Young LLP
Pittsburgh, PennsylvaniaWe have served as the Company’s auditor since 2016.
November 21, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directorsof
Matthews International Corporation:
In our opinion, the consolidated statements of income, comprehensive income (loss), shareholders’ equity and cash flows for the year ended September 30, 2015 present fairly, in all material respects, the results of operations and cash flows of Matthews International Corporation and its subsidiaries for the year ended September 30, 2015, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended September 30, 2015 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
November 24, 201517, 2023
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 20172023 and 20162022
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | |
| ASSETS | 2023 | | 2022 |
| Current assets: | | | |
| Cash and cash equivalents | $ | 42,101 | | | $ | 69,016 | |
Accounts receivable, net of allowance for doubtful accounts of $10,784 and $10,138, respectively | 207,526 | | | 221,015 | |
| Inventories | 260,409 | | | 225,440 | |
| Restricted cash, current | — | | | 2,398 | |
| Contract assets | 74,646 | | | 48,210 | |
| Other current assets | 63,575 | | | 62,537 | |
| | | |
| Total current assets | 648,257 | | | 628,616 | |
| | | |
| | | |
| | | |
| Investments | 24,988 | | | 25,976 | |
| | | |
| Property, plant and equipment, net | 270,326 | | | 256,065 | |
| | | |
| Operating lease right-of-use-assets | 71,629 | | | 71,974 | |
| | | |
| Deferred income taxes | 2,269 | | | 3,610 | |
| | | |
| Goodwill | 698,109 | | | 675,421 | |
| | | |
| Other intangible assets, net | 160,478 | | | 202,154 | |
| | | |
| Other assets | 11,325 | | | 18,955 | |
| | | |
| Total assets | $ | 1,887,381 | | | $ | 1,882,771 | |
|
| | | | | | | |
| ASSETS | 2017 | | 2016 |
| Current assets: | | | |
| Cash and cash equivalents | $ | 57,515 |
| | $ | 55,711 |
|
Accounts receivable, net of allowance for doubtful accounts of $11,622 and $11,516, respectively | 319,566 |
| | 294,915 |
|
| Inventories | 171,445 |
| | 162,472 |
|
| Other current assets | 46,533 |
| | 61,086 |
|
| | | | |
| Total current assets | 595,059 |
| | 574,184 |
|
| | | | |
| Investments | 37,667 |
| | 31,365 |
|
| | | | |
| Property, plant and equipment, net | 235,533 |
| | 219,492 |
|
| | | | |
| Deferred income taxes | 2,456 |
| | 775 |
|
| | | | |
| Other assets | 51,758 |
| | 19,895 |
|
| | | | |
| Goodwill | 897,794 |
| | 851,489 |
|
| | | | |
| Other intangible assets, net | 424,382 |
| | 393,841 |
|
| | | | |
| Total assets | $ | 2,244,649 |
| | $ | 2,091,041 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
September 30, 20172023 and 20162022
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | 2023 | | 2022 |
| Current liabilities: | | | |
| Long-term debt, current maturities | $ | 3,696 | | | $ | 3,277 | |
| Current portion of operating lease liabilities | 23,983 | | | 22,869 | |
| Trade accounts payable | 114,316 | | | 121,359 | |
| Accrued compensation | 58,872 | | | 58,272 | |
| Accrued income taxes | 12,561 | | | 9,277 | |
| Contract liabilities | 36,935 | | | 31,871 | |
| Other current liabilities | 144,237 | | | 164,450 | |
| Total current liabilities | 394,600 | | | 411,375 | |
| | | |
| Long-term debt | 786,484 | | | 795,291 | |
| | | |
| Operating lease liabilities | 50,189 | | | 51,445 | |
| | | |
| Deferred income taxes | 71,255 | | | 92,589 | |
| | | |
| Other liabilities | 59,572 | | | 44,995 | |
| Total liabilities | 1,362,100 | | | 1,395,695 | |
| | | |
| Shareholders' equity-Matthews: | | | |
Class A common stock, $1.00 par value; authorized 70,000,000 shares; 36,333,992 shares issued | 36,334 | | | 36,334 | |
| Preferred stock, $100 par value, authorized 10,000 shares, none issued | — | | | — | |
| Additional paid-in capital | 168,211 | | | 160,255 | |
| Retained earnings | 714,727 | | | 706,749 | |
| Accumulated other comprehensive loss | (174,404) | | | (190,191) | |
| Treasury stock, 5,864,778 and 6,035,940 shares, respectively, at cost | (219,200) | | | (225,795) | |
| Total shareholders' equity-Matthews | 525,668 | | | 487,352 | |
| Noncontrolling interests | (387) | | | (276) | |
| Total shareholders' equity | 525,281 | | | 487,076 | |
| | | |
| Total liabilities and shareholders' equity | $ | 1,887,381 | | | $ | 1,882,771 | |
|
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | 2017 | | 2016 |
| Current liabilities: | | | |
| Long-term debt, current maturities | $ | 29,528 |
| | $ | 27,747 |
|
| Trade accounts payable | 66,607 |
| | 58,118 |
|
| Accrued compensation | 62,210 |
| | 63,737 |
|
| Accrued income taxes | 21,386 |
| | 15,527 |
|
| Other current liabilities | 105,401 |
| | 94,219 |
|
| Total current liabilities | 285,132 |
| | 259,348 |
|
| | | | |
| Long-term debt | 881,602 |
| | 844,807 |
|
| | | | |
| Accrued pension | 103,273 |
| | 110,941 |
|
| | | | |
| Postretirement benefits | 19,273 |
| | 22,143 |
|
| | | | |
| Deferred income taxes | 139,430 |
| | 107,038 |
|
| | | | |
| Other liabilities | 25,680 |
| | 37,430 |
|
| Total liabilities | 1,454,390 |
| | 1,381,707 |
|
| | | | |
| Shareholders' equity-Matthews: | |
| | |
|
Class A common stock, $1.00 par value; authorized 70,000,000 shares; 36,333,992 shares issued | 36,334 |
| | 36,334 |
|
| Preferred stock, $100 par value, authorized 10,000 shares, none issued | — |
| | — |
|
| Additional paid-in capital | 123,432 |
| | 117,088 |
|
| Retained earnings | 948,830 |
| | 896,224 |
|
| Accumulated other comprehensive loss | (154,115 | ) | | (181,868 | ) |
| Treasury stock, 4,185,413 and 4,192,307 shares, respectively, at cost | (164,774 | ) | | (159,113 | ) |
| Total shareholders' equity-Matthews | 789,707 |
| | 708,665 |
|
| Noncontrolling interests | 552 |
| | 669 |
|
| Total shareholders' equity | 790,259 |
| | 709,334 |
|
| | | | |
| Total liabilities and shareholders' equity | $ | 2,244,649 |
| | $ | 2,091,041 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 2017, 2016 and 2015
(Dollar amounts in thousands, except per share data)
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Sales | $ | 1,515,608 |
| | $ | 1,480,464 |
| | $ | 1,426,068 |
|
| Cost of sales | (952,221 | ) | | (924,010 | ) | | (896,693 | ) |
| | | | | | |
| Gross profit | 563,387 |
| | 556,454 |
| | 529,375 |
|
| | | | | | |
| Selling expense | (144,174 | ) | | (140,924 | ) | | (143,299 | ) |
| Administrative expense | (306,610 | ) | | (296,715 | ) | | (281,053 | ) |
| | | | | | |
| Operating profit | 112,603 |
| | 118,815 |
| | 105,023 |
|
| | | | | | |
| Investment income | 2,468 |
| | 2,061 |
| | 175 |
|
| Interest expense | (26,371 | ) | | (24,344 | ) | | (20,610 | ) |
| Other income (deductions), net | 7,587 |
| | (1,298 | ) | | 5,064 |
|
| | | | | | |
| Income before income taxes | 96,287 |
| | 95,234 |
| | 89,652 |
|
| | | | | | |
| Income taxes | (22,354 | ) | | (29,073 | ) | | (26,364 | ) |
| | | | | | |
| Net income | 73,933 |
| | 66,161 |
| | 63,288 |
|
| | | | | | |
| Net loss (income) attributable to noncontrolling interests | 435 |
| | 588 |
| | 161 |
|
| | | | | | |
| Net income attributable to Matthews shareholders | $ | 74,368 |
| | $ | 66,749 |
| | $ | 63,449 |
|
| | | | | | |
| Earnings per share attributable to Matthews shareholders: | |
| | |
| | |
|
| | | | | | |
| Basic | $ | 2.31 |
| | $ | 2.04 |
| | $ | 1.93 |
|
| | | | | | |
| Diluted | $ | 2.28 |
| | $ | 2.03 |
| | $ | 1.91 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
for the years ended September 30, 2023, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Sales | $ | 1,880,896 | | | $ | 1,762,403 | | | $ | 1,671,030 | |
| Cost of sales | (1,303,224) | | | (1,240,125) | | | (1,129,198) | |
| | | | | |
| Gross profit | 577,672 | | | 522,278 | | | 541,832 | |
| | | | | |
| Selling expense | (140,119) | | | (128,362) | | | (130,199) | |
| Administrative expense | (307,368) | | | (298,315) | | | (285,366) | |
| Intangible amortization | (42,068) | | | (57,084) | | | (84,233) | |
| Goodwill write-downs | — | | | (82,454) | | | — | |
| | | | | |
| Operating profit (loss) | 88,117 | | | (43,937) | | | 42,034 | |
| | | | | |
| | | | | |
| Interest expense | (44,648) | | | (27,725) | | | (28,684) | |
| Other income (deductions), net | (2,559) | | | (32,557) | | | (4,117) | |
| | | | | |
| Income (loss) before income taxes | 40,910 | | | (104,219) | | | 9,233 | |
| | | | | |
| Income tax (provision) benefit | (1,774) | | | 4,391 | | | (6,375) | |
| | | | | |
| Net income (loss) | 39,136 | | | (99,828) | | | 2,858 | |
| | | | | |
| Net loss attributable to noncontrolling interests | 155 | | | 54 | | | 52 | |
| | | | | |
| Net income (loss) attributable to Matthews shareholders | $ | 39,291 | | | $ | (99,774) | | | $ | 2,910 | |
| | | | | |
| Earnings (loss) per share attributable to Matthews shareholders: | | | | | |
| | | | | |
| Basic | $ | 1.28 | | | $ | (3.18) | | | $ | 0.09 | |
| | | | | |
| Diluted | $ | 1.26 | | | $ | (3.18) | | | $ | 0.09 | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the years ended September 30, 2017, 20162023, 2022 and 20152021
(Dollar amounts in thousands) | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2023 |
| | Matthews | | Noncontrolling Interest | | Total |
| | | | | |
| Net income (loss) | $ | 39,291 | | | $ | (155) | | | $ | 39,136 | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustment | 13,114 | | | 11 | | | 13,125 | |
| Pension plans and other postretirement benefits | 1,578 | | | — | | | 1,578 | |
| Unrecognized gain (loss) on cash flow hedges: | | | | | |
| Net change from periodic revaluation | 3,056 | | | — | | | 3,056 | |
| Net amount reclassified to earnings | (1,961) | | | — | | | (1,961) | |
| Net change in unrecognized gain on cash flow hedges | 1,095 | | | — | | | 1,095 | |
| Other comprehensive income, net of tax | 15,787 | | | 11 | | | 15,798 | |
| Comprehensive income (loss) | $ | 55,078 | | | $ | (144) | | | $ | 54,934 | |
| | | | | |
| | Year Ended September 30, 2022 |
| | Matthews | | Noncontrolling Interest | | Total |
| | | | | |
| Net loss | $ | (99,774) | | | $ | (54) | | | $ | (99,828) | |
| Other comprehensive (loss) income, net of tax: | | | | | |
| Foreign currency translation adjustment | (48,059) | | | 14 | | | (48,045) | |
| Pension plans and other postretirement benefits | 41,112 | | | — | | | 41,112 | |
| Unrecognized gain on cash flow hedges: | | | | | |
| Net change from periodic revaluation | 8,148 | | | — | | | 8,148 | |
| Net amount reclassified to earnings | 1,347 | | | — | | | 1,347 | |
| Net change in unrecognized gain on cash flow hedges | 9,495 | | | — | | | 9,495 | |
| Other comprehensive income, net of tax | 2,548 | | | 14 | | | 2,562 | |
| Comprehensive loss | $ | (97,226) | | | $ | (40) | | | $ | (97,266) | |
| | | | | |
| | Year Ended September 30, 2021 |
| | Matthews | | Noncontrolling Interest | | Total |
| | | | | |
| Net income (loss) | $ | 2,910 | | | $ | (52) | | | $ | 2,858 | |
| Other comprehensive (loss) income, net of tax: | | | | | |
| Foreign currency translation adjustment | (3,370) | | | (127) | | | (3,497) | |
| Pension plans and other postretirement benefits | 47,024 | | | — | | | 47,024 | |
| Unrecognized gain on cash flow hedges: | | | | | |
| Net change from periodic revaluation | 1,873 | | | — | | | 1,873 | |
| Net amount reclassified to earnings | 2,453 | | | — | | | 2,453 | |
| Net change in unrecognized gain on cash flow hedges | 4,326 | | | — | | | 4,326 | |
| Other comprehensive income (loss), net of tax | 47,980 | | | (127) | | | 47,853 | |
| Comprehensive income (loss) | $ | 50,890 | | | $ | (179) | | | $ | 50,711 | |
|
| | | | | | | | | | | |
| | Year Ended September 30, 2017 |
| | Matthews | | Noncontrolling Interest | | Total |
| Net income (loss) | $ | 74,368 |
| | $ | (435 | ) | | $ | 73,933 |
|
| Other comprehensive income, net of tax: | |
| | |
| | |
|
| Foreign currency translation adjustment | 9,352 |
| | 119 |
| | 9,471 |
|
| Pension plans and other postretirement benefits | 12,427 |
| | — |
| | 12,427 |
|
| Unrecognized gain (loss) on derivatives: | |
| | |
| | |
|
| Net change from periodic revaluation | 7,043 |
| | — |
| | 7,043 |
|
| Net amount reclassified to earnings | (1,069 | ) | | — |
| | (1,069 | ) |
Net change in unrecognized gain (loss) on derivatives | 5,974 |
| | — |
| | 5,974 |
|
| Other comprehensive income, net of tax | 27,753 |
| | 119 |
| | 27,872 |
|
| Comprehensive income (loss) | $ | 102,121 |
| | $ | (316 | ) | | $ | 101,805 |
|
| | | | | | |
| | Year Ended September 30, 2016 |
| | Matthews | | Noncontrolling Interest | | Total |
| | | | | | |
| Net income (loss) | $ | 66,749 |
| | $ | (588 | ) | | $ | 66,161 |
|
| Other comprehensive income (loss), net of tax: | |
| | |
| | |
|
| Foreign currency translation adjustment | (17,655 | ) | | (89 | ) | | (17,744 | ) |
| Pension plans and other postretirement benefits | (12,576 | ) | | — |
| | (12,576 | ) |
| Unrecognized gain (loss) on derivatives: | |
| | |
| | |
|
| Net change from periodic revaluation | (3,230 | ) | | — |
| | (3,230 | ) |
| Net amount reclassified to earnings | 1,919 |
| | — |
| | 1,919 |
|
Net change in unrecognized gain (loss) on derivatives | (1,311 | ) | | — |
| | (1,311 | ) |
| Other comprehensive income (loss), net of tax | (31,542 | ) | | (89 | ) | | (31,631 | ) |
| Comprehensive income (loss) | $ | 35,207 |
| | $ | (677 | ) | | $ | 34,530 |
|
| | | | | | |
| | Year Ended September 30, 2015 |
| | Matthews | | Noncontrolling Interest | | Total |
| | | | | | |
| Net income (loss) | $ | 63,449 |
| | $ | (161 | ) | | $ | 63,288 |
|
| Other comprehensive income (loss), net of tax: | |
| | |
| | |
|
| Foreign currency translation adjustment | (77,237 | ) | | (150 | ) | | (77,387 | ) |
| Pension plans and other postretirement benefits | (3,823 | ) | | — |
| | (3,823 | ) |
| Unrecognized gain (loss) on derivatives: | |
| | |
| | |
|
| Net change from periodic revaluation | (4,841 | ) | | — |
| | (4,841 | ) |
| Net amount reclassified to earnings | 2,392 |
| | — |
| | 2,392 |
|
Net change in unrecognized gain (loss) on derivatives | (2,449 | ) | | — |
| | (2,449 | ) |
| Other comprehensive income (loss), net of tax | (83,509 | ) | | (150 | ) | | (83,659 | ) |
| Comprehensive loss | $ | (20,060 | ) | | $ | (311 | ) | | $ | (20,371 | ) |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2017, 20162023, 2022 and 20152021
(Dollar amounts in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
(Loss) Income
(net of tax) | | Treasury
Stock | | Non-
controlling
Interests | | Total |
| Balance, September 30, 2020 | $ | 36,334 | | | $ | 135,187 | | | $ | 859,002 | | | $ | (240,719) | | | $ | (178,997) | | | $ | 626 | | | $ | 611,433 | |
| Net income (loss) | — | | | — | | | 2,910 | | | — | | | — | | | (52) | | | 2,858 | |
Pension plans and other
postretirement benefits | — | | | — | | | — | | | 47,024 | | | — | | | — | | | 47,024 | |
| Translation adjustment | — | | | — | | | — | | | (3,370) | | | — | | | (127) | | | (3,497) | |
| Fair value of cash flow hedges | — | | | — | | | — | | | 4,326 | | | — | | | — | | | 4,326 | |
| Total comprehensive income | | | | | | | | | | | | | 50,711 | |
| Stock-based compensation | — | | | 15,581 | | | — | | | — | | | — | | | — | | | 15,581 | |
Purchase of 380,109 shares of treasury stock | — | | | — | | | — | | | — | | | (11,858) | | | — | | | (11,858) | |
Issuance of 53,377 shares of treasury stock | — | | | (2,097) | | | — | | | — | | | 2,097 | | | — | | | — | |
Cancellation of 34,727 shares of treasury stock | — | | | 1,981 | | | — | | | — | | | (1,981) | | | — | | | — | |
| Dividends | — | | | — | | | (27,704) | | | — | | | — | | | — | | | (27,704) | |
Transactions with noncontrolling
interests | — | | | (1,168) | | | — | | | — | | | — | | | (592) | | | (1,760) | |
| | | | | | | | | | | | | |
| Balance, September 30, 2021 | $ | 36,334 | | | $ | 149,484 | | | $ | 834,208 | | | $ | (192,739) | | | $ | (190,739) | | | $ | (145) | | | $ | 636,403 | |
| Net loss | — | | | — | | | (99,774) | | | — | | | — | | | (54) | | | (99,828) | |
Pension plans and other
postretirement benefits | — | | | — | | | — | | | 41,112 | | | — | | | — | | | 41,112 | |
| Translation adjustment | — | | | — | | | — | | | (48,059) | | | — | | | 14 | | | (48,045) | |
| Fair value of cash flow hedges | — | | | — | | | — | | | 9,495 | | | — | | | — | | | 9,495 | |
| Total comprehensive loss | | | | | | | | | | | | | (97,266) | |
| Stock-based compensation | — | | | 17,432 | | | — | | | — | | | — | | | — | | | 17,432 | |
Purchase of 1,363,785 shares of treasury stock | — | | | — | | | — | | | — | | | (41,717) | | | — | | | (41,717) | |
Issuance of 223,033 shares of treasury stock | — | | | (8,767) | | | — | | | — | | | 8,767 | | | — | | | — | |
Cancellation of 31,309 shares of treasury stock | — | | | 2,106 | | | — | | | — | | | (2,106) | | | — | | | — | |
| Dividends | — | | | — | | | (27,685) | | | — | | | — | | | — | | | (27,685) | |
| | | | | | | | | | | | | |
| Divestiture | — | | | — | | | — | | | — | | | — | | | (91) | | | (91) | |
| Balance, September 30, 2022 | $ | 36,334 | | | $ | 160,255 | | | $ | 706,749 | | | $ | (190,191) | | | $ | (225,795) | | | $ | (276) | | | $ | 487,076 | |
| Net income (loss) | — | | | — | | | 39,291 | | | — | | | — | | | (155) | | | 39,136 | |
Pension plans and other
postretirement benefits | — | | | — | | | — | | | 1,578 | | | — | | | — | | | 1,578 | |
| Translation adjustment | — | | | — | | | — | | | 13,114 | | | — | | | 11 | | | 13,125 | |
| Fair value of cash flow hedges | — | | | — | | | — | | | 1,095 | | | — | | | — | | | 1,095 | |
| Total comprehensive income | | | | | | | | | | | | | 54,934 | |
| Stock-based compensation | — | | | 17,308 | | | — | | | — | | | — | | | — | | | 17,308 | |
Purchase of 99,829 shares of treasury stock | — | | | — | | | — | | | — | | | (2,857) | | | — | | | (2,857) | |
Issuance of 305,318 shares of treasury stock | — | | | (11,310) | | | — | | | — | | | 11,410 | | | — | | | 100 | |
Cancellation of 34,327 shares of treasury stock | — | | | 1,958 | | | — | | | — | | | (1,958) | | | — | | | — | |
| Dividends | — | | | — | | | (31,313) | | | — | | | — | | | — | | | (31,313) | |
Transactions with noncontrolling
interests | — | | | — | | | — | | | — | | | — | | | 33 | | | 33 | |
| | | | | | | | | | | | | |
| Balance, September 30, 2023 | $ | 36,334 | | | $ | 168,211 | | | $ | 714,727 | | | $ | (174,404) | | | $ | (219,200) | | | $ | (387) | | | $ | 525,281 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income (net of tax) | | Treasury Stock | | Non- controlling Interests | | Total |
| Balance, September 30, 2014 | $ | 36,334 |
| | $ | 113,225 |
| | $ | 798,353 |
| | $ | (66,817 | ) | | $ | (109,950 | ) | | $ | 4,061 |
| | $ | 775,206 |
|
| Net income | — |
| | — |
| | 63,449 |
| | — |
| | — |
| | (161 | ) | | 63,288 |
|
| Minimum pension liability | — |
| | — |
| | — |
| | (3,823 | ) | | — |
| | — |
| | (3,823 | ) |
| Translation adjustment | — |
| | — |
| | — |
| | (77,237 | ) | | — |
| | (150 | ) | | (77,387 | ) |
| Fair value of derivatives | — |
| | — |
| | — |
| | (2,449 | ) | | — |
| | — |
| | (2,449 | ) |
| Total comprehensive income | |
| | |
| | |
| | |
| | |
| | |
| | (20,371 | ) |
| Stock-based compensation | — |
| | 9,097 |
| | — |
| | — |
| | — |
| | — |
| | 9,097 |
|
Purchase of 304,859 shares
of treasury stock | — |
| | — |
| | — |
| | — |
| | (14,567 | ) | | — |
| | (14,567 | ) |
Issuance of 334,850 shares
of treasury stock | — |
| | (7,336 | ) | | — |
| | — |
| | 10,768 |
| | — |
| | 3,432 |
|
Cancellation of 34,789 shares of
treasury stock | — |
| | 1,284 |
| | — |
| | — |
| | (1,284 | ) | | — |
| | — |
|
| Dividends, $.54 per share | — |
| | — |
| | (17,847 | ) | | — |
| | — |
| | — |
| | (17,847 | ) |
Distribution to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (95 | ) | | (95 | ) |
Acquisition of noncontrolling
interests | — |
| | (380 | ) | | — |
| | — |
| | — |
| | (429 | ) | | (809 | ) |
| Balance, September 30, 2015 | 36,334 |
| | 115,890 |
| | 843,955 |
| | (150,326 | ) | | (115,033 | ) | | 3,226 |
| | 734,046 |
|
| Net income | — |
| | — |
| | 66,749 |
| | — |
| | — |
| | (588 | ) | | 66,161 |
|
| Minimum pension liability | — |
| | — |
| | — |
| | (12,576 | ) | | — |
| | — |
| | (12,576 | ) |
| Translation adjustment | — |
| | — |
| | — |
| | (17,655 | ) | | — |
| | (89 | ) | | (17,744 | ) |
| Fair value of derivatives | — |
| | — |
| | — |
| | (1,311 | ) | | — |
| | — |
| | (1,311 | ) |
| Total comprehensive income | |
| | |
| | |
| | |
| | |
| | |
| | 34,530 |
|
| Stock-based compensation | — |
| | 10,612 |
| | — |
| | — |
| | — |
| | — |
| | 10,612 |
|
Purchase of 1,132,452 shares
of treasury stock | — |
| | — |
| | — |
| | — |
| | (57,998 | ) | | — |
| | (57,998 | ) |
Issuance of 404,307 shares
of treasury stock | — |
| | (5,972 | ) | | — |
| | — |
| | 14,162 |
| | — |
| | 8,190 |
|
Cancellation of 5,237 shares of
treasury stock | — |
| | 244 |
| | — |
| | — |
| | (244 | ) | | — |
| | — |
|
| Dividends | — |
| | — |
| | (14,480 | ) | | — |
| | — |
| | — |
| | (14,480 | ) |
Transactions with noncontrolling interests | — |
| | (3,686 | ) | | — |
| | — |
| | — |
| | (1,880 | ) | | (5,566 | ) |
| Balance, September 30, 2016 | 36,334 |
| | 117,088 |
| | 896,224 |
| | (181,868 | ) | | (159,113 | ) | | 669 |
| | 709,334 |
|
| Net income | — |
| | — |
| | 74,368 |
| | — |
| | — |
| | (435 | ) | | 73,933 |
|
| Minimum pension liability | — |
| | — |
| | — |
| | 12,427 |
| | — |
| | — |
| | 12,427 |
|
| Translation adjustment | — |
| | — |
| | — |
| | 9,352 |
| | — |
| | 119 |
| | 9,471 |
|
| Fair value of derivatives | — |
| | — |
| | — |
| | 5,974 |
| | — |
| | — |
| | 5,974 |
|
| Total comprehensive income | |
| | |
| | |
| | |
| | |
| | |
| | 101,805 |
|
| Stock-based compensation | — |
| | 14,562 |
| | — |
| | — |
| | — |
| | — |
| | 14,562 |
|
Purchase of 212,424 shares
of treasury stock | — |
| | — |
| | — |
| | — |
| | (14,025 | ) | | — |
| | (14,025 | ) |
Issuance of 221,958 shares
of treasury stock | — |
| | (8,397 | ) | | — |
| | — |
| | 8,543 |
| | — |
| | 146 |
|
Cancellation of 2,640 shares of
treasury stock | — |
| | 179 |
| | — |
| | — |
| | (179 | ) | | — |
| | — |
|
| Dividends | — |
| | — |
| | (21,762 | ) | | — |
| | — |
| | — |
| | (21,762 | ) |
Transactions with noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | 199 |
| | 199 |
|
| Balance, September 30, 2017 | $ | 36,334 |
| | $ | 123,432 |
| | $ | 948,830 |
| | $ | (154,115 | ) | | $ | (164,774 | ) | | $ | 552 |
| | $ | 790,259 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2017, 20162023, 2022 and 20152021
(Dollar amounts in thousands)
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 73,933 |
| | $ | 66,161 |
| | $ | 63,288 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 67,981 |
| | 65,480 |
| | 62,620 |
|
| Stock-based compensation expense | 14,562 |
| | 10,612 |
| | 9,097 |
|
| Change in deferred taxes | 9,725 |
| | (3,971 | ) | | 9,188 |
|
| Gain on sale of assets | (776 | ) | | (73 | ) | | (276 | ) |
| Unrealized (gain) loss on investments | (2,660 | ) | | (1,426 | ) | | 377 |
|
| Trade name write-offs | — |
| | — |
| | 4,842 |
|
| Changes in working capital items | 5,784 |
| | 13,715 |
| | (2,751 | ) |
| (Increase) decrease in other assets | (17,256 | ) | | (5,591 | ) | | 4,064 |
|
| (Decrease) increase in other liabilities | (7,150 | ) | | 5,397 |
| | (8,041 | ) |
Increase (decrease) in pension and postretirement benefit obligations | 9,689 |
| | (2,465 | ) | | 8,652 |
|
| Other operating activities, net | (4,533 | ) | | (7,565 | ) | | (9,996 | ) |
| Net cash provided by operating activities | 149,299 |
| | 140,274 |
| | 141,064 |
|
| Cash flows from investing activities: | |
| | |
| | |
|
| Capital expenditures | (44,935 | ) | | (41,682 | ) | | (48,251 | ) |
| Acquisitions, net of cash acquired | (98,235 | ) | | (6,937 | ) | | (213,470 | ) |
| Proceeds from sale of assets | 3,764 |
| | 1,478 |
| | 1,062 |
|
| Proceeds from sale of subsidiary | — |
| | — |
| | 10,418 |
|
| Purchases of investments | (2,211 | ) | | — |
| | — |
|
| Restricted cash | — |
| | — |
| | (12,925 | ) |
| Net cash used in investing activities | (141,617 | ) | | (47,141 | ) | | (263,166 | ) |
| Cash flows from financing activities: | |
| | |
| | |
|
| Proceeds from long-term debt | 417,043 |
| | 90,421 |
| | 279,377 |
|
| Payments on long-term debt | (388,447 | ) | | (120,380 | ) | | (100,218 | ) |
| Payment on contingent consideration | — |
| | — |
| | (484 | ) |
| Purchases of treasury stock | (14,025 | ) | | (57,998 | ) | | (14,567 | ) |
| Proceeds from the exercise of stock options | 14 |
| | 6,406 |
| | 4,015 |
|
| Dividends | (21,762 | ) | | (19,413 | ) | | (17,847 | ) |
| Transactions with noncontrolling interests | — |
| | (5,566 | ) | | (904 | ) |
| Settlement of multi-employer pension plan obligation | — |
| | — |
| | (18,157 | ) |
| Other financing activities | — |
| | (2,318 | ) | | — |
|
| Net cash (used in) provided by financing activities | (7,177 | ) | | (108,848 | ) | | 131,215 |
|
| Effect of exchange rate changes on cash | 1,299 |
| | (770 | ) | | 80 |
|
| Net change in cash and cash equivalents | 1,804 |
| | (16,485 | ) | | 9,193 |
|
| Cash and cash equivalents at beginning of year | 55,711 |
| | 72,196 |
| | 63,003 |
|
| Cash and cash equivalents at end of year | $ | 57,515 |
| | $ | 55,711 |
| | $ | 72,196 |
|
| | | | | | |
| Cash paid during the year for: | |
| | |
| | |
|
| Interest | $ | 26,271 |
| | $ | 24,133 |
| | $ | 19,663 |
|
| Income taxes | 8,472 |
| | 11,855 |
| | 11,663 |
|
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 39,136 | | | $ | (99,828) | | | $ | 2,858 | |
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | | | | | |
| Depreciation and amortization | 96,530 | | | 104,056 | | | 133,512 | |
| Stock-based compensation expense | 17,308 | | | 17,432 | | | 15,581 | |
| Deferred tax (benefit) provision | (21,626) | | | (32,962) | | | 4,158 | |
| Gain on divestitures and sale of assets, net | (2,980) | | | (3,390) | | | (412) | |
| | | | | |
| | | | | |
| | | | | |
| Asset write-downs | — | | | 10,050 | | | — | |
| Goodwill write-downs | — | | | 82,454 | | | — | |
| Defined benefit plan settlement losses | 1,271 | | | 30,856 | | | — | |
| Defined benefit plan settlement payments | (24,242) | | | (35,706) | | | — | |
| | | | | |
| | | | | |
| Proceeds from the settlement of cash flow hedges | 10,474 | | | — | | | — | |
| Changes in working capital items | (35,503) | | | 29,590 | | | 12,982 | |
| Decrease in other assets | 9,339 | | | 20,093 | | | 15,115 | |
| Decrease in other liabilities | (8,863) | | | (9,699) | | | (16,346) | |
| Other operating activities, net | (1,320) | | | 13,914 | | | (4,637) | |
| Net cash provided by operating activities | 79,524 | | | 126,860 | | | 162,811 | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (50,598) | | | (61,321) | | | (34,313) | |
| Acquisitions, net of cash acquired | (15,341) | | | (44,469) | | | (15,623) | |
| Purchases of investments | (1,606) | | | (2,198) | | | — | |
| Proceeds from sale of assets | 2,120 | | | 4,955 | | | 2,776 | |
| Proceeds from divestitures | 6,700 | | | 344 | | | — | |
| Proceeds from sale of investments | — | | | 8,771 | | | 34,167 | |
| Proceeds from the settlement of net investment hedges | — | | | 13,066 | | | — | |
| Net cash used in investing activities | (58,725) | | | (80,852) | | | (12,993) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from long-term debt | 865,747 | | | 777,809 | | | 625,628 | |
| Payments on long-term debt | (883,971) | | | (742,121) | | | (702,395) | |
| | | | | |
| Purchases of treasury stock | (2,857) | | | (41,717) | | | (11,858) | |
| | | | | |
| Dividends | (28,202) | | | (27,685) | | | (27,704) | |
| Acquisition holdback and contingent consideration payments | — | | | (725) | | | (1,781) | |
| Transactions with noncontrolling interests | — | | | — | | | (1,760) | |
| Other financing activities | (912) | | | (2,774) | | | (2,982) | |
| Net cash used in financing activities | (50,195) | | | (37,213) | | | (122,852) | |
| Effect of exchange rate changes on cash | 83 | | | (5,724) | | | 43 | |
| Net change in cash, cash equivalents and restricted cash | (29,313) | | | 3,071 | | | 27,009 | |
| Cash, cash equivalents and restricted cash at beginning of year | 71,414 | | | 68,343 | | | 41,334 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 42,101 | | | $ | 71,414 | | | $ | 68,343 | |
| | | | | |
| Cash paid during the year for: | | | | | |
| Interest | $ | 43,525 | | | $ | 27,411 | | | $ | 28,824 | |
| Income taxes | 18,014 | | | 13,647 | | | 9,166 | |
| | | | | |
| | | | | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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, industrial technologies and industrial technologies.brand solutions. The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand solutions include brand development, deployment and delivery (consisting of brand management, pre-media services, printing plates and cylinders, and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services).Solutions. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. Industrial Technologies includes the design, manufacturing, service and distribution of high-tech custom energy storage solutions; product identification and warehouse automation technologies include marking and coding equipment and consumables, industrial automation products andsolutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.products; and coating and converting lines for the packaging, pharma, foil, décor and tissue industries. SGK Brand Solutions consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.
The Company has facilities in the United States,North America, Europe, Asia, Canada, Australia, and Central and South America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.control and any variable interest entities for which the Company is the primary beneficiary. 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 methodcost-method investments. All intercompany accounts and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.
Cash, Cash Equivalents and Cash Equivalents:Restricted Cash:
The Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. Restricted cash represents amounts held for specific purposes, which are not available for general business use. The carrying amount of cash, and cash equivalents and restricted cash approximates fair value due to the short-term maturities of these instruments.
Trade Receivables and Allowance for Doubtful Accounts:
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days past due. The allowance for doubtful accounts is based on an evaluation of historical collection experience, the aging of accounts receivable, and economic trends and forecasts, and also reflects adjustments for specific customer accounts for which available facts and circumstances indicate collectability may be uncertain.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Inventories:
Inventories are stated at the lower of cost or marketnet realizable value with cost generally determined under the average cost method. Inventory costs include material, labor, and applicable manufacturing overhead (including depreciation) and other direct costs. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment. Gains or losses from the disposition of assets are reflected in operating profit. The cost of maintenance and repairs is charged to expense as incurred. Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value, which is based on a discounted cash flow analysis. No such charges were recognized during the years presented.presented, except as disclosed in Note 23, “Asset Write-Downs."
Leases:
A lease exists at contract inception if the contract conveys the right to control an identified asset for a period of time in exchange for consideration. Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset, as well as the right to direct the use of that asset. If a contract is considered to be a lease, the Company recognizes a lease liability based on the present value of the future lease payments, and a corresponding right-of-use ("ROU") asset. As a majority of the Company’s leases do not provide an implicit interest rate within the lease, an incremental borrowing rate is used to determine the ROU asset and lease liability which is based on information available at the commencement date. Options to purchase, extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain an option will be exercised. Renewal options are most prevalent in the Company’s real estate leases. In general, the Company has not included renewal options for leases in the ROU asset and lease liability because the likelihood of renewal is not considered to be reasonably certain. In addition, leases may include variable lease payments, for items such as maintenance and utilities, which are expensed as incurred as variable lease expense.
The Company applies the practical expedient to not separate lease components from non-lease components for all asset classes. In addition, the Company applies the practical expedient to utilize a portfolio approach for certain equipment asset classes, primarily information technology, as the application of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases within the portfolio.
There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. Leases not meeting the finance lease criteria are classified as operating leases. ROU assets and corresponding lease liabilities are recorded on the Consolidated Balance Sheet. ROU assets for operating leases are classified in other assets, and ROU assets for finance leases are classified in property, plant and equipment, net on the Consolidated Balance Sheet. For operating leases, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other liabilities on the Consolidated Balance Sheet. For finance leases, short-term lease liabilities are classified in long-term debt, current maturities, and long-term lease liabilities are classified in long-term debt on the Consolidated Balance Sheet. Leases with an initial lease term of twelve months or less have not been recognized on the Consolidated Balance Sheet.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the interest method of recognition. On the cash flow statement, payments for operating leases are classified as operating activities. Payments for finance leases are classified as a financing activity, with the exception of the interest component of the payment which is classified as an operating activity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Goodwill and Other Intangible Assets:
Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from 2 to 2015 years, and are reviewed when appropriate for possible impairment, similar to property, plant and equipment. Goodwill and intangible assets with indefinite lives are not amortized, but are tested annually for impairment, or when circumstances indicate that a possible impairment may exist. In general, when the carrying value of these assets exceeds the implied fair value, an impairment loss must be recognized. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets. For purposes of testing goodwill for impairment, the Company uses a combination of valuation techniques, including discounted cash flows.flows and other market indicators. For purposes of testing indefinite-lived intangible assets, the Company generally uses a relief from royalty method.
Pension and Other Postretirement Plans:
Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rateobligations which will affect the amount of pension cost. Differences between actual and expected results or changes in the value of the obligations and plan assets are initially recognized through other comprehensive income and subsequently amortized to the Consolidated Statement of Income.
Environmental:
Costs that mitigate or prevent future environmental issues or extend the life or improve equipment utilized in current operations are capitalized and depreciated on a straight-line basis over the estimated useful lives of the related assets. Costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company's obligation is probable and reasonably estimable. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value.
Derivatives and Hedging:
Derivatives are generally held as part of a formal documented hedging program. All derivatives are held for purposes other than trading. Matthews measures effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or future cash flows of the hedged item. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains and losses on the derivative will be recorded in other income (deductions) at that time.
Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) ("OCI"), net of tax, and are reclassified to earnings in a manner consistent with the underlying hedged item. The cash flows from derivativehedging activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Foreign Currency:
The functional currency of the Company's foreign subsidiaries is generally the local currency. Balance sheet accounts for foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date. Gains or losses that result from this process are recorded in accumulated other comprehensive income (loss). The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Realized gains and losses from foreign currency transactions are presented in the Statement of Income in a consistent manner with the underlying transaction based upon the provisions of Accounting Standards Codification ("ASC") 830 "Foreign Currency Matters."
The Company applies highly inflationary accounting for subsidiaries when the cumulative inflation rate for a three-year period meets or exceeds 100 percent. Under highly inflationary accounting, the financial statements of these subsidiaries are remeasured into the Company's reporting currency (U.S. dollar) and exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than accumulated other comprehensive loss on the Consolidated Balance Sheets, until such time as the applicable economy is no longer considered highly inflationary.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Effective April 1, 2022, the Company applies highly inflationary accounting to its Turkish subsidiaries. As of September 30, 2023 and 2022, the Company had net monetary assets related to its Turkish subsidiaries of $4,271 and $5,022, respectively. Exchange losses related to highly inflationary accounting totaled $1,360 and $1,473 in fiscal 2023 and 2022, respectively, and were included in the Consolidated Statements of Income within other income (deductions), net.
Comprehensive Income (Loss):
Comprehensive income (loss) consists of net income adjusted for changes, net of any related income tax effect, in cumulative foreign currency translation, the fair value of derivatives,cash flow hedges, unrealized investment gains and losses and minimumremeasurement of pension liability.and other postretirement liabilities.
Treasury Stock:
Treasury stock is carried at cost. The cost of treasury shares sold is determined under the average cost method.
Revenue Recognition:
Revenues are generally recognized when title, ownership, and risk of loss pass to the customer, which is typically at the time of product shipment and is based on the applicable shipping terms. The shipping terms vary across all businesses and depend on the product and customer.
Revenues from brand development and deployment services are recognized using the completed performance method, which is typically when the customer receives the final deliverable. For arrangements with customer acceptance provisions, revenueRevenue is recognized when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. For substantially all transactions, control passes in accordance with agreed upon delivery terms, including in certain circumstances, customer approvesacceptance. Transaction price, for revenue recognition, is allocated to each performance obligation consisting of the final deliverable.
For pre-needstand alone selling price for goods and services, as well as warranties. Transaction price also reflects estimates of rebates, other sales or contract renewal incentives, cash discounts and sales returns ("Variable Consideration"). Estimates are made for Variable Consideration based on contract terms and historical experience of memorialsactual results and vases, revenue is recognizedare applied to the performance obligations as they are satisfied. The Company elected to apply the practical expedient under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers which exempts the adjustment of the consideration for the existence of a significant financing component when the memorial has been manufactured toperiod between the customer's specifications (e.g., name and birth date), title has been transferred totransfer of the customerservices and the memorialpayment for such services is one year or less. Each product or service delivered to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and vase are placed in storage for future delivery. A liability has been recorded for the estimated costs of finishing pre-need bronze memorials and vases that have been manufactured and placed in storage prior to July 1, 2003 for future delivery. Beginning July 1, 2003, revenue is deferred by the Company on the portion of pre-need sales attributable to the final finishing and storagesatisfied when control of the pre-need merchandise. Deferred revenue for final finishing is recognized at the time the pre-need merchandise is finished and shippedgoods passes to the customer. DeferredCertain revenue related to storage is recognized on a straight-line basis over the estimated average time that pre-need merchandise is held in storage. At September 30, 2017, the Company held 330,716 memorials and 221,713 vases in its storage facilities under the pre-need sales program.
Revenues from mausoleum construction and significant engineering projects, including certain roto-gravurepurpose-built engineered products (primarily in support of the electric vehicle and energy storage solutions industries), cremation and incineration projects, cremation units and markingproduct identification and industrialwarehouse automation projects, are recognized under the percentage-of-completion method of accountingover time using the cost-to-cost basis forinput method measuring progress toward completion. As work is performedcompletion of such projects. Contract assets include unbilled amounts resulting from sales under contracts estimateswhere revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the costscontract. Contract liabilities include customer deposits that are made prior to complete are regularly reviewed and updated. As changesthe satisfaction of performance obligations for a contract. The Company is entitled to collection of the sales price under normal credit terms in estimates of total costs at completion on projects are identified, appropriate earnings adjustments are recorded using the cumulative catch-up method. Provisions for estimated losses on uncompleted contracts are recorded during the periodregions in which such losses become evident.it operates. Refer to Note 4, “Revenue Recognition,” for a further discussion.
Shipping and Handling Fees and Costs:
All fees billed to the customer for shipping and handling are classified as a component of net revenues. All costs associated with shipping and handling are classified as a component of cost of sales or selling expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Research and Development Expenses:
Research and development costs are expensed as incurred and were approximately $16,362, $14,793$15,560, $15,536 and $13,033$13,206 for the years ended September 30, 2017, 20162023, 2022 and 2015,2021, respectively.
Stock-Based Compensation:
Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. A binomial lattice model is utilized to determine the fair value of awards that have vesting conditions based on market targets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Income Taxes:
Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income taxes for U.S. tax purposes have not been provided on certain undistributed earnings of foreign subsidiaries assince they have either been previously taxed, or are exempt from tax, or such earnings are considered to be reinvested indefinitely. To the extent earnings are expected to be returnedindefinitely in the foreseeable future, the associated deferred tax liabilities are provided. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable, due to the complexities of the hypothetical calculation.foreign operations.
Earnings Per Share:
Basic earnings per share is computed by dividing net income by the average number of common shares outstanding. Diluted earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive securities.
3. ACCOUNTING PRONOUNCEMENTS:
Issued
In August 2017,October 2021, the Financial Accounting Standards Board ("FASB"(the "FASB") issued Accounting Standards Update ("ASU") 2017-12, DerivativesNo. 2021-08, Business Combinations (Topic 805) which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and Hedging (Topic 815), which provides new guidance intendedinconsistency related to improve the financial reporting of hedging relationships to better portray the economic resultsrecognition of an entity’s risk management activities in its financial statements.acquired contract asset/liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU is effective for the Company beginning in interim periods starting in fiscal 2024. While the impact of this ASU is dependent on the nature of any future transactions, the Company currently does not expect this ASU to have a significant impact on its consolidated financial statements.
In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50) which enhances the transparency of supplier finance programs by addressing disclosure requirements. Specifically, the amendment requires disclosure of key program terms, amounts outstanding, balance sheet presentation, and a rollforward of amounts outstanding during the annual period. The ASU will be effective beginning in the first quarter of fiscal 2024, except for the rollforward requirement, which is effective in fiscal year 2020.2025. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
Adopted
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), which provides new guidance intended to clarify and reduce complexities in applying stock compensation guidance to a change to the terms or conditions of share-based payment awards. This ASU is effective for the Company beginning in fiscal year 2019. The Company is in the process of assessing the impact this ASU will have on its consolidated financial statements.
In February 2017,July 2023, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the 2023-03, Presentation of Net Periodic Pension CostFinancial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Net Periodic Postretirement Benefit Cost,Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update) which provides new guidance intended to improveenhances the disclosure requirements related totransparency of stock based compensation and material nonpublic information at the service cost componenttime of net benefit cost. This ASU is effective for the Company beginning in fiscal year 2019.a grant. The adoption of this ASU is not expected to have ain the fourth quarter of fiscal 2023 had no material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued 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.
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 (continued)
(Dollar amounts in thousands, except per share data)
3. ACCOUNTING PRONOUNCEMENTS, (continued)
The following table summarizes the activity for the accounts receivable allowance for doubtful accounts for the years ended September 30, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | Balance at Beginning of Period | | Charged to Expense | | Charged to other Accounts | | Deductions (1) | | Balance at
End of Period |
| Allowance for Doubtful Accounts: | | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | |
| September 30, 2023 | $ | 10,138 | | | $ | 1,625 | | | $ | — | | | $ | (979) | | | $ | 10,784 | |
| September 30, 2022 | 10,654 | | | 1,368 | | | — | | | (1,884) | | | 10,138 | |
| September 30, 2021 | 9,618 | | | 2,182 | | | — | | | (1,146) | | | 10,654 | |
(1) Amounts determined not to be collectible (including direct write-offs), net of recoveries.
4. REVENUE RECOGNITION:
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 years ended September 30, 2023, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North America | | Central and South America | | Europe | | Australia | | Asia | | Consolidated |
| Memorialization: | | | | | | | | | | |
| 2023 | $ | 799,153 | | | $ | — | | | $ | 32,745 | | | $ | 11,099 | | | $ | — | | | $ | 842,997 | |
| 2022 | 788,791 | | | — | | | 41,184 | | | 10,149 | | | — | | | 840,124 | |
| 2021 | 710,926 | | | — | | | 47,858 | | | 10,232 | | | — | | | 769,016 | |
| | | | | | | | | | | |
| Industrial Technologies: | | | | | | | | | | |
| 2023 | $ | 164,334 | | | $ | — | | | $ | 333,759 | | | $ | — | | | $ | 7,658 | | | $ | 505,751 | |
| 2022 | 155,977 | | | — | | | 172,985 | | | — | | | 6,561 | | | 335,523 | |
| 2021 | 142,516 | | | — | | | 135,612 | | | — | | | 6,367 | | | 284,495 | |
| | | | | | | | | | | |
| SGK Brand Solutions: | | | | | | | | | | |
| 2023 | $ | 255,751 | | | $ | 5,260 | | | $ | 206,232 | | | $ | 8,814 | | | $ | 56,091 | | | $ | 532,148 | |
| 2022 | 285,499 | | | 4,729 | | | 230,437 | | | 11,057 | | | 55,034 | | | 586,756 | |
| 2021 | 287,954 | | | 5,036 | | | 262,804 | | | 13,336 | | | 48,389 | | | 617,519 | |
| | | | | | | | | | | |
| Consolidated: | | | | | | | | | | |
| 2023 | $ | 1,219,238 | | | $ | 5,260 | | | $ | 572,736 | | | $ | 19,913 | | | $ | 63,749 | | | $ | 1,880,896 | |
| 2022 | 1,230,267 | | | 4,729 | | | 444,606 | | | 21,206 | | | 61,595 | | | 1,762,403 | |
| 2021 | 1,141,396 | | | 5,036 | | | 446,274 | | | 23,568 | | | 54,756 | | | 1,671,030 | |
Revenue from products or services provided to customers over time accounted for approximately 15%, 12%, and 11% of revenue for the years ended September 30, 2023, 2022, and 2021, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
3. ACCOUNTING PRONOUNCEMENTS, (continued)
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which provides new guidance intended to simplify the subsequent measurement of goodwill and removing Step 2 from the goodwill impairment process. This ASU is effective for the Company beginning in fiscal year 2021, and does allow for early adoption. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides new guidance intended to make the definition of a business more operable and allow for more consistency in application. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which provides new guidance intended to clarify the presentation of certain cash flow items including debt prepayments, debt extinguishment costs, contingent considerations payments, and insurance proceeds, among other things. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019, and early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities. This ASU requires lessees to recognize assets and liabilities that arise from financing and operating leases on the Consolidated Balance Sheet. The implementation of this standard will require application of the new guidance at the beginning of the earliest comparative period presented, once adopted. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2020, and does allow for early adoption. The Company is in the process of assessing the impact this ASU will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance intended to improve the recognition, measurement, presentation and disclosure of financial instruments. This ASU is effective for the Company beginning in interim periods starting in fiscal year 2019. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which provides new guidance to simplify the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new inventory measurement requirements are effective for the Company's 2018 fiscal year, and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The FASB issued ASU 2015-14 in August 2015 which resulted in a deferral of the original effective date of ASU 2014-09. During 2016, the FASB issued four ASUs that address implementation issues and correct or improve certain aspects of the new revenue recognition guidance, including ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These ASUs do not change the core principles in the revenue recognition guidance outlined above. ASU No. 2014-09 and the related ASUs referenced above are effective for Matthews beginning October 1, 2018. The Company is in the process of completing its initial detailed review of all global revenue arrangements in accordance with these ASUs and assessing the impact these ASUs will have on its consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
3. ACCOUNTING PRONOUNCEMENTS, (continued)
Adopted
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which provides new guidance intended to simplify the accounting surrounding share-based compensation. Under the new guidance, all excess tax benefits related to share-based compensation are recognized as a component of income tax expense, and will no longer be recognized within additional paid-in capital. The Company has early adopted this ASU in the fourth quarter of fiscal 2017, which, under the prospective method, includes retroactive application of the ASU beginning October 1, 2016 (beginning of the fiscal year). This ASU allows for an accounting policy election to estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company elected to maintain its current forfeitures policy and will continue to include an estimate of those forfeitures when recognizing stock-based compensation expense. The adoption of this ASU in fiscal 2017 resulted in a reduction to income tax expense of $1,234, and a corresponding favorable impact on diluted earnings per share of $0.04, both of which have been retroactively included in the first quarter results for fiscal 2017.
In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718), which provides new guidance intended to clarify the diverse accounting treatment for certain share-based payments. Share-based payments with performance targets that could be achieved after the requisite service period should be treated as performance conditions under the existing guidance in ASC Topic 718. The adoption of this ASU in the first quarter ended December 31, 2016 had no impact on the Company's consolidated financial statements.
4.5. 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:
| | | | | | | | |
| | |
| 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. |
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.
As of September 30, 20172023 and 2016,2022, the fair values of the Company's assets and liabilities measured on a recurring basis were categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
Derivatives (1) | $ | — | | | $ | 4,006 | | | $ | — | | | $ | 4,006 | |
| Equity and fixed income mutual funds | — | | | 699 | | | — | | | 699 | |
| Life insurance policies | — | | | 4,926 | | | — | | | 4,926 | |
| Total assets at fair value | $ | — | | | $ | 9,631 | | | $ | — | | | $ | 9,631 | |
| | | | | | | |
| Liabilities: | | | | | | | |
Derivatives (1) | $ | — | | | $ | 2,766 | | | $ | — | | | $ | 2,766 | |
| Total liabilities at fair value | $ | — | | | $ | 2,766 | | | $ | — | | | $ | 2,766 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
Derivatives (1) | $ | — | | | $ | 14,421 | | | $ | — | | | $ | 14,421 | |
| Equity and fixed income mutual funds | — | | | — | | | — | | | — | |
| Life insurance policies | — | | | 4,439 | | | — | | | 4,439 | |
| Total assets at fair value | $ | — | | | $ | 18,860 | | | $ | — | | | $ | 18,860 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(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. |
The carrying values for other financial assets and liabilities approximated fair value for the years ended September 30, 2023 and 2022.
6. INVENTORIES:
Inventories at September 30, 2023 and 2022 consisted of the following:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Raw materials | $ | 70,451 | | | $ | 52,586 | |
| Work in process | 108,400 | | | 94,804 | |
| Finished goods | 81,558 | | | 78,050 | |
| | $ | 260,409 | | | $ | 225,440 | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Derivatives (1) | $ | — |
| | $ | 3,990 |
| | $ | — |
| | $ | 3,990 |
|
| Equity and fixed income mutual funds | — |
| | 21,649 |
| | — |
| | 21,649 |
|
| Other investments | — |
| | 5,810 |
| | — |
| | 5,810 |
|
| Total assets at fair value | $ | — |
| | $ | 31,449 |
| | $ | — |
| | $ | 31,449 |
|
| | | | | | | | |
| Liabilities: | |
| | |
| | |
| | |
|
| Derivatives (1) | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 31 |
|
| Total liabilities at fair value | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 31 |
|
| | | | | | | | |
| (1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
4. FAIR VALUE MEASUREMENTS, (continued)
|
| | | | | | | | | | | | | | | |
| | September 30, 2016 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Derivatives (1) | $ | — |
| | $ | 193 |
| | $ | — |
| | $ | 193 |
|
| Equity and fixed income mutual funds | — |
| | 19,790 |
| | — |
| | 19,790 |
|
| Other investments | — |
| | 5,127 |
| | — |
| | 5,127 |
|
| Total assets at fair value | $ | — |
| | $ | 25,110 |
| | $ | — |
| | $ | 25,110 |
|
| | | | | | | | |
| Liabilities: | |
| | |
| | |
| | |
|
| Derivatives (1) | $ | — |
| | $ | 6,027 |
| | $ | — |
| | $ | 6,027 |
|
| Total liabilities at fair value | $ | — |
| | $ | 6,027 |
| | $ | — |
| | $ | 6,027 |
|
| | | | | | | | |
| (1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy. |
5. INVENTORIES:
Inventories at September 30, 2017 and 2016 consisted of the following:
|
| | | | | | | |
| | 2017 | | 2016 |
| Raw materials | $ | 29,396 |
| | $ | 29,597 |
|
| Work in process | 61,917 |
| | 54,357 |
|
| Finished goods | 80,132 |
| | 78,518 |
|
| | $ | 171,445 |
| | $ | 162,472 |
|
6.7. INVESTMENTS:
Investment securities are recorded at fair value and are classified as trading securities. Investments classified as trading securities primarily consisted of equity and fixed income mutual funds. The market value of these investments exceeded cost by $785 and $414 at September 30, 2017 and 2016, respectively. Realized and unrealized gains and losses are recorded in investment income. Realized gains (losses) for fiscal 2017, 2016 and 2015 were not material. Other investments include ownership interests in various entities of less than 20%, which are recorded under the cost method of accounting.
At September 30, 20172023 and 2016,2022, non-current investments were as follows:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Equity and fixed income mutual funds | $ | 699 | | | $ | — | |
| Life insurance policies | 4,926 | | | 4,439 | |
| Equity-method investments | 323 | | | 2,729 | |
| Other (primarily cost-method) investments | 19,040 | | | 18,808 | |
| | $ | 24,988 | | | $ | 25,976 | |
During fiscal 2023, the Company purchased the remaining ownership interest in a small Industrial Technologies business, which was previously held as an equity-method investment. See Note 21, "Acquisitions and Divestitures."
|
| | | | | | | |
| | 2017 | | 2016 |
| Equity and fixed income mutual funds | $ | 21,649 |
| | $ | 19,790 |
|
| Other investments | 16,018 |
| | 11,575 |
|
| | $ | 37,667 |
| | $ | 31,365 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
7. 8. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related accumulated depreciation at September 30, 20172023 and 20162022 were as follows:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Buildings | $ | 144,585 | | | $ | 137,827 | |
| Machinery, equipment and other | 493,313 | | | 477,004 | |
| | 637,898 | | | 614,831 | |
| Less accumulated depreciation | (416,663) | | | (404,548) | |
| | 221,235 | | | 210,283 | |
| Land | 20,943 | | | 20,209 | |
| Construction in progress | 28,148 | | | 25,573 | |
| | $ | 270,326 | | | $ | 256,065 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Buildings | $ | 104,604 |
| | $ | 102,153 |
|
| Machinery and equipment | 412,980 |
| | 378,650 |
|
| | 517,584 |
| | 480,803 |
|
| Less accumulated depreciation | (335,346 | ) | | (305,613 | ) |
| | 182,238 |
| | 175,190 |
|
| Land | 16,845 |
| | 19,705 |
|
| Construction in progress | 36,450 |
| | 24,597 |
|
| | $ | 235,533 |
| | $ | 219,492 |
|
Depreciation expense, including amortization of assets under capitalfinance lease, was $44,668, $44,659$54,462, $46,972 and $43,820$49,279 for each of the three years ended September 30, 2017, 20162023, 2022 and 2015,2021, respectively.
8. LONG-TERM DEBT:9. DEBT AND FINANCING ARRANGEMENTS:
Long-term debt at September 30, 20172023 and 20162022 consisted of the following:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Revolving credit facilities | $ | 463,168 | | | $ | 480,107 | |
| | | |
| | | |
| 2025 Senior Notes | 298,500 | | | 297,961 | |
| | | |
| Other borrowings | 19,241 | | | 13,434 | |
| Finance lease obligations | 9,271 | | | 7,066 | |
| Total debt | 790,180 | | | 798,568 | |
| Less current maturities | (3,696) | | | (3,277) | |
| Long-term debt | $ | 786,484 | | | $ | 795,291 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Revolving credit facilities | $ | 551,126 |
| | $ | 608,000 |
|
| Securitization facility | 95,825 |
| | — |
|
| Senior secured term loan | 232,479 |
| | 246,449 |
|
| Notes payable to banks | 21,831 |
| | 5,301 |
|
| Short-term borrowings | 4,735 |
| | 8,617 |
|
| Capital lease obligations | 5,134 |
| | 4,187 |
|
| | 911,130 |
| | 872,554 |
|
| Less current maturities | (29,528 | ) | | (27,747 | ) |
| | $ | 881,602 |
| | $ | 844,807 |
|
The Company has a domestic credit facility with a syndicate of financial institutions that includes a $900,000$750,000 senior secured revolving credit facility, and a $250,000 senior secured term loan. The term loan requires scheduled principal payments of 5.0% of the outstanding principalwhich matures in year one, 7.5% in year two, and 10.0% in years three through five, payable in quarterly installments. The balanceMarch 2025. A portion of the revolving credit facility and(not to exceed $350,000) can be drawn in foreign currencies. In March 2023, an amendment to the term loan are due ondomestic credit facility implemented SOFR as the maturity datereplacement of April 26, 2021.LIBOR as the benchmark interest rate under the facility. The Company accounted for the change in reference rate as a non-substantial modification. Borrowings under both the revolving credit facility andnow bear interest at SOFR, plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 0.75% to 2.00% (1.25% at September 30, 2023) based on the term loan bearCompany's secured leverage ratio. Previously, borrowings under the revolving credit facility bore interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.75% at September 30, 2017) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by adjusted 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%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9. DEBT AND FINANCING ARRANGEMENTS, (continued)
to 0.25%0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $949 and $1,522 at September 30, 2023 and September 30, 2022, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
8. LONG-TERM DEBT, (continued)
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)$55,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 20172023 and 20162022 were $525,000$405,000 and $608,000,$427,960, respectively. Outstanding Euro denominated borrowings on the term loanrevolving credit facility at September 30, 20172023 and 2016 was $232,4792022 were €55.0 million ($58,168) and $246,449,€45.0 million ($44,097), respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps)swaps and Euro denominated borrowings) at September 30, 20172023 and 20162022 was 3.01%5.95% and 2.59%3.13%, respectively.
During fiscal 2017,The Company has $299,625 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 entered into a two-year $115,000 accounts receivable securitization facility (the "Securitization Facility")is subject to certain covenants and other restrictions in connection with certain financial institutions. Under the Securitization Facility, the2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $1,125and $1,664 at September 30, 2023 and 2022, respectively.
The Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. In March 2022, Matthews RFC in turn assignsentered into a collateral interest in thesereceivables purchase agreement (“RPA”) to sell up to $125,000 of receivables to certain financial institutions,purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and then may borrow fundssales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the Securitization Facility. RPA, and is responsible for administering and collecting receivables.
The Securitization Facility does not qualify forproceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale treatment. Accordingly,of receivables was recorded. As of September 30, 2023 and 2022, the amount sold to the Purchasers was $101,800 and $96,590, respectively, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $57,897 and $44,262 as of September 30, 2023 and 2022, respectively.
The following table sets forth a summary of receivables sold as part of the RPA:
| | | | | | | | | | | | | | |
| | For the Year Ended September 30, |
| | 2023 | | 2022 |
| Gross receivables sold | | $ | 393,493 | | | $ | 424,789 | |
| Cash collections reinvested | | (388,283) | | | (328,199) | |
| Net cash proceeds received | | $ | 5,210 | | | $ | 96,590 | |
In March 2023, the Company, through its U.K. subsidiary, entered into a non-recourse factoring arrangement. In connection with this arrangement, the Company periodically sells trade receivables and related debt obligations remain onto a third-party purchaser in exchange for cash. These transfers of financial assets are recorded at the time the Company surrenders control of the assets. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are de-recognized from the Company's Consolidated Balance Sheet. BorrowingsSheets upon transfer. The principal amount of receivables sold under this arrangement was $55,159 during the Securitization Facility bear interest at LIBOR plus 0.75%fiscal year ended September 30, 2023. The discounts on the trade receivables sold are included within administrative expense in the Consolidated Statements of Income. The proceeds from the sale of receivables are classified as operating activities in the Company's Consolidated Statements of Cash Flows. As of September 30, 2023, the amount of factored receivables that remained outstanding was $18,045.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
9. DEBT AND FINANCING ARRANGEMENTS, (continued)
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowings available under this facility is €10.0 million ($10,576). The Companyfacility also provides €18.5 million ($19,566) for bank guarantees. This facility has no stated maturity date and is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. The Company had $95,825 inavailable until terminated. There were no outstanding borrowings under the Securitization Facility as ofcredit facility at September 30, 2017. At2023. Outstanding borrowings under the credit facility totaled €8.2 million ($8,050) at September 30, 2017, the2022. The weighted-average interest rate on outstanding borrowings under this facility was 1.98%.2.25% at September 30, 2022.
Other borrowings totaled $19,241 and $13,434 at September 30, 2023 and 2022, respectively. The weighted-average interest rate on these borrowings was 2.95% and 1.85% at September 30, 2023 and 2022, respectively.
As of September 30, 2023 and 2022, 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 September 30, 2023.
Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows:
| | | | | | | | |
| 2024 | $ | 3,696 | | |
| 2025 | 406,032 | | |
| 2026 | 303,256 | | |
| 2027 | 1,101 | | |
| 2028 | 1,198 | | |
| Thereafter | 65,626 | | |
| | 780,909 | | |
| Finance lease obligations | 9,271 | | (a) |
| $ | 790,180 | | |
(a) Aggregate maturities of finance lease obligations can be found in Note 10, "Leases."
10. LEASES:
The Company’s lease portfolio includes various contracts for real estate, vehicles, information technology and other equipment. The following table presents the balance sheet and lease classification for the Company's lease portfolio as of September 30, 2023 and 2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Classification | | Lease Classification | | 2023 | | 2022 | | |
| Non-current assets: | | | | | | | | |
| Property, plant and equipment, net | | Finance | | $ | 10,804 | | | $ | 10,727 | | | |
| Operating lease right-of-use-assets | | Operating | | 71,629 | | | 71,974 | | | |
| Total lease assets | | | | $ | 82,433 | | | $ | 82,701 | | | |
| | | | | | | | |
| Current liabilities: | | | | | | | | |
| Long-term debt, current maturities | | Finance | | $ | 2,683 | | | $ | 2,284 | | | |
| Other current liabilities | | Operating | | 23,983 | | | 22,869 | | | |
| Non-current liabilities: | | | | | | | | |
| Long-term debt | | Finance | | 6,588 | | | 4,782 | | | |
| Operating lease liabilities | | Operating | | 50,189 | | | 51,445 | | | |
| Total lease liabilities | | | | $ | 83,443 | | | $ | 81,380 | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
10. LEASES, (continued)
The following table presents the components of lease cost for the years ended September 30, 2023, 2022 and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2023 | | 2022 | | 2021 |
| Finance lease cost: | | | | | | | |
| Amortization of ROU assets | | | $ | 2,791 | | | $ | 3,816 | | | $ | 4,016 | |
| Interest on lease liabilities | | | 248 | | | 205 | | | 248 | |
| Operating lease cost | | | 21,546 | | | 21,675 | | | 21,716 | |
| | | | | | | |
| Variable lease cost | | | 10,601 | | | 10,486 | | | 6,752 | |
| Sublease income | | | (89) | | | (279) | | | (83) | |
| Total lease cost | | | $ | 35,097 | | | $ | 35,903 | | | $ | 32,649 | |
Supplemental information regarding the Company's leases follows:
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Cash paid for finance and operating lease liabilities: | | | | | |
| Operating cash flows from finance leases | $ | 259 | | | $ | 211 | | | $ | 255 | |
| Operating cash flows from operating leases | 27,194 | | | 27,648 | | | 28,246 | |
| Financing cash flows from finance leases | 2,642 | | | 3,691 | | | 4,134 | |
| ROU assets obtained in exchange for new finance lease liabilities | 4,745 | | | 1,516 | | | 3,687 | |
| ROU assets obtained in exchange for new operating lease liabilities | 8,294 | | | 10,365 | | | 16,341 | |
| | | | | | |
| | September 30, |
| | 2023 | | 2022 | | 2021 |
| Weighted-average remaining lease term - finance leases (years) | 4.47 | | 4.28 | | 3.85 |
| Weighted-average remaining lease term - operating leases (years) | 3.52 | | 3.62 | | 3.82 |
| Weighted-discount rate - finance leases | 4.48 | % | | 3.08 | % | | 2.70 | % |
| Weighted-discount rate - operating leases | 3.47 | % | | 2.45 | % | | 2.28 | % |
Maturities of lease obligations by fiscal year were as follows as of September 30, 2023:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| 2024 | | $ | 26,123 | | | $ | 3,034 | |
| 2025 | | 20,619 | | | 2,145 | |
| 2026 | | 16,027 | | | 1,695 | |
| 2027 | | 8,381 | | | 1,293 | |
| 2028 | | 4,788 | | | 877 | |
| Thereafter | | 3,475 | | | 1,263 | |
| Total future minimum lease payments | | 79,413 | | | 10,307 | |
| Less: Interest | | 5,241 | | | 1,036 | |
| Present value of lease liabilities: | | $ | 74,172 | | | $ | 9,271 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
11. DERIVATIVES AND HEDGING ACTIVITIES:
The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. At September 30, 2023 and 2022, derivative instruments were reflected on a gross-basis in the consolidated balance sheets as follows:
| | | | | | | | | | | | | | | | | |
| Derivatives: | September 30, 2023 | | September 30, 2022 |
| Interest Rate Swaps | Cross-Currency Swaps | | Interest Rate Swaps | Cross-Currency Swaps |
| Current assets: | | | | | |
| Other current assets | $ | 920 | | $ | — | | | $ | 3,358 | | $ | — | |
| Long-term assets: | | | | | |
| Other assets | 3,086 | | — | | | 7,341 | | 3,722 | |
| | | | | |
| | | | | |
| Long-term liabilities: | | | | | |
| Other liabilities | — | | (2,766) | | | — | | — | |
| Total derivatives | $ | 4,006 | | $ | (2,766) | | | $ | 10,699 | | $ | 3,722 | |
The following table presents information related to interest rate contractsswaps entered into by the Company and designated as cash flow hedges:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 |
| Notional amount | | $ | 175,000 | | | $ | 125,000 | |
| | | | |
| Weighted-average maturity period (years) | | 4.1 | | 3.1 |
| Weighted-average received rate | | 5.32 | % | | 3.14 | % |
| Weighted-average pay rate | | 3.83 | % | | 1.04 | % |
|
| | | | | | | | |
| | | September 30, 2017 | | September 30, 2016 |
| Pay fixed swaps - notional amount | | $ | 414,063 |
| | $ | 403,125 |
|
| Net unrealized gain (loss) | | $ | 3,959 |
| | $ | (5,834 | ) |
| Weighted-average maturity period (years) | | 3.3 |
| | 3.9 |
|
| Weighted-average received rate | | 1.23 | % | | 0.53 | % |
| Weighted-average pay rate | | 1.34 | % | | 1.26 | % |
The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. In order to transition the Company's swaps from LIBOR-based to SOFR-based rates, the LIBOR-based swaps were settled during the second quarter of fiscal 2023, resulting in cash proceeds of $10,474. Concurrently, the Company entered into new interest rate swaps with SOFR-based rates with a notional amount of $175,000. 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 ana net unrealized gain net of unrealized losses, of $3,959$4,006 ($2,4152,991 after tax) and an unrealized loss, net of unrealized gains, of $5,834$10,699 ($3,5597,937 after tax) at September 30, 20172023 and 2016,2022, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI"). Unrecognized gains of $8,084 ($6,041 after tax) related to the terminated LIBOR-based swaps were also included in AOCI as of September 30, 2023. Assuming market rates remain constant with the rates at September 30, 2017,2023, a gain (net of tax) of approximately $666$3,850 included in AOCI is expected to be recognized in earnings over the next twelve months.
The Companyhas a U.S. Dollar/Euro cross currency swap with a notional amount of $81,392 as of September 30, 2023 and 2022, which has been designated as a net investment hedge of foreign operations. The swap contract matures in September 2027. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A loss of $2,065 (net of income taxes of $701) and a gain of $2,782 (net of income taxes of $940), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2023 and 2022, respectively. Income of $1,159 and $1,645, which represented the recognized portion of the fair value of cross currency swaps excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for fiscal 2023 and fiscal 2022, respectively. At September 30, 2023 and 2022, the swap totaled $2,766 and $3,722, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.
The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $5,370 (net of income taxes of $1,743), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at September 30, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
8. LONG-TERM DEBT,11. DERIVATIVES AND HEDGING ACTIVITIES, (continued)
At September 30, 2017 and 2016, the interest rate swap contracts were reflected on a gross-basis in the consolidated balance sheets as follows:
|
| | | | | | | |
| Derivatives: | 2017 | | 2016 |
| Current assets: | | | |
| Other current assets | $ | 1,098 |
| | $ | 43 |
|
| Long-term assets: | |
| | |
|
| Other assets | 2,892 |
| | 150 |
|
| Current liabilities: | |
| | |
|
| Other current liabilities | (7 | ) | | (1,529 | ) |
| Long-term liabilities: | |
| | |
|
| Other liabilities | (24 | ) | | (4,498 | ) |
| Total derivatives | $ | 3,959 |
| | $ | (5,834 | ) |
The gains (losses) recognized on derivatives was as follows:
|
| | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives |
| | | | | 2017 | | 2016 | | 2015 |
| Interest rate swaps | | Interest expense | | $1,752 | | $(3,146) | | $(3,922) |
The Company recognizedenters into certain derivative contracts in accordance with its risk management strategy that do not meet the following gains (losses)criteria for hedge accounting but which have the economic impact of largely mitigating foreign currency exposure. Changes in AOCI:
|
| | | | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Gain (Loss) Recognized in AOCI on Derivatives | | Location of Gain or (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income(Effective Portion*) |
| | | 2017 | | 2016 | | 2015 | | (Effective Portion*) | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | | | |
| Interest rate swaps | | $7,043 | | $(3,230) | | $(4,841) | | Interest expense | | $1,069 | | $(1,919) | | $(2,392) |
| | | | | �� | | | | | | | | | | |
| *There is no ineffective portion or amount 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 International Corporation. The maximum amount of borrowings available under this facility is €35.0 million ($41,345). The credit facility matures in December 2018 and the Company intends to extend this facility. Outstanding borrowings under this facility were €22.1 million ($26,126) at September 30, 2017. There were no outstanding borrowings under this facility at September 30, 2016. The weighted-average interest rate on this facility at September 30, 2017 was 1.75%.
In November 2016, the Company’s German subsidiary, Matthews Europe GmbH & Co. KG, issued €15.0 million ($17,719 at September 30, 2017) of senior unsecured notes with European banks. The notes are guaranteed by Matthews International Corporation and mature in November 2019. A portion of the notes (€5.0 million) have a fixed interest rate of 1.40%, and the remainder bear interest at Euro LIBOR plus 1.40%. The weighted-average interest rate on the notes at September 30, 2017 was 1.40%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
8. LONG-TERM DEBT, (continued)
The Company, through its Italian subsidiary, Matthews International S.p.A., has several loans with various Italian banks. Outstanding borrowings on these loans totaled €2.6 million ($3,079) and €3.2 million ($3,538) at September 30, 2017 and 2016, respectively. The maturity dates for these loans range from October 2017 through November 2019. Matthews International S.p.A. also has multiple on-demand lines of credit totaling €11.3 million ($13,384) with the same Italian banks. Outstanding borrowings on these lines were €4.0 million ($4,735) and €5.2 million ($5,801) at September 30, 2017 and 2016, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at September 30, 2017 and 2016 was 2.20% and 1.80%, respectively.
Other debt totaled $1,032 and $4,579 at September 30, 2017 and 2016, respectively. The weighted-average interest rate on these outstanding borrowings was 5.04% and 3.31% at September 30, 2017 and 2016, respectively.
In September 2014, a claim was filed seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($11,477 at September 30, 2017) with respect to a performance guarantee on a project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "Court"). Pursuant to this action, an order was issued by the Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the Court as ordered. On June 14, 2016, the Court ruled completely in favor of Matthews following a trial on the merits. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations. As of September 30, 2017, the Company has determined that resolution of this matter may take an extended period of time and therefore has reclassified the funded letter of credit from other current assets to other assets on the Consolidated Balance Sheet. The Company will continue to assess collectability related to this matter as facts and circumstances evolve. As of September 30, 2016, the Company presented the funded letter of credit within other current assets on the Consolidated Balance Sheet.
As of September 30, 2017 and 2016, the fair value of the Company's long-term debt, includingthese economic hedges are recorded in current maturities, which is classifiedperiod earnings as Level 2a component of other income (deductions), net. During fiscal 2022, net gains from economic hedges (which largely offset losses from underlying foreign currency exposures) totaled $4,677. No such economic hedge contracts were outstanding as of September 30, 2023 or 2022.
Refer to Note 16, "Accumulated Other Comprehensive Income" for further details regarding amounts recorded in the fair value hierarchy, approximated the carrying value included inAOCI and the Consolidated Balance Sheets.Statements of Income (Loss) related to derivatives.
Aggregate maturities of long-term debt, including short-term borrowings and capital leases, is as follows:
|
| | | |
| 2018 | $ | 29,528 |
|
| 2019 | 166,012 |
|
| 2020 | 25,487 |
|
| 2021 | 687,504 |
|
| 2022 | 242 |
|
| Thereafter | 2,357 |
|
| | $ | 911,130 |
|
9.12. SHAREHOLDERS' EQUITY:
The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1.00 par value.
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. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 5,000,000 shares of Matthews' common stock under the program, of which 1,816,1461,195,013 shares remain available for repurchase as of September 30, 2017.2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
10.13. SHARE-BASED PAYMENTS:
The Company maintains an equity incentive plan (the "2012(as amended and restated, 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 20122017 Equity Incentive Plan, which has a ten years-year term from the date the Company's Board of Directors approved of the amendment and restatement of the 2017 Equity Incentive Plan, the maximum number of shares available for grants or awards is an aggregate of 2,500,000.3,450,000 (subject to adjustment upon certain events such as stock dividends or stock splits), following the amendment and restatement of the 2017 Equity Incentive Plan at the Company's 2022 Annual Shareholder Meeting. At September 30, 2017, there were 589,2382023, 496,508 shares reserved for future issuancehave been issued under the 20122017 Equity Incentive Plan.1,041,615 time-based restricted share units, 1,313,162 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan. 1,803,697 of these share-based awards are outstanding as of September 30, 2023. The 20122017 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors.Directors (the "Committee"). The number of shares issued under performance-based restricted share units may be up to 200% of the number of performance-based restricted share units, based on the satisfaction of specific criteria established by the plan administrator.
For the years ended September 30, 2023, 2022 and 2021, stock-based compensation cost totaled $17,308, $17,432 and $15,581, respectively. The associated future income tax benefit recognized was $3,821, $3,821 and $3,247 for the years ended September 30, 2023, 2022 and 2021, respectively.
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 Committee. Approximately 43% 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 (continued)
(Dollar amounts in thousands, except per share data)
13. SHARE-BASED PAYMENTS, (continued)
The transactions for restricted shares and restricted share units for the year ended September 30, 2023 were as follows:
| | | | | | | | | | | |
| Shares | | Weighted-
average
Grant-date
Fair Value |
| Non-vested at September 30, 2022 | 1,459,233 | | | $ | 33.78 | |
| Granted | 618,050 | | | 27.69 | |
| Vested | (211,158) | | | 34.94 | |
| Expired or forfeited | (137,428) | | | 40.89 | |
| Non-vested at September 30, 2023 | 1,728,697 | | | $ | 30.90 | |
During fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan. The option price for each stock option granted under any of the plans may not be less thanwas $41.70, which was equal to the fair market value of the Company's Class A Common Stock on the date of grant. As of September 30, 2017, there were no stockThese options outstanding.
With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vested on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. For grants made in and after fiscal 2013, 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 ofannually over three years from the grant date. Unvested restricted shares generallystock options expire on the earlier of three or five years from the date of grant, or 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 fromgenerally settles employee stock option exercises with treasury shares.
For the years ended September 30, 2017, 2016 and 2015, stock-based compensation cost totaled $14,562, $10,612 and $9,097, respectively. The year ended September 30, 2017 included $3,337 of stock-based compensation cost that was recognized at the time of grant for retirement-eligible employees. The associated future income tax benefit recognized was $5,534, $4,139 and $3,548 for the years ended September 30, 2017, 2016 and 2015, respectively.
The amount of cash received from the exercise of stock options was $14, $6,406 and $4,015, for the years ended September 30, 2017, 2016 and 2015, respectively. In connection with these exercises, the tax benefits realized by the Company were $3, $932 and $350 for the years ended September 30, 2017, 2016 and 2015, respectively.
The transactions for restricted stock for the year ended September 30, 2017 were as follows:
|
| | | | | | |
| | Shares | | Weighted- average Grant-date Fair Value |
| Non-vested at September 30, 2016 | 522,710 |
| | $ | 45.10 |
|
| Granted | 216,655 |
| | 66.61 |
|
| Vested | (231,231 | ) | | 46.57 |
|
| Expired or forfeited | (6,950 | ) | | 50.29 |
|
| Non-vested at September 30, 2017 | 501,184 |
| | $ | 53.65 |
|
As of September 30, 2017,2023, the total unrecognized compensation cost related to all unvested restricted stockstock-based awards was $7,205$18,305 which is expected to be recognized over a weighted-average period of 1.51.9 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
10.SHARE-BASED PAYMENTS, (continued)
The transactions for shares under options for the year ended September 30, 2017 were as follows:
|
| | | | | | | | | | | | | |
| | Shares | | Weighted- average Exercise Price | | Weighted- average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding, September 30, 2016 | 77,733 |
| | $ | 40.56 |
| | | | |
| Exercised | (333 | ) | | 40.56 |
| | | | |
| Expired or forfeited | (77,400 | ) | | 40.56 |
| | | | |
| Outstanding, September 30, 2017 | — |
| | $ | — |
| | — |
| | $ | — |
|
| Exercisable, September 30, 2017 | — |
| | $ | — |
| | — |
| | $ | — |
|
No options vested during the year ended September 30, 2017 and 2016, respectively. The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the years ended September 30, 2017, 2016 and 2015 was $9, $2,692 and $931, respectively.
The transactions for non-vested option shares for the year ended September 30, 2017 were as follows:
|
| | | | | | |
| | Shares | | Weighted- average Grant-date Fair Value |
| Non-vested at September 30, 2016 | 77,400 |
| | $ | 12.29 |
|
| Expired or forfeited | (77,400 | ) | | 12.29 |
|
| Non-vested at September 30, 2017 | — |
| | $ | — |
|
The fair value of eachcertain restricted share units that are subject to performance conditions and the fair value of stock grant isoptions 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 restricted stock forcertain stock-based awards granted during the yearsyear ended September 30, 2017, 2016 and 2015.2021.
| | | | | | | | | Restricted
Share Units | | Stock
Options |
| | 2017 | | 2016 | | 2015 | |
| Expected volatility | 20.2 | % | | 20.7 | % | | 22.2 | % | Expected volatility | 42.9 | % | | 41.9 | % |
| Dividend yield | 1.1 | % | | 1.0 | % | | 1.0 | % | Dividend yield | 3.2 | % | | 3.1 | % |
| Average risk-free interest rate | 1.7 | % | | 1.7 | % | | 1.7 | % | Average risk-free interest rate | 0.2 | % | | 0.5 | % |
| Average expected term (years) | 2.1 |
| | 2.1 |
| | 1.8 |
| 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 in the yearsyear ended September 30, 2017, 2016 and 20152021 represents an estimate of the average period of time for restricted sharesshare units and stock options to vest. The option characteristics for each grant are considered separately for valuation purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
10.SHARE-BASED PAYMENTS, (continued)
The Company maintains the 1994Amended and Restated 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the Amended and Restated 20141994 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 Amended and Restated 20142019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2017,2023, either cash or shares of the Company's Class A Common Stock with a value equal to $75.$90. The annual retainer fee for fiscal 20172023 paid to athe non-employee Chairman of the Board is $175.$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 Amended and Restated 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 300,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits), following the amendment and restatement of the 2019 Director Fee Plan at the Company's 2023 Annual Shareholder Meeting. The value of deferred shares is recorded in other liabilities. A total of 16,13945,218 shares and share units had been deferred under the Director Fee Plans at September 30, 2017.2023. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares)shares or units) with a value of $125$140 for fiscal year 2017. A total2023. As of 22,300 stock options have been granted under the Director Fee Plans. At September 30, 2017, there were no options outstanding. Additionally, 161,7242023, 336,127 restricted shares ofand restricted stockshare units have been granted under the Director Fee Plans, 58,574162,898 of which were issued under the Amended and Restated 20142019 Director Fee Plan. 25,157 shares of60,057 restricted stockshare units are unvested at September 30, 2017. A total of 150,000 shares have been authorized to be issued2023 under the Amended and Restated 2014 Director Fee Plan.Plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.(Dollar amounts in thousands, except per share data)
14. EARNINGS PER SHARE:
The information used to compute earnings (loss) per share attributable to Matthews' common shareholders was as follows:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| | | | | |
| | | | | |
| Net income (loss) attributable to Matthews shareholders | $ | 39,291 | | | $ | (99,774) | | | $ | 2,910 | |
| | | | | |
| Weighted-average shares outstanding (in thousands): | | | | | |
| Basic shares | 30,795 | | | 31,367 | | | 31,696 | |
| Effect of dilutive securities | 494 | | | — | | | 291 | |
| Diluted shares | 31,289 | | | 31,367 | | | 31,987 | |
| | | | | |
| Dividends declared per common share | $ | 0.92 | | | $ | 0.88 | | | $ | 0.86 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net income attributable to Matthews shareholders | $ | 74,368 |
| | $ | 66,749 |
| | $ | 63,449 |
|
Less: dividends and undistributed earnings allocated to participating securities | — |
| | — |
| | 10 |
|
| Net income available to Matthews shareholders | $ | 74,368 |
| | $ | 66,749 |
| | $ | 63,439 |
|
| | | | | | |
| Weighted-average shares outstanding (in thousands): | |
| | |
| | |
|
| Basic shares | 32,240 |
| | 32,642 |
| | 32,939 |
|
| Effect of dilutive securities | 330 |
| | 262 |
| | 257 |
|
| Diluted shares | 32,570 |
| | 32,904 |
| | 33,196 |
|
| | | | | | |
Anti-dilutive securities excluded from the dilutive calculation were insignificant for the fiscal years ended September 30, 2017, 2016,2023 and 2015.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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.
(Dollar amounts in thousands, except per share data)
12.15. PENSION AND OTHER POSTRETIREMENT PLANS:
The Company provides defined benefit pension and other postretirement plans to certain employees. Effective January 1, 2014, the Company's principal defined benefit retirement plan ("DB Plan") was closed to new participants. As of September 30, 2023 and 2022, all of the Company's defined benefit plans are unfunded.
In April 2021, the Committee approved resolutions to freeze all future benefit accruals for all participants in the Company's non-qualified Supplemental Retirement Plan ("SERP") and the defined benefit portion of the Officers Retirement Restoration Plan (“ORRP”), effective April 30, 2021. In August 2021, the Committee approved the termination of the SERP and the defined benefit portion of the ORRP. In September 2021, the Company notified SERP and ORRP participants of its intention to fully settle the obligations of the SERP and ORRP in early fiscal 2023.
In August 2021, the Company's Board of Directors approved the freeze of all future benefit accruals for the Company's DB Plan, effective September 30, 2021, and the planned termination of the DB Plan in early fiscal 2022. At such time, the Company notified all plan participants of the Company's intentions to terminate and fully settle the obligations of the DB Plan early in fiscal 2022.
The freezing of the DB Plan, SERP, and ORRP triggered curtailments, which resulted in the remeasurement of the projected benefit obligations and the immediate recognition of prior service costs in earnings in fiscal 2021, which were previously included within AOCI.
In the first quarter of fiscal 2022, the Company terminated its DB Plan and made plan contributions totaling $35,706 to fully 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 plan 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 year ended September 30, 2022. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan.
In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24,242 to fully settle the SERP and defined benefit portion of the ORRP obligations. The settlement of these plan obligations resulted in the recognition of a non-cash charge of $1,271, which has been presented as a component of other income (deductions), net for the year ended September 30, 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP. During fiscal 2023, the remaining funds held in a rabbi trust associated with the SERP were transferred to the Company. Consequently, these amounts are no longer classified as restricted cash.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in benefit obligation: | | | | | | | |
| Benefit obligation, beginning of year | $ | 36,609 | | | $ | 293,926 | | | $ | 12,813 | | | $ | 18,841 | |
Acquisitions (1) | — | | | 9,829 | | | — | | | — | |
| Service cost | 163 | | | 392 | | | 76 | | | 165 | |
| Interest cost | 497 | | | 1,127 | | | 644 | | | 411 | |
| Actuarial gain | (512) | | | (19,978) | | | (641) | | | (5,989) | |
| | | | | | | |
| | | | | | | |
| Settlement | (24,242) | | | (242,232) | | | — | | | — | |
| Exchange loss (gain) | 979 | | | (3,093) | | | — | | | — | |
| Benefit payments | (598) | | | (3,362) | | | (517) | | | (615) | |
Benefit obligation, end of year (2) | 12,896 | | | 36,609 | | | 12,375 | | | 12,813 | |
| | | | | | | |
| Change in plan assets: | | | | | | | |
| Fair value, beginning of year | — | | | 208,344 | | | — | | | — | |
| | | | | | | |
| Actual return | — | | | 368 | | | — | | | — | |
| Benefit payments | (598) | | | (3,362) | | | (517) | | | (615) | |
| Employer contributions | 24,840 | | | 36,882 | | | 517 | | | 615 | |
| Settlement | (24,242) | | | (242,232) | | | — | | | — | |
| Fair value, end of year | — | | | — | | | — | | | — | |
| | | | | | | |
| Funded status | (12,896) | | | (36,609) | | | (12,375) | | | (12,813) | |
| Unrecognized actuarial (gain) loss | (1,518) | | | 5,140 | | | (5,906) | | | (5,973) | |
| Unrecognized prior service (credit) cost | — | | | (4,815) | | | (956) | | | (1,320) | |
| Net amount recognized | $ | (14,414) | | | $ | (36,284) | | | $ | (19,237) | | | $ | (20,106) | |
| | | | | | | |
| Amounts recognized in the consolidated balance sheet: | | | | | | | |
| Current liability | $ | (68) | | | $ | (24,172) | | | $ | (876) | | | $ | (830) | |
| Noncurrent benefit liability | (12,828) | | | (12,437) | | | (11,499) | | | (11,983) | |
| Accumulated other comprehensive (income) loss | (1,518) | | | 325 | | | (6,862) | | | (7,293) | |
| Net amount recognized | $ | (14,414) | | | $ | (36,284) | | | $ | (19,237) | | | $ | (20,106) | |
| | | | | | | |
| Amounts recognized in accumulated | | | | | | | |
other comprehensive (income) loss: | | | | | | | |
| Net actuarial (gain) loss | $ | (1,518) | | | $ | 5,140 | | | $ | (5,906) | | | $ | (5,973) | |
| Prior service (credit) cost | — | | | (4,815) | | | (956) | | | (1,320) | |
| Net amount recognized | $ | (1,518) | | | $ | 325 | | | $ | (6,862) | | | $ | (7,293) | |
(1) Fiscal 2022 reflects benefit obligations assumed in connection with the acquisition of OLBRICH and R+S Automotive. For additional information, see Note 21.
(2) Gains and losses related to changes in assumptions (e.g., discount rate, mortality, etc.), asset, salary and other experience, and curtailments impacted benefit obligations.
|
| | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligation: | | | | | | | |
| Benefit obligation, beginning of year | $ | 263,566 |
| | $ | 238,727 |
| | $ | 23,290 |
| | $ | 20,424 |
|
| Service cost | 8,553 |
| | 7,446 |
| | 392 |
| | 402 |
|
| Interest cost | 7,362 |
| | 9,725 |
| | 626 |
| | 845 |
|
| Actuarial (gain) loss | (4,264 | ) | | 26,841 |
| | (2,600 | ) | | 2,931 |
|
| Exchange loss (gain) | 589 |
| | (6 | ) | | — |
| | — |
|
| Benefit payments | (16,134 | ) | | (19,167 | ) | | (1,392 | ) | | (1,312 | ) |
| Benefit obligation, end of year | 259,672 |
| | 263,566 |
| | 20,316 |
| | 23,290 |
|
| | | | | | | | |
| Change in plan assets: | |
| | |
| | |
| | |
|
| Fair value, beginning of year | 151,864 |
| | 142,225 |
| | — |
| | — |
|
| Actual return | 12,586 |
| | 11,244 |
| | — |
| | — |
|
| Benefit payments (1) | (16,134 | ) | | (19,167 | ) | | (1,392 | ) | | (1,312 | ) |
| Employer contributions | 7,318 |
| | 17,562 |
| | 1,392 |
| | 1,312 |
|
| Fair value, end of year | 155,634 |
| | 151,864 |
| | — |
| | — |
|
| | | | | | | | |
| Funded status | (104,039 | ) | | (111,701 | ) | | (20,317 | ) | | (23,291 | ) |
| Unrecognized actuarial loss (gain) | 73,616 |
| | 92,310 |
| | (1,469 | ) | | 1,130 |
|
| Unrecognized prior service cost | (690 | ) | | (1,048 | ) | | (720 | ) | | (916 | ) |
| Net amount recognized | $ | (31,113 | ) | | $ | (20,439 | ) | | $ | (22,506 | ) | | $ | (23,077 | ) |
| | | | | | | | |
| Amounts recognized in the consolidated balance sheet: | |
| | |
| | |
| | |
|
| Current liability | $ | (766 | ) | | $ | (760 | ) | | $ | (1,044 | ) | | $ | (1,148 | ) |
| Noncurrent benefit liability | (103,273 | ) | | (110,941 | ) | | (19,273 | ) | | (22,143 | ) |
| Accumulated other comprehensive loss (income) | 72,926 |
| | 91,262 |
| | (2,189 | ) | | 214 |
|
| Net amount recognized | $ | (31,113 | ) | | $ | (20,439 | ) | | $ | (22,506 | ) | | $ | (23,077 | ) |
| | | | | | | | |
| Amounts recognized in accumulated | |
| | |
| | |
| | |
|
other comprehensive loss (income): | |
| | |
| | |
| | |
|
| Net actuarial loss (income) | $ | 73,616 |
| | $ | 92,310 |
| | $ | (1,469 | ) | | $ | 1,130 |
|
| Prior service cost | (690 | ) | | (1,048 | ) | | (720 | ) | | (916 | ) |
| Net amount recognized | $ | 72,926 |
| | $ | 91,262 |
| | $ | (2,189 | ) | | $ | 214 |
|
(1) Pension benefit payments in fiscal 2017 and 2016 include $5,655 and $9,300 of lump sum distributions, respectively, that were made to certain terminated vested employees as settlements of the employees' pension obligations. These distributions did not meet the threshold to qualify as settlements under U.S. GAAP and therefore, no unamortized actuarial losses were recognized in the Statements of Income upon completion of the lump sum distributions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
12.15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Based upon actuarial valuations performed as of September 30, 20172023 and 2016,2022, the accumulated benefit obligation for the Company's defined benefit pension plans was $238,307$12,896 and $240,329$36,609 at September 30, 20172023 and 2016,2022, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $259,672$12,896 and $263,566$36,609 at September 30, 20172023 and 2016,2022, respectively.
Net periodic pension and other postretirement benefit cost for the plans included the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Service cost | $ | 163 | | | $ | 392 | | | $ | 7,919 | | | $ | 76 | | | $ | 165 | | | $ | 201 | |
| Interest cost * | 497 | | | 1,127 | | | 6,145 | | | 644 | | | 411 | | | 376 | |
| Expected return on plan assets * | — | | | (1,040) | | | (10,809) | | | — | | | — | | | — | |
| Amortization: | | | | | | | | | | | |
| Prior service cost | — | | | (152) | | | (127) | | | (364) | | | (364) | | | (364) | |
| Net actuarial (gain) loss * | (64) | | | 469 | | | 9,769 | | | (708) | | | — | | | — | |
| Curtailment gain * | — | | | — | | | (220) | | | — | | | — | | | — | |
| Special termination benefits * | — | | | — | | | 315 | | | — | | | — | | | — | |
| Prior-service cost write-offs * | — | | | — | | | 261 | | | — | | | — | | | — | |
| Settlement* | 1,271 | | | 30,856 | | | — | | | — | | | — | | | — | |
| Net benefit cost | $ | 1,867 | | | $ | 31,652 | | | $ | 13,253 | | | $ | (352) | | | $ | 212 | | | $ | 213 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Service cost | $ | 8,553 |
| | $ | 7,446 |
| | $ | 6,764 |
| | $ | 392 |
| | $ | 402 |
| | $ | 454 |
|
| Interest cost | 7,362 |
| | 9,725 |
| | 8,740 |
| | 626 |
| | 845 |
| | 885 |
|
| Expected return on plan assets | (9,249 | ) | | (9,625 | ) | | (10,151 | ) | | — |
| | — |
| | — |
|
| Amortization: | |
| | |
| | |
| | |
| | |
| | |
|
| Prior service cost | (181 | ) | | (183 | ) | | (180 | ) | | (195 | ) | | (195 | ) | | (195 | ) |
| Net actuarial loss (gain) | 10,034 |
| | 7,468 |
| | 6,203 |
| | — |
| | — |
| | — |
|
| Net benefit cost | $ | 16,519 |
| | $ | 14,831 |
| | $ | 11,376 |
| | $ | 823 |
| | $ | 1,052 |
| | $ | 1,144 |
|
Effective September 30, 2016, the Company changed the method used to estimate the service and interest* Non-service components of net periodic benefit cost for its pensions. This change, compared to the previous method, resultedpension and postretirement expense are included in a decrease in the service and interest components for pension cost beginning in fiscal 2017. Historically, the Company estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. other income (deductions), net.
Matthews has elected to utilize a full yield curve approach in the estimation of thesethe service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change was made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligations. The Company has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly, has accounted for it prospectively. This change resulted in a reduction of service and interest costs of approximately $1,960 in fiscal 2017.
Benefit payments under the Company's principal retirement plan areDB Plan were made from plan assets, while benefit payments under the supplemental retirement plan andSERP were made from the Company's operating funds. Benefit payments under the Company's postretirement benefit plan are made from the Company's operating cash. Under I.R.S. regulations, the Company was required to make a $5,109 contribution to its principal retirement plan in fiscal 2017. The Company is not required to make any significant cash contributions to its principal retirement plan in fiscal 2018.funds.
Contributions made in fiscal 20172023 are as follows:
| | | | | | | | | | | |
| Contributions | Pension | | Other Postretirement |
| | | |
| Supplemental retirement plan | $ | 23,469 | | | $ | — | |
| Other retirement plans | 1,371 | | | — | |
| Other postretirement plan | — | | | 517 | |
|
| | | | | | | |
| Contributions | Pension | | Other Postretirement |
| Principal retirement plan | $ | 6,180 |
| | $ | — |
|
| Supplemental retirement plan | 725 |
| | — |
|
| Other retirement plans | 413 |
| | — |
|
| Other postretirement plan | — |
| | 1,392 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
12. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2018 include:
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| Net actuarial loss | $ | 7,010 |
| | $ | — |
|
| Prior service cost | (138 | ) | | (195 | ) |
The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The measurement date of annual actuarial valuations for the Company's principal retirementpension and other postretirement benefit plans was September 30, for fiscal 2017, 20162023, 2022 and 2015.2021. The weighted-average assumptions for those plans were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Discount rate | 4.13 | % | | 4.01 | % | | 2.79 | % | | 5.86 | % | | 5.37 | % | | 2.83 | % |
| Return on plan assets | — | % | | — | % | | 3.10 | % | | — | | | — | | | — | |
| Compensation increase | — | % | | — | % | | 3.50 | % | | — | | | — | | | — | |
|
| | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Discount rate | 3.76 | % | | 3.51 | % | | 4.25 | % | | 3.72 | % | | 3.42 | % | | 4.25 | % |
| Return on plan assets | 6.75 | % | | 7.25 | % | | 7.75 | % | | — |
| | — |
| | — |
|
| Compensation increase | 3.50 | % | | 3.50 | % | | 3.50 | % | | — |
| | — |
| | — |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
In October 2014, the Society of Actuaries' Retirement Plans Experience Committee (RPEC)("RPEC") released new mortality tables known as RP 2014.RP-2014. Each year, RPEC releases an update to the mortality improvement assumption that was released with the RP 2014 tables. The Company considered the RPEC mortality and mortality improvement tables and performed a review of its own mortality history to assess the appropriateness of the RPEC tables for use in generating financial results. In October 2019, the Society of Actuaries released updated base mortality tables denoted PRI-2012, replacing the RP-2014 base tables. In fiscal years 2017, 20162023, 2022 and 2015 ,2021, the Company elected to value its principal retirementpension and other postretirement benefit plan liabilities using the base RP 2014PRI-2012 mortality table and a slightly modified fully generational mortality improvement assumption. The revised assumption uses the most recent RPEC Scale MP mortality improvement table for all years where the RPEC tables are based on finalized data, and the most recently published Social Security Administration Intermediate mortality improvement for subsequent years.
The underlying basis of the investment strategy of the Company's defined benefit plans is to ensure the assets are invested to achieve a positive rate of return over the long term sufficient to meet the plans' actuarial interest rate and provide for the payment of benefit obligations and expenses in perpetuity in a secure and prudent fashion, maintain a prudent risk level that balances growth with the need to preserve capital, diversify plan assets so as to minimize the risk of large losses or excessive fluctuations in market value from year to year, achieve investment results over the long term that compare favorably with other pension plans and appropriate indices. The Company's investment policy, as established by the Company's pension board, specifies the types of investments appropriate for the plans, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. It also provides guidelines enabling plan fiduciaries to fulfill their responsibilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
12. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Effective August 1, 2017, the Company merged the IDL, Inc. retirement income plan and the Aurora Casket Company, LLC pension plan into the Company’s principal pension plan. No changes were made to the benefit formulas, vesting provisions, or to the employees covered by the plans.
The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2017 and 2016 and weighted-average target allocation were as follows:
|
| | | | | | | | | | |
| | Plan Assets at | | Target |
| Asset Category | 2017 | | 2016 | | Allocation* |
| Equity securities | $ | 77,245 |
| | $ | 58,849 |
| | 50 | % |
| Fixed income, cash and cash equivalents | 49,008 |
| | 72,495 |
| | 30 | % |
| Other investments | 29,381 |
| | 20,520 |
| | 20 | % |
| | $ | 155,634 |
| | $ | 151,864 |
| | 100 | % |
| | | | | | |
| * Target allocation relates to the Company's primary defined benefit pension plan | | | | | |
Based on an analysis of the historical and expected future performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for its primary defined benefit pension plans' assets at 6.75% in 2017 for purposes of determining pension cost and funded status under current guidance. The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices.
The Company categorizes plan assets within a three level fair value hierarchy (see Note 4 for a further discussion of the fair value hierarchy). The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value hierarchy in which each type of pension plan asset is classified as follows.
Equity securities consist of direct investments in the stocks of publicly traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1.
Mutual funds are valued at the closing price of shares held by the Plan at year end. As such, these mutual fund investments are classified as Level 1.
Fixed income securities consist of publicly traded fixed interest obligations (primarily U.S. government notes and corporate and agency bonds). Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data. As such, U.S. government notes are included in Level 1, and the remainder of the fixed income securities are included in Level 2.
Cash and cash equivalents consist of direct cash holdings and short-term money market mutual funds. These values are valued based on cost, which approximates fair value, and as such, are classified as Level 1.
Other investments consist primarily of real estate, commodities, private equity holdings and hedge fund investments. These holdings are valued by investment managers based on the most recent information available. The valuation information used by investment managers may not be readily observable. As such, these investments are classified as Level 3.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
12. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
The Company's defined benefit pension plans' asset categories at September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| Asset Category | Level 1 | | Level 2 | | Level 3 | | Total |
| Equity securities - stocks | $ | 42,731 |
| | $ | — |
| | $ | — |
| | $ | 42,731 |
|
| Equity securities - mutual funds | 34,514 |
| | — |
| | — |
| | 34,514 |
|
| Fixed income securities | 30,032 |
| | 14,870 |
| | — |
| | 44,902 |
|
| Cash and cash equivalents | 4,106 |
| | — |
| | — |
| | 4,106 |
|
| Other investments | 19,901 |
| | — |
| | 9,480 |
| | 29,381 |
|
| Total | $ | 131,284 |
| | $ | 14,870 |
| | $ | 9,480 |
| | $ | 155,634 |
|
|
| | | | | | | | | | | | | | | |
| | September 30, 2016 |
| Asset Category | Level 1 | | Level 2 | | Level 3 | | Total |
| Equity securities - stocks | $ | 35,912 |
| | $ | — |
| | $ | — |
| | $ | 35,912 |
|
| Equity securities - mutual funds | 22,937 |
| | — |
| | — |
| | 22,937 |
|
| Fixed income securities | 41,099 |
| | 11,732 |
| | — |
| | 52,831 |
|
| Cash and cash equivalents | 19,664 |
| | — |
| | — |
| | 19,664 |
|
| Other investments | 7,694 |
| | 10 |
| | 12,816 |
| | 20,520 |
|
| Total | $ | 127,306 |
| | $ | 11,742 |
| | $ | 12,816 |
| | $ | 151,864 |
|
Changes in the fair value of Level 3 assets at September 30, 2017 and 2016 are summarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Category | Fair Value, Beginning of Period | | Acquisitions | | Dispositions | | Realized Gains | | Unrealized Gains (Losses) | | Fair Value, End of Period |
| Other investments: | | | | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | | | |
| September 30, 2017 | $ | 12,816 |
| | $ | — |
| | $ | (3,286 | ) | | $ | 418 |
| | $ | (468 | ) | | $ | 9,480 |
|
| September 30, 2016 | 13,982 |
| | — |
| | (941 | ) | | 449 |
| | (674 | ) | | 12,816 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
12. PENSION AND OTHER POSTRETIREMENT PLANS, (continued)
Benefit payments expected to be paid are as follows: | | | | | | | | | | | |
| Years ending September 30: | Pension Benefits | | Other Postretirement Benefits |
| | | |
| 2024 | $ | 616 | | | $ | 876 | |
| 2025 | 623 | | | 896 | |
| 2026 | 628 | | | 910 | |
| 2027 | 637 | | | 893 | |
| 2028 | 650 | | | 893 | |
| 2029-2033 | 3,499 | | | 4,287 | |
| | $ | 6,653 | | | $ | 8,755 | |
|
| | | | | | | |
| Years ending September 30: | Pension Benefits | | Other Postretirement Benefits |
| | | | |
| 2018 | $ | 10,137 |
| | $ | 1,044 |
|
| 2019 | 10,586 |
| | 1,072 |
|
| 2020 | 10,983 |
| | 1,013 |
|
| 2021 | 11,447 |
| | 1,044 |
|
| 2022 | 12,811 |
| | 1,094 |
|
| 2023-2027 | 72,463 |
| | 6,004 |
|
| | $ | 128,427 |
| | $ | 11,271 |
|
For measurement purposes, a rate of increase of 7.3%7.0% in the per capita cost of health care benefits was assumed for 2018;2024; the rate was assumed to decrease gradually to 4.0% for 20582073 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by one percentage point would have increased the accumulated postretirement benefit obligation as of September 30, 2017 by $718 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $47. A decrease in the assumed health care cost trend rates by one percentage point would have decreased the accumulated postretirement benefit obligation as of September 30, 2017 by $822 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $54.
Prior to its acquisition by Matthews, Schawk, Inc. ("Schawk") participated in a multi-employer pension fund pursuant to certain collective bargaining agreements. In 2012, Schawk bargained to withdraw from the fund, and recorded a withdrawal liability at the conclusion of the negotiations, based on the present value of the installment payments expected to be paid through 2034. During fiscal 2015, the Company finalized an agreement to settle this installment payment obligation in exchange for a lump-sum payment of $18,157, which is presented within cash flows from financing activities on the Consolidated Statement of Cash Flows. This settlement also resulted in an $11,522 gain recognized in other income (deductions), net during fiscal 2015.
The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $8,620, $8,117,$13,297, $12,442, and $6,819$9,186 for the fiscal years ended September 30, 2017, 20162023, 2022 and 2015,2021, respectively. The Company also provides a non-qualified deferred compensation plan for certain executives that permits participants to defer an amount of income into the plan during each calendar year. The expense associated with the contributions made to this plan was $1,385 for the fiscal year ended September 30, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.16. ACCUMULATED OTHER COMPREHENSIVE INCOME:
The changes in AOCI by component, net of tax, for the years ended September 30, 2017, 20162023, 2022, and 20152021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Postretirement Benefit Plans | | Currency Translation Adjustment | | Cash Flow Hedges | | Total |
| Attributable to Matthews: | | | | | | | | |
| Balance, September 30, 2020 | | $ | (82,954) | | | $ | (151,881) | | | $ | (5,884) | | | $ | (240,719) | |
| OCI before reclassification | | 39,822 | | | (3,322) | | | 1,873 | | | 38,373 | |
| Amounts reclassified from AOCI | | 7,202 | | (a) | (48) | | (b) | 2,453 | | (b) | 9,607 | |
| Net current-period OCI | | 47,024 | | | (3,370) | | | 4,326 | | | 47,980 | |
| Balance, September 30, 2021 | | $ | (35,930) | | | $ | (155,251) | | | $ | (1,558) | | | $ | (192,739) | |
| OCI before reclassification | | 17,851 | | | (46,817) | | | 8,148 | | | (20,818) | |
| Amounts reclassified from AOCI | | 23,261 | | (a) | (1,242) | | (b) | 1,347 | | (b) | 23,366 | |
| Net current-period OCI | | 41,112 | | | (48,059) | | | 9,495 | | | 2,548 | |
| Balance, September 30, 2022 | | $ | 5,182 | | | $ | (203,310) | | | $ | 7,937 | | | $ | (190,191) | |
| OCI before reclassification | | 1,476 | | | 13,979 | | | 3,056 | | | 18,511 | |
| Amounts reclassified from AOCI | | 102 | | (a) | (865) | | (b) | (1,961) | | (b) | (2,724) | |
| Net current-period OCI | | 1,578 | | | 13,114 | | | 1,095 | | | 15,787 | |
| Balance, September 30, 2023 | | $ | 6,760 | | | $ | (190,196) | | | $ | 9,032 | | | $ | (174,404) | |
| | | | | | | | |
| Attributable to noncontrolling interest: | | | | | | | | |
| Balance, September 30, 2020 | | $ | — | | | $ | 368 | | | $ | — | | | $ | 368 | |
| OCI before reclassification | | — | | | (127) | | | — | | | (127) | |
| Net current-period OCI | | — | | | (127) | | | — | | | (127) | |
| Balance, September 30, 2021 | | $ | — | | | $ | 241 | | | $ | — | | | $ | 241 | |
| OCI before reclassification | | — | | | 14 | | | — | | | 14 | |
| Net current-period OCI | | — | | | 14 | | | — | | | 14 | |
| Balance, September 30, 2022 | | $ | — | | | $ | 255 | | | $ | — | | | $ | 255 | |
| OCI before reclassification | | — | | | 11 | | | — | | | 11 | |
| Net current-period OCI | | — | | | 11 | | | — | | | 11 | |
| Balance, September 30, 2023 | | $ | — | | | $ | 266 | | | $ | — | | | $ | 266 | |
(a)Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 15). |
| | | | | | | | | | | | | | | | |
| | | Postretirement Benefit Plans | | Currency Translation Adjustment | | Derivatives | | Total |
| Attributable to Matthews: | | | | | | | | |
| Balance, September 30, 2014 | | $ | (39,651 | ) | | $ | (27,367 | ) | | $ | 201 |
| | $ | (66,817 | ) |
| OCI before reclassification | | (7,378 | ) | | (77,237 | ) | | (4,841 | ) | | (89,456 | ) |
| Amounts reclassified from AOCI | (a) | 3,555 |
| | — |
| (b) | 2,392 |
| | 5,947 |
|
| Net current-period OCI | | (3,823 | ) | | (77,237 | ) | | (2,449 | ) | | (83,509 | ) |
| Balance, September 30, 2015 | | $ | (43,474 | ) | | $ | (104,604 | ) | | $ | (2,248 | ) | | $ | (150,326 | ) |
| OCI before reclassification | | (16,901 | ) | | (17,655 | ) | | (3,230 | ) | | (37,786 | ) |
| Amounts reclassified from AOCI | (a) | 4,325 |
| | — |
| (b) | 1,919 |
| | 6,244 |
|
| Net current-period OCI | | (12,576 | ) | | (17,655 | ) | | (1,311 | ) | | (31,542 | ) |
| Balance, September 30, 2016 | | $ | (56,050 | ) | | $ | (122,259 | ) | | $ | (3,559 | ) | | $ | (181,868 | ) |
| OCI before reclassification | | 6,536 |
| | 9,352 |
| | 7,043 |
| | 22,931 |
|
| Amounts reclassified from AOCI | (a) | 5,891 |
| | — |
| (b) | (1,069 | ) | | 4,822 |
|
| Net current-period OCI | | 12,427 |
| | 9,352 |
| | 5,974 |
| | 27,753 |
|
| Balance, September 30, 2017 | | $ | (43,623 | ) | | $ | (112,907 | ) | | $ | 2,415 |
| | $ | (154,115 | ) |
| | | | | | | | | |
| Attributable to noncontrolling interest: | | |
| | |
| | |
| | |
|
| Balance, September 30, 2014 | | $ | — |
| | $ | 516 |
| | $ | — |
| | $ | 516 |
|
| OCI before reclassification | | — |
| | (150 | ) | | — |
| | (150 | ) |
| Net current-period OCI | | — |
| | (150 | ) | | — |
| | (150 | ) |
| Balance, September 30, 2015 | | $ | — |
| | $ | 366 |
| | $ | — |
| | $ | 366 |
|
| OCI before reclassification | | — |
| | (89 | ) | | — |
| | (89 | ) |
| Net current-period OCI | | — |
| | (89 | ) | | — |
| | (89 | ) |
| Balance, September 30, 2016 | | $ | — |
| | $ | 277 |
| | $ | — |
| | $ | 277 |
|
| OCI before reclassification | | — |
| | 119 |
| | — |
| | 119 |
|
| Net current-period OCI | | — |
| | 119 |
| | — |
| | 119 |
|
| Balance, September 30, 2017 | | $ | — |
| | $ | 396 |
| | $ | — |
| | $ | 396 |
|
| |
(a) | Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 12). |
| |
(b) | Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 8). |
Accumulated other comprehensive loss at September 30, 20172023 and 20162022 consisted of the following:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Cumulative foreign currency translation | $ | (190,196) | | | $ | (203,310) | |
Fair value of cash flow hedges, net of tax of $1,015 and $2,762, respectively | 9,032 | | | 7,937 | |
Minimum pension liabilities, net of tax of $1,620 and $1,786, respectively | 6,760 | | | 5,182 | |
| | $ | (174,404) | | | $ | (190,191) | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Cumulative foreign currency translation | $ | (112,907 | ) | | $ | (122,259 | ) |
| Fair value of derivatives, net of tax of $1,544 and $2,275, respectively | 2,415 |
| | (3,559 | ) |
| Minimum pension liabilities, net of tax of $27,114 and $35,426, respectively | (43,623 | ) | | (56,050 | ) |
| | $ | (154,115 | ) | | $ | (181,868 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
13.16. ACCUMULATED OTHER COMPREHENSIVE INCOME, (continued)
Reclassifications out of AOCI for the years ended September 30, 2017, 20162023, 2022 and 20152021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Details about AOCI Components | | September 30, 2023 | | September 30, 2022 | | September 30, 2021 | | Affected line item in the Statement of Income |
| Postretirement benefit plans | | | | | | | | |
Prior service (cost) credit (a) | | $ | 364 | | | $ | 516 | | | $ | 491 | | | |
| Actuarial gains (losses) | | 772 | | | (469) | | | (9,769) | | | Other income (deductions), net |
| Prior service cost write-off | | — | | | — | | | (261) | | | Other income (deductions), net |
| Settlement losses | | (1,271) | | | (30,856) | | | — | | | Other income (deductions), net |
| | | (135) | | | (30,809) | | | (9,539) | | | Income before income tax (b) |
| | | 33 | | | 7,548 | | | 2,337 | | | Income taxes |
| | | $ | (102) | | | $ | (23,261) | | | $ | (7,202) | | | Net income |
| Derivatives | | | | | | | | |
| Cash flow hedges | | $ | 2,626 | | | $ | (1,786) | | | $ | (3,249) | | | Interest expense |
| Net investment hedges | | 1,159 | | | 1,645 | | | 63 | | | Interest expense |
| | | 3,785 | | | (141) | | | (3,186) | | | Income before income tax (b) |
| | | (959) | | | 36 | | | 781 | | | Income taxes |
| | | $ | 2,826 | | | $ | (105) | | | $ | (2,405) | | | Net income |
|
| | | | | | | | | | | | | | |
Details about AOCI Components | | September 30, 2017 | | September 30, 2016 | | September 30, 2015 | | Affected line item in the Statement of Income |
| Postretirement benefit plans | | | | | | | | |
| Prior service (cost) credit | (a) | $ | 376 |
| | $ | 378 |
| | $ | 375 |
| | |
| Actuarial losses | (a) | (10,034 | ) | | (7,468 | ) | | (6,203 | ) | | |
| | (b) | (9,658 | ) | | (7,090 | ) | | (5,828 | ) | | Income before income tax |
| | | (3,767 | ) | | (2,765 | ) | | (2,273 | ) | | Income taxes |
| | | $ | (5,891 | ) | | $ | (4,325 | ) | | $ | (3,555 | ) | | Net income |
| Derivatives | | |
| | |
| | |
| | |
| Interest rate swap contracts | | $ | 1,752 |
| | $ | (3,146 | ) | | $ | (3,922 | ) | | Interest expense |
| | (b) | 1,752 |
| | (3,146 | ) | | (3,922 | ) | | Income before income tax |
| | | 683 |
| | (1,227 | ) | | (1,530 | ) | | Income taxes |
| | | $ | 1,069 |
| | $ | (1,919 | ) | | $ | (2,392 | ) | | Net income |
| |
(a) | 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 12. |
(b)For pre-tax items, positive amounts represent income and negative amounts represent expense.
14.17. INCOME TAXES:
The income tax provision for income taxes(benefit) consisted of the following:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Current: | | | | | |
| Federal | $ | 13,967 | | | $ | 13,481 | | | $ | (3,741) | |
| State | 4,381 | | | 4,676 | | | 3,579 | |
| Foreign | 5,052 | | | 10,414 | | | 2,379 | |
| | 23,400 | | | 28,571 | | | 2,217 | |
| Deferred: | | | | | |
| Federal | (14,466) | | | (24,239) | | | 5,829 | |
| State | (1,887) | | | (3,895) | | | 169 | |
| Foreign | (5,273) | | | (4,828) | | | (1,840) | |
| (21,626) | | | (32,962) | | | 4,158 | |
| Total | $ | 1,774 | | | $ | (4,391) | | | $ | 6,375 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | 1,542 |
| | $ | 18,733 |
| | $ | 655 |
|
| State | 628 |
| | 1,829 |
| | 1,466 |
|
| Foreign | 10,459 |
| | 12,482 |
| | 10,599 |
|
| | 12,629 |
| | 33,044 |
| | 12,720 |
|
| Deferred: | | | | | |
| Federal | 11,887 |
| | (3,066 | ) | | 13,279 |
|
| State | 905 |
| | (2,412 | ) | | 645 |
|
| Foreign | (3,067 | ) | | 1,507 |
| | (280 | ) |
| | 9,725 |
| | (3,971 | ) | | 13,644 |
|
| Total | $ | 22,354 |
| | $ | 29,073 |
| | $ | 26,364 |
|
During 2017, the Company adopted ASU 2016-09 and recorded current year tax benefits related to share-based payments as a component of income tax expense (See Note 3, Accounting Pronouncements). The tax benefits related to share-based payments recorded as a component of income tax expense for the year ended September 30, 2017 were $1,234. The tax benefits related to share-based payments recorded directly to additional paid-in capital for the years ended September 30, 2016, and 2015 were $1,720, and $418, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
14.17. INCOME TAXES, (continued)
The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Effect of state income taxes, net of federal deduction | 3.8 | % | | 0.2 | % | | 37.5 | % |
| Foreign statutory taxes compared to federal statutory rate | (0.7) | % | | 1.6 | % | | (18.6) | % |
| Share-based compensation | 3.6 | % | | (1.1) | % | | 24.5 | % |
| Termination of SERP | — | % | | — | % | | 28.6 | % |
| Tax credits | (7.0) | % | | 1.2 | % | | (26.6) | % |
| | | | | |
| | | | | |
| | | | | |
| Sale of SERP-related investments | — | % | | — | % | | 23.8 | % |
| | | | | |
| | | | | |
| Goodwill write-down | — | % | | (11.2) | % | | — | % |
| Tax rate differential on net operating loss carryback | — | % | | — | % | | (21.4) | % |
| Nontaxable income | (7.5) | % | | 0.8 | % | | (9.9) | % |
| Utilization of foreign losses with valuation allowance | (5.6) | % | | — | % | | — | % |
Other * | (3.3) | % | | (8.3) | % | | 10.1 | % |
| Effective tax rate | 4.3 | % | | 4.2 | % | | 69.0 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Federal statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Effect of state income taxes, net of federal deduction | 1.4 | % | | (0.6 | )% | | 1.8 | % |
| Foreign taxes less than federal statutory rate | (7.2 | )% | | (3.5 | )% | | (3.2 | )% |
| Share-based compensation | (1.2 | )% | | — | % | | — | % |
| Other | (4.8 | )% | | (0.4 | )% | | (4.2 | )% |
| Effective tax rate | 23.2 | % | | 30.5 | % | | 29.4 | % |
The Company's effective tax rateconsolidated income taxes for the year ended September 30, 2023 were an expense of $1,774, compared to a benefit of $4,391 for fiscal 2017 was 23.2%, compared to 30.5%2022, and an expense of $6,375 for fiscal 2016. Fiscal 2017 reflects the benefits from lower foreign taxes, organizational structure changes, primarily initiated in connection with acquisition integration, increased benefits from credits and incentives, and the impact of other tax benefits specific to the current year.2021. The difference between the Company's consolidated income taxes for fiscal 2023 compared to fiscal 2022 partially resulted from fiscal 2023 having consolidated income before income taxes compared to fiscal 2022 having a consolidated loss before income taxes. The fiscal 2023 tax rate was negatively impacted by share-based compensation. Additionally, the fiscal 2023 tax rate benefited from research and development and foreign tax credits and the utilization of foreign tax net operating losses with a valuation allowance. The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible. The fiscal 2022 effective tax rate also benefited from research and development and foreign tax credits. The fiscal 2022 effective tax rate was negatively impacted by foreign net operating losses requiring a full valuation allowance.
The difference between the Company's consolidated income taxes for fiscal 2022 compared to fiscal 2021 partially resulted from fiscal 2022 having a consolidated loss before income taxes compared to fiscal 2021 having consolidated income before income taxes. The fiscal 2022 consolidated loss reflected a goodwill write-down recorded in the fourth quarter of fiscal 2022 that was primarily non-deductible. The Company’s fiscal 2021 effective tax rate benefited from research and development and foreign tax credits as well as the reduction of uncertain tax positions due to the expiration of the statute of limitations in certain jurisdictions, the completion of a state tax audit, and the Federal statutory rate of 35.0% primarily reflected lower foreign income taxes and thetax benefit of credits and incentives, offsetthe NOL carryback. The fiscal 2021 effective tax rate was negatively affected by the impacttermination of state taxes.the Company’s SERP, which resulted in certain expenses that are nondeductible for tax purposes.
The Company's foreign subsidiaries had income before income taxes for the yearsyear ended September 30, 2017, 2016 and 20152023 of approximately $24,118, $48,864 and $40,024, respectively. Deferred$43,090, loss before income taxes for U.S. tax purposesthe year ended September 30, 2022 of approximately $47,653 and income before income taxes for the year ended September 30, 2021 of approximately $6,685. Deferred income taxes have not been provided on certain undistributed earnings of foreign subsidiaries assince they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and Jobs Act, or such earnings are considered to be reinvested indefinitely.indefinitely in foreign operations. At September 30, 2017,2023, undistributed earnings of foreign subsidiaries for which deferred U.S. income taxes have not been provided approximated $596,281. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable due to the complexity of the hypothetical calculation.$368,306.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
17. INCOME TAXES, (continued)
The components of deferred tax assets and liabilities at September 30, 20172023 and 20162022 are as follows:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| Deferred tax assets: | | | |
| Pension and postretirement benefits | $ | 5,544 | | | $ | 9,051 | |
| Accruals and reserves not currently deductible | 11,158 | | | 10,909 | |
| Income tax credit carryforward | 4,970 | | | 5,796 | |
| Operating and capital loss carryforwards | 59,956 | | | 54,875 | |
| Stock options | 8,007 | | | 7,103 | |
| Research and development capitalization | 11,028 | | | — | |
| Other | 3,016 | | | 50 | |
| Total deferred tax assets | 103,679 | | | 87,784 | |
| Valuation allowances | (22,506) | | | (27,552) | |
| Net deferred tax assets | 81,173 | | | 60,232 | |
| | | |
| Deferred tax liabilities: | | | |
| Depreciation | (23,547) | | | (27,317) | |
| Unrealized gains and losses | (2,969) | | | (2,793) | |
| Goodwill and intangible assets | (97,415) | | | (98,715) | |
| Revenue recognized over time | (21,226) | | | (10,847) | |
| Other | (5,002) | | | (9,539) | |
| Total deferred tax liabilities | (150,159) | | | (149,211) | |
| | | |
| Net deferred tax liability | $ | (68,986) | | | $ | (88,979) | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Deferred tax assets: | | | |
| Pension and postretirement benefits | $ | 45,654 |
| | $ | 46,282 |
|
| Accruals and reserves not currently deductible | 20,579 |
| | 26,214 |
|
| Income tax credit carryforward | 3,313 |
| | 10,080 |
|
| Operating and capital loss carryforwards | 23,610 |
| | 25,258 |
|
| Stock options | 8,614 |
| | 6,544 |
|
| Other | 2,782 |
| | 5,246 |
|
| Total deferred tax assets | 104,552 |
| | 119,624 |
|
| Valuation allowances | (20,866 | ) | | (22,412 | ) |
| Net deferred tax assets | 83,686 |
| | 97,212 |
|
| | | | |
| Deferred tax liabilities: | |
| | |
|
| Depreciation | (4,763 | ) | | (5,207 | ) |
| Unrealized gains and losses | (10,446 | ) | | (5,640 | ) |
| Goodwill and intangible assets | (203,957 | ) | | (190,541 | ) |
| Other | (1,494 | ) | | (2,087 | ) |
| | (220,660 | ) | | (203,475 | ) |
| | | | |
| Net deferred tax liability | $ | (136,974 | ) | | $ | (106,263 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
14. INCOME TAXES, (continued)
At September 30, 2017,2023, the Company had foreign net operating loss carryforwards of $84,175 and foreign capital loss carryforwards of $20,930.$292,206. The Company has recorded deferred tax assets of $2,232 for state net operating loss carryforwards, and various non-U.S. income tax credit carryforwards of $3,080 which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2018. Certain of the foreign net operating losses begin to expire in 2018 while the majority of the Company's foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business continuation. Therefore, the Company has established tax-effected valuation allowances against these tax benefits in the amount of $20,866$22,506 at September 30, 2017. 2023. The Company has recorded deferred tax assets of $2,756 for state net operating loss carryforwards, which will be available to offset future income tax liabilities.
Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Balance, beginning of year | $ | 4,123 | | | $ | 2,807 | | | $ | 10,483 | |
| | | | | |
| Increases for tax positions of prior years | 100 | | | 1,393 | | | — | |
| Decreases for tax positions of prior years | — | | | (200) | | | (288) | |
| Increases based on tax positions related to the current year | 769 | | | 551 | | | 628 | |
| | | | | |
| Decreases due to lapse of statute of limitation | (1,213) | | | (428) | | | (8,016) | |
| Balance, end of year | $ | 3,779 | | | $ | 4,123 | | | $ | 2,807 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Balance, beginning of year | $ | 13,820 |
| | $ | 4,086 |
| | $ | 4,311 |
|
| Increase from acquisition | — |
| | — |
| | — |
|
| Increases for tax positions of prior years | 839 |
| | 5,762 |
| | 475 |
|
| Decreases for tax positions of prior years | (5,890 | ) | | (166 | ) | | (155 | ) |
| Increases based on tax positions related to the current year | 378 |
| | 5,456 |
| | 635 |
|
| Decreases due to settlements with taxing authorities | — |
| | — |
| | (27 | ) |
| Decreases due to lapse of statute of limitation | (1,179 | ) | | (1,318 | ) | | (1,153 | ) |
| Balance, end of year | $ | 7,968 |
| | $ | 13,820 |
| | $ | 4,086 |
|
The Company had unrecognized tax benefits of $7,968$3,779 at September 30, 2017,2023, which would impact the annual effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $3,587$2,648 in the next 12 months primarily due to the completion of audits and the expiration of statutesthe statute of limitation related to specific tax positions.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $1,779$730 and $2,088$876 at September 30, 20172023 and 2016,2022, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
17. INCOME TAXES, (continued)
The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions.
As of September 30, 2017,2023, the tax years that remain subject to examination by major jurisdiction generally are:
|
| | | | |
| United States - Federal | 20132020 and forward |
| United States - State | 20132019 and forward |
| Canada | 20132019 and forward |
| Germany | 20092019 and forward |
| United Kingdom | 20152022 and forward |
| Australia | 20132018 and forward |
| Singapore | 20122019 and forward |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
15. 18. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates various production, warehouse and office facilities and equipment under operating lease agreements. Annual rentals under these and other operating leases were $36,400, $32,716 and $31,766 in fiscal 2017, 2016 and 2015, respectively. Future minimum rental commitments under non-cancelable operating lease arrangements for fiscal years 2018 through 2022 are $21,939, $15,562, $11,992, $8,559 and $5,276, respectively.
The Company is party to various legal proceedings, the eventual outcome of which are not predictable. Although the ultimate disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows.
In the normal course of business, the Company may provide certain customers with performance guarantees, and at times letters of credit or surety bonds. The terms of these agreements expire at various dates between fiscal 2024 and 2026. In general, the Company would only be liable for the amounts of these guarantees in the event that non-performance by the Company permits termination of the related contract by the Company's customer. The Company maintains it is in compliance with its performance obligations under all contracts for which there is a performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
The Company has employment agreements with certain employees, the terms of which expire at various dates between fiscal 20172024 and 2019. 2027. The agreements generally provide for base salary and bonus levels and include non-compete provisions. The aggregate commitment for salaries under these agreements at September 30, 2017 2023was $5,652.$5,838.
The Company is involved in a dispute with a customer related to a project in Saudi Arabia. It is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations. See further discussion in Note 8.
16. ENVIRONMENTAL MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations. As such, the Company has developed environmental, health and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.
The Company is party to various environmental matters. These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at these sites, as appropriate.
At September 30, 2017, an accrual of $2,928 had been recorded for environmental remediation (of which $750 was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of known remediation obligations for one of the Company's subsidiaries. The accrual does not consider the effects of inflation and anticipated expenditures are not discounted to their present value. While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
17. 19. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in working capital items as presented in the Consolidated Statements of Cash Flows consisted of the following:
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Current assets: | | | | | |
| Accounts receivable | $ | 26,457 | | | $ | 74,013 | | | $ | (13,423) | |
| Inventories | (23,990) | | | (23,459) | | | (12,839) | |
| Other current assets | (26,724) | | | (15,770) | | | (15,618) | |
| | (24,257) | | | 34,784 | | | (41,880) | |
| Current liabilities: | | | | | |
| Trade accounts payable | (9,215) | | | 7,437 | | | 29,621 | |
| Accrued compensation | (648) | | | (10,760) | | | 10,791 | |
| Accrued income taxes | 3,343 | | | 5,745 | | | 601 | |
| Other current liabilities | (4,726) | | | (7,616) | | | 13,849 | |
| | (11,246) | | | (5,194) | | | 54,862 | |
| Net change | $ | (35,503) | | | $ | 29,590 | | | $ | 12,982 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current assets: | | | | | |
| Accounts receivable | $ | (7,045 | ) | | $ | (10,632 | ) | | $ | 7,566 |
|
| Inventories | (2,289 | ) | | 10,453 |
| | 17,001 |
|
| Other current assets | 4,447 |
| | 12,434 |
| | (14,567 | ) |
| | (4,887 | ) | | 12,255 |
| | 10,000 |
|
| Current liabilities: | |
| | |
| | |
|
| Trade accounts payable | 5,672 |
| | (11,083 | ) | | (9,103 | ) |
| Accrued compensation | (2,469 | ) | | 147 |
| | (183 | ) |
| Accrued income taxes | 5,054 |
| | 4,079 |
| | 3,389 |
|
| Other current liabilities | 2,414 |
| | 8,317 |
| | (6,854 | ) |
| | 10,671 |
| | 1,460 |
| | (12,751 | ) |
| Net change | $ | 5,784 |
| | $ | 13,715 |
| | $ | (2,751 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
18. 20. SEGMENT INFORMATION:
The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment includes brand development, deployment and delivery (consisting of brand management, printing plates and cylinders, pre-media services and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services).Solutions. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, cremation-related products, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes markingthe design, manufacturing, service and coding equipmentdistribution of high-tech custom energy storage solutions; product identification and consumables, industrialwarehouse automation productstechnologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.products; and coating and converting lines for the packaging, pharma, foil, décor and tissue industries. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.
The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition and divestiture 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 evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and noncontrolling interest amongstto the segments.
The accounting policies of the segments are the same as those described in SummaryNote 2 "Summary of Significant Accounting Policies (Note 2)Policies". Intersegment sales are accounted for at negotiated prices. Operating profit is total revenue less operating expenses. Segment assets include those assets that are used in the Company's operations within each segment. Assets classified under "Other""Corporate and Non-Operating" principally consist of cash and cash equivalents, investments, deferred income taxes and corporate headquarters' assets. Long-lived assets include property, plant and equipment (net of accumulated depreciation), goodwill, and other intangible assets (net of accumulated amortization).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
18. 20. SEGMENT INFORMATION, (continued)
Information about the Company's segments follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Memorialization | | Industrial Technologies | | SGK Brand Solutions | | Corporate and Non-Operating | | Consolidated |
| Sales to external customers: |
| 2023 | $ | 842,997 | | | $ | 505,751 | | | $ | 532,148 | | | $ | — | | | $ | 1,880,896 | |
| 2022 | 840,124 | | | 335,523 | | | 586,756 | | | — | | | 1,762,403 | |
| 2021 | 769,016 | | | 284,495 | | | 617,519 | | | — | | | 1,671,030 | |
| Intersegment sales: |
| 2023 | — | | | 1,829 | | | 1,073 | | | — | | | 2,902 | |
| 2022 | — | | | 1,057 | | | 1,295 | | | — | | | 2,352 | |
| 2021 | — | | | 2,146 | | | 2,376 | | | — | | | 4,522 | |
| Depreciation and amortization: |
| 2023 | 23,738 | | | 23,184 | | | 44,842 | | | 4,766 | | | 96,530 | |
| 2022 | 23,228 | | | 11,387 | | | 64,173 | | | 5,268 | | | 104,056 | |
| 2021 | 23,043 | | | 11,427 | | | 93,665 | | | 5,377 | | | 133,512 | |
| Adjusted EBITDA: |
| 2023 | 163,986 | | | 66,278 | | | 57,128 | | | (61,583) | | | 225,809 | |
| 2022 | 151,849 | | | 56,762 | | | 60,120 | | | (58,323) | | | 210,408 | |
| 2021 | 165,653 | | | 34,889 | | | 91,435 | | | (64,227) | | | 227,750 | |
| Total assets: |
| 2023 | 794,129 | | | 482,444 | | | 572,601 | | | 38,207 | | | 1,887,381 | |
| 2022 | 800,666 | | | 414,019 | | | 631,291 | | | 36,795 | | | 1,882,771 | |
| 2021 | 807,215 | | | 285,710 | | | 874,001 | | | 65,152 | | | 2,032,078 | |
| Capital expenditures: |
| 2023 | 16,868 | | | 16,253 | | | 14,589 | | | 2,888 | | | 50,598 | |
| 2022 | 28,899 | | | 13,646 | | | 14,287 | | | 4,489 | | | 61,321 | |
| 2021 | 11,969 | | | 8,620 | | | 11,775 | | | 1,949 | | | 34,313 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
20. SEGMENT INFORMATION, (continued)
|
| | | | | | | | | | | | | | | | | | | |
| | SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Other | | Consolidated |
| Sales to external customers: |
| 2017 | $ | 770,181 |
| | $ | 615,882 |
| | $ | 129,545 |
| | $ | — |
| | $ | 1,515,608 |
|
| 2016 | 755,975 |
| | 610,142 |
| | 114,347 |
| | — |
| | 1,480,464 |
|
| 2015 | 798,339 |
| | 508,058 |
| | 119,671 |
| | — |
| | 1,426,068 |
|
| Intersegment sales: |
| 2017 | 356 |
| | — |
| | 2 |
| | — |
| | 358 |
|
| 2016 | 346 |
| | 43 |
| | 99 |
| | — |
| | 488 |
|
| 2015 | 478 |
| | 77 |
| | 25 |
| | — |
| | 580 |
|
| Depreciation and amortization: |
| 2017 | 41,941 |
| | 19,808 |
| | 2,863 |
| | 3,369 |
| | 67,981 |
|
| 2016 | 41,238 |
| | 19,223 |
| | 2,503 |
| | 2,516 |
| | 65,480 |
|
| 2015 | 46,594 |
| | 12,410 |
| | 2,294 |
| | 1,322 |
| | 62,620 |
|
| Operating profit: |
| 2017 | 24,919 |
| | 80,652 |
| | 7,032 |
| | — |
| | 112,603 |
|
| 2016 | 42,909 |
| | 68,252 |
| | 7,654 |
| | — |
| | 118,815 |
|
| 2015 | 21,864 |
| | 70,064 |
| | 13,095 |
| | — |
| | 105,023 |
|
| Total assets: |
| 2017 | 1,276,295 |
| | 741,148 |
| | 161,472 |
| | 65,734 |
| | 2,244,649 |
|
| 2016 | 1,177,816 |
| | 735,985 |
| | 122,179 |
| | 55,061 |
| | 2,091,041 |
|
| 2015 | 1,157,771 |
| | 762,028 |
| | 115,664 |
| | 108,148 |
| | 2,143,611 |
|
| Capital expenditures: |
| 2017 | 22,941 |
| | 8,078 |
| | 4,622 |
| | 9,294 |
| | 44,935 |
|
| 2016 | 22,043 |
| | 11,870 |
| | 3,461 |
| | 4,308 |
| | 41,682 |
|
| 2015 | 23,676 |
| | 10,922 |
| | 5,866 |
| | 7,787 |
| | 48,251 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Total Adjusted EBITDA | | $ | 225,809 | | | $ | 210,408 | | | $ | 227,750 | |
Acquisition and divestiture related items (1)** | | (5,293) | | | (7,898) | | | (541) | |
| | | | | | |
Strategic initiatives and other charges (2)** | | (13,923) | | | (28,060) | | | (28,998) | |
| | | | | | |
Non-recurring / incremental COVID-19 costs (3)*** | | — | | | (2,985) | | | (5,312) | |
Highly inflationary accounting losses (primarily non-cash) (4) | | (1,360) | | | (1,473) | | | — | |
Defined benefit plan termination related items (5) | | — | | | 429 | | | — | |
Asset write-downs, net (6) | | — | | | (10,050) | | | — | |
Goodwill write-downs (7) | | — | | | (82,454) | | | — | |
| | | | | | |
| Stock-based compensation | | (17,308) | | | (17,432) | | | (15,581) | |
Non-service pension and postretirement expense (8) | | (1,640) | | | (31,823) | | | (5,837) | |
Depreciation and amortization * | | (96,530) | | | (104,056) | | | (133,512) | |
Interest expense, including RPA and factoring financing fees (9) | | (48,690) | | | (28,771) | | | (28,684) | |
| Net loss attributable to noncontrolling interests | | (155) | | | (54) | | | (52) | |
| Income (loss) before income taxes | | 40,910 | | | (104,219) | | | 9,233 | |
| Income tax (provision) benefit | | (1,774) | | | 4,391 | | | (6,375) | |
| Net income (loss) | | $ | 39,136 | | | $ | (99,828) | | | $ | 2,858 | |
| | |
(1) Includes certain non-recurring costs associated with recent acquisition and divestiture activity, and also includes a gain of $1,827 in fiscal year 2023 related to the divestiture of a business in the Industrial Technologies segment. |
(2) Includes certain non-recurring costs associated with productivity and cost-reduction initiatives intended to result in improved operating performance, profitability and working capital levels and costs associated with global ERP system integration efforts, net of loss recoveries of $2,154 in fiscal year 2023 related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. |
|
(3) Includes certain non-recurring 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. |
(4) Represents exchange losses associated with highly inflationary accounting related to the Company's Turkish subsidiaries. |
(5) Represents items associated with the termination of the Company's DB Plan, supplemental retirement plan and the defined benefit portion of the officers retirement restoration plan. |
(6) Represents asset write-downs, net of recoveries within the SGK Brand Solutions segment (see Note 23, "Asset Write-Downs"). |
(7) Represents goodwill write-downs within the SGK Brand Solutions segment (see Note 22, "Goodwill and Other Intangible Assets"). |
|
|
(8) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and losses, and settlement gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. Curtailment gains and losses and settlement gains and losses are excluded from adjusted EBITDA since they generally result from certain non-recurring events, such as plan amendments to modify future benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans. |
(9) Includes fees for receivables sold under the RPA and factoring arrangements totaling$4,042and $1,046 for the fiscal years ended September 30, 2023 and 2022, respectively. |
* Depreciation and amortization was $23,738, $23,228, and $23,043 for the Memorialization segment, $23,184, $11,387, and $11,427 for the Industrial Technologies segment, $44,842, $64,173, and $93,665 for the SGK Brand Solutions segment, and $4,766, $5,268, and $5,377 for Corporate and Non-Operating, for the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
** Acquisition and divestiture costs, ERP integration costs, and strategic initiatives and other charges were $1,002, $3,517, and $1,923 for the Memorialization segment, $4,108, $5,631, and $4,026 for the Industrial Technologies segment, $10,905, $19,359, and $12,323 for the SGK Brand Solutions segment, and $3,201, $7,451, and $11,267 for Corporate and Non-Operating, for the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
*** Non-recurring/incremental COVID-19 costs were $1,314, and $3,646 for the Memorialization segment, $6, and $38 for the Industrial Technologies segment, $1,199, and $1,539 for the SGK Brand Solutions segment, and $466, and $89 for Corporate and Non-Operating, for the fiscal years ended September 30, 2022, and 2021 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
20. SEGMENT INFORMATION, (continued)
Information about the Company's operations by geographic area follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North America | | Central and South America | | Europe | | Australia | | Asia | | Consolidated |
| Sales to external customers: | | | | | | | | | | |
| 2023 | $ | 1,219,238 | | | $ | 5,260 | | | $ | 572,736 | | | $ | 19,913 | | | $ | 63,749 | | | $ | 1,880,896 | |
| 2022 | 1,230,267 | | | 4,729 | | | 444,606 | | | 21,206 | | | 61,595 | | | 1,762,403 | |
| 2021 | 1,141,396 | | | 5,036 | | | 446,274 | | | 23,568 | | | 54,756 | | | 1,671,030 | |
| | | | | | | | | | | |
| Long-lived assets: | | | | | | | | | | |
| 2023 | 806,182 | | | 11,690 | | | 255,748 | | | 14,099 | | | 41,194 | | | 1,128,913 | |
| 2022 | 822,566 | | | 10,787 | | | 242,614 | | | 14,895 | | | 42,778 | | | 1,133,640 | |
| 2021 | 890,545 | | | 14,226 | | | 277,655 | | | 21,012 | | | 55,598 | | | 1,259,036 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States | | Central and South America | | Canada | | Europe | | Australia | | Asia | | Consolidated |
| Sales to external customers: | | | | | | | | | | | | |
| 2017 | $ | 1,014,906 |
| | $ | 6,518 |
| | $ | 29,018 |
| | $ | 396,242 |
| | $ | 21,507 |
| | $ | 47,417 |
| | $ | 1,515,608 |
|
| 2016 | 1,018,129 |
| | 10,160 |
| | 27,589 |
| | 360,678 |
| | 20,043 |
| | 43,865 |
| | 1,480,464 |
|
| 2015 | 936,513 |
| | 8,806 |
| | 30,367 |
| | 398,533 |
| | 21,225 |
| | 30,624 |
| | 1,426,068 |
|
| | | | | | | | | | | | | | |
| Long-lived assets: | | |
| | |
| | |
| | |
| | |
| | |
|
| 2017 | 1,027,891 |
| | 13,882 |
| | 41,971 |
| | 382,940 |
| | 24,887 |
| | 66,138 |
| | 1,557,709 |
|
| 2016 | 1,000,870 |
| | 13,267 |
| | 41,393 |
| | 334,847 |
| | 23,768 |
| | 50,677 |
| | 1,464,822 |
|
| 2015 | 1,016,703 |
| | 17,488 |
| | 41,690 |
| | 349,533 |
| | 22,072 |
| | 50,650 |
| | 1,498,136 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
19. ACQUISITIONS:
Fiscal 2017:2023:
On March 1, 2017,In September 2023, the Company acquired GJ Creative Limited ("Equator")completed a small divestiture within the Industrial Technologies segment. Net proceeds from the divestiture totaled approximately $6,700, and the transaction resulted in a pre-tax gain of $1,827, which was recorded as a component of administrative expenses for £30.5 million ($37,596) (netthe year ended September 30, 2023. The transaction also included $2,250 of contingent consideration, which represents the maximum amount the Company could potentially recognize at the resolution of the two-year contingency period.
In March 2023, the Company purchased the remaining ownership interest in a non-consolidated Industrial Technologies subsidiary for $4,759(net of cash acquired). Equator provides design expertise capable of taking brands from creation to shelf under one roof,acquired and is included in the Company's SGK Brand Solutions segment.holdbacks). The preliminary purchase price allocation related to the Equator acquisition iswas not finalized as of September 30, 2017,2023 and is subject to changes as the Company obtains additional information related to fixed assets, intangible assets, and other assets and liabilities.
On February 28, 2017, the Company acquired certain net assets of RAF Technology, Inc. ("RAF") for $8,717 (net of cash acquired). RAF is a global leader in pattern and optical character recognition software, and is included in the Company's Industrial Technologies segment. The Company finalized the allocation of purchase price related to the RAF acquisition in the fourth quarter of fiscal 2017, resulting in an immaterial adjustment to certain working capital accounts.
On January 13, 2017, the Company acquired VCG (Holdings) Limited ("VCG") for £8.8 million ($10,695) (net of cash acquired). VCG is a leading graphics, plate-making, and creative design company and is included in the Company's SGK Brand Solutions segment. The preliminary purchase price allocation related to the VCG acquisition is not finalized as of September 30, 2017, and isremains subject to change as the Company obtains additional information related to fixed assets, intangible assets,working capital and other assets and liabilities.
On January 3, 2017,In February 2023, the Company acquired A. + E. Ungricht GmbH + Co KGEagle Granite Company ("Ungricht"Eagle") within the Memorialization segment for €24.0 million ($25,185)a total purchase price of $18,384, consisting of cash of $8,650 (net of cash acquired). Ungricht is and a leading European provider of pre-press services and gravure printing forms, located in Germany, and is included in the Company's SGK Brand Solutions segment. The preliminarydeferred purchase price allocationamount of $9,734, which is scheduled to be paid to the seller two years from the acquisition date. In addition, the Company recorded a liability of approximately $1,030 for potential future contingent consideration related to certain earnout provisions, which, if owed, is scheduled to be paid to the Ungrichtseller four years from the acquisition is not finalized asdate. Eagle serves cemeteries and monument companies with a full complement of September 30, 2017, and is subject to change as the Company obtains additional information related to fixed assets, intangible assets, and other assets and liabilities.
On November 30, 2016, the Company acquired Guidance Automation Limited ("Guidance") for £8.0 million ($9,974) (net of cash acquired). Guidance provides technological solutions for autonomous warehouse vehicles and is included in the Company's Industrial Technologies segment. granite memorialization products. The Company finalized the allocation of the purchase price related to the Guidance acquisition in the fourth quarter of fiscal 2017, resulting in an immaterial adjustment to certain working capital and intangible asset accounts.
Fiscal 2016:
On February 1, 2016, the Company acquired certain net assets of Digital Design, Inc. ("DDI") for $8,773 (net of cash acquired and holdback amount). DDI is a manufacturer and seller of ink jet printing systems and is included in the Company's Industrial Technologies segment. The Company finalized the allocation of purchase price related to the DDI acquisition during fiscal 2017,2023, resulting in an immaterial adjustment to certain working capital accounts.
During the first fiscal quarter of 2023, the Company completed small acquisitions within the SGK Brand Solutions segment for a combined purchase price of $1,932 (net of cash acquired and holdbacks). The Company finalized the purchase price allocations in the fourth quarter of fiscal 2023, resulting in an immaterial adjustment to certain tax accounts.
Fiscal 2015:2022:
OnIn August 19, 2015,2022, the Company acquired Aurora Products Group, LLC ("Aurora")German-based engineering firms OLBRICH and R+S Automotive for $210,026a purchase price of approximately €43,700 ($44,469) (net of cash acquired). Aurora provides burial, cremation, within the Industrial Technologies segment. OLBRICH is a production and technology products to funeral home clients and distributorsintelligent equipment manufacturer, specializing in purpose-built rotary processing equipment, including equipment used in the United Statesmanufacturing of dry and Canada.wet electrodes for lithium-ion batteries used in electric vehicles and components for hydrogen fuel cells and electrolyzers, with additional strong positions in Specialty & Pharma, Packaging and Home & Décor. R+S Automotive is a specialty engineering services provider of automation, plant and tooling concepts for automotive manufacturing companies around the world. Annual sales for these businesses were approximately $140,000 prior to the acquisition. The acquisition was designed to expand the Company's memorialization product offerings and geographic distribution footprint in the United States. During fiscal 2016, the Company finalized the allocation of the purchase price related toin the Aurora acquisition,fourth quarter of fiscal 2023, resulting in an immaterial adjustmentsadjustment to property, plant and equipment, goodwill, certain working capital, accountstax, and deferred taxes. The final allocation of the purchase price resulted in goodwill of $73,927, which was assigned to the Memorialization segment, $76,340 of intangible assets, of which $30,540 is not subject to amortization, $26,268 of property, plant and equipment, and $33,491 of other net assets, primarily working capital. Approximately $44,000 of the goodwill is expected to be deductible for tax purposes.accounts.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
21. ACQUISITIONS AND DIVESTITURES, (continued)
Fiscal 2021:
20.
In April 2021, the Company completed a small acquisition in the hydrogen fuel cell industry within the Industrial Technologies segment for a purchase price of $2,523 (net of cash acquired and holdback amounts). The Company finalized the allocation of the purchase price in the first quarter of fiscal 2022, resulting in an immaterial adjustment to certain working capital accounts.
In January 2021, the Company acquired a memorialization business that produces and distributes cemetery products for a purchase price of $13,100. The Company finalized the allocation of the purchase price in the fourth quarter of fiscal 2021, resulting in an immaterial adjustment to certain working capital accounts.
22. GOODWILL AND OTHER INTANGIBLE ASSETS:
Changes to goodwill during the years ended September 30, 20172023 and 2016,2022, follow.
| | | | | | | | | | | | | | | | | | | | | | | |
| Memorialization | | Industrial Technologies | | SGK Brand Solutions | | Consolidated |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net goodwill at September 30, 2021 | $ | 366,360 | | | $ | 92,577 | | | $ | 314,850 | | | $ | 773,787 | |
| | | | | | | |
| Additions during period | — | | | 17,013 | | | — | | | 17,013 | |
| | | | | | | |
| Translation and other adjustments | (4,578) | | | (2,568) | | | (25,779) | | | (32,925) | |
| | | | | | | |
| | | | | | | |
| Goodwill write-down | — | | | — | | | (82,454) | | | (82,454) | |
| Net goodwill at September 30, 2022 | 361,782 | | | 107,022 | | | 206,617 | | | 675,421 | |
| | | | | | | |
| Additions during period | 2,322 | | | 6,757 | | | 2,100 | | | 11,179 | |
| Divestiture during period | — | | | (2,525) | | | — | | | (2,525) | |
| Translation and other adjustments | 1,911 | | | 3,819 | | | 8,304 | | | 14,034 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net goodwill at September 30, 2023 | $ | 366,015 | | | $ | 115,073 | | | $ | 217,021 | | | $ | 698,109 | |
The net goodwill balances at September 30, 2023 and 2022 included $261,186 of accumulated impairment losses. Accumulated impairment losses at September 30, 2023 and 2022 were $5,000, $23,946, and $232,240 for the Memorialization, Industrial Technologies and SGK Brand Solutions segments, respectively.
Fiscal 2023:
In fiscal 2023, the additions reflect the acquisition of Eagle Granite Company within the Memorialization segment, the purchase of the remaining ownership interest in an Industrial Technologies subsidiary, and small acquisitions within the SGK Brand Solutions segment.
|
| | | | | | | | | | | | | | | |
| | SGK Brand Solutions | | Memorialization | | Industrial Technologies | | Consolidated |
| Goodwill | $ | 466,647 |
| | $ | 346,946 |
| | $ | 52,887 |
| | $ | 866,480 |
|
| Accumulated impairment losses | (5,752 | ) | | (5,000 | ) | | — |
| | (10,752 | ) |
| Balance at September 30, 2015 | 460,895 |
| | 341,946 |
| | 52,887 |
| | 855,728 |
|
| | | | | | | | |
| Additions during period | — |
| | — |
| | 3,958 |
| | 3,958 |
|
| Translation and other adjustments | (8,137 | ) | | 170 |
| | (230 | ) | | (8,197 | ) |
| Goodwill | 458,510 |
| | 347,116 |
| | 56,615 |
| | 862,241 |
|
| Accumulated impairment losses | (5,752 | ) | | (5,000 | ) | | — |
| | (10,752 | ) |
| Balance at September 30, 2016 | 452,758 |
| | 342,116 |
| | 56,615 |
| | 851,489 |
|
| | | | | | | | |
| Additions during period | 21,361 |
| | 158 |
| | 11,694 |
| | 33,213 |
|
| Translation and other adjustments | 12,024 |
| | 233 |
| | 835 |
| | 13,092 |
|
| Goodwill | 491,895 |
| | 347,507 |
| | 69,144 |
| | 908,546 |
|
| Accumulated impairment losses | (5,752 | ) | | (5,000 | ) | | — |
| | (10,752 | ) |
| Balance at September 30, 2017 | $ | 486,143 |
| | $ | 342,507 |
| | $ | 69,144 |
| | $ | 897,794 |
|
The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 20172023 (January 1, 2023) 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 for allof the Company's SGK Brand Solutions reporting unitsunit exceeded carrying value, therefore no adjustments to the carrying value (expressed as a percentage of carrying value) by approximately 9% as of January 1, 2023. In light of the limited excess fair value over carrying value and further declines experienced by the SGK Brand Solutions reporting unit, management determined that a triggering event occurred during the fourth quarter of fiscal 2023, resulting in an interim assessment of goodwill were necessary.for the reporting unit, as of September 1, 2023. The results of this review indicated that the estimated fair value of the Company's SGK Brand Solutions reporting unit exceeded the carrying value (expressed as a percentage of carrying value) by approximately 4%. The fair value for the reporting unit was determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology.If current projections are not achieved or specific valuation factors outside the Company's control (such as discount rates and continued economic and industry challenges) significantly change, additional goodwill write-downs may be necessary in future periods.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
22. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued)
Fiscal 2022:
In fiscal 2017,2022, the additions to SGK Brand Solutions goodwill primarily reflects the acquisitions of Equator, VCG and Ungricht. The additions to Industrial Technologies goodwill primarily reflects the acquisitions of RAF and Guidance.
In fiscal 2016, the addition to Industrial Technologies goodwill reflects the acquisition of DDI.
OLBRICH and R+S Automotive.
In fiscal 2015,2022, in its assessment of the addition to Memorialization goodwill primarily reflectspotential impacts of weakened economic conditions (particularly in Europe), increases in the acquisitioncost of Aurora, and the addition to Industrial Technologies goodwill primarily reflects the acquisition of a small printing products business. The amount reflected in translationcertain materials, labor, and other adjustmentsinflation-related pressures, and unfavorable changes in foreign exchange rates on the estimated future earnings and cash flows for the SGK Brand Solutions segment includesreporting unit, and in light of the impactlimited excess fair value over carrying value for this reporting unit, management determined a triggering event occurred, resulting in a re-evaluation of purchase price adjustments.goodwill for the reporting unit, as of September 1, 2022. As a result of this interim assessment, the Company recorded a goodwill write-down totaling $82,454 during the fiscal 2022 fourth quarter. Subsequent to this write-down, the fair value of the SGK Brand Solutions reporting unit approximated its carrying value at September 1, 2022. The fair value for the reporting unit was determined using level 3 inputs (including estimates of revenue growth, EBITDA contribution and the discount rates) and a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in thousands, except per share data)
20. GOODWILL AND OTHER INTANGIBLE ASSETS, (continued)
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of September 30, 20172023 and 2016,2022, respectively.
| | | | | | | | | | | | | | | | | |
| Carrying
Amount | | Accumulated
Amortization | | Net |
| September 30, 2023 | | | | | |
| Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | |
| Definite-lived trade names | 151,185 | | | (122,474) | | | 28,711 | |
| Customer relationships | 378,161 | | | (280,910) | | | 97,251 | |
| Copyrights/patents/other | 19,375 | | | (15,399) | | | 3,976 | |
| | $ | 579,261 | | | $ | (418,783) | | | $ | 160,478 | |
| September 30, 2022 | | | | | |
| Indefinite-lived trade names | $ | 30,540 | | | $ | — | | | $ | 30,540 | |
| Definite-lived trade names | 150,528 | | | (117,572) | | | 32,956 | |
| Customer relationships | 380,593 | | | (248,464) | | | 132,129 | |
| Copyrights/patents/other | 20,878 | | | (14,349) | | | 6,529 | |
| | $ | 582,539 | | | $ | (380,385) | | | $ | 202,154 | |
|
| | | | | | | | | | | |
| | Carrying Amount | | Accumulated Amortization | | Net |
| September 30, 2017 | | | | | |
| Trade names | $ | 168,467 |
| | $ | — |
| * | $ | 168,467 |
|
| Trade names | 5,522 |
| | (2,030 | ) | | 3,492 |
|
| Customer relationships | 333,632 |
| | (84,560 | ) | | 249,072 |
|
| Copyrights/patents/other | 14,787 |
| | (11,436 | ) | | 3,351 |
|
| | $ | 522,408 |
| | $ | (98,026 | ) | | $ | 424,382 |
|
| | | | | | |
| September 30, 2016 | |
| | |
| | |
|
| Trade names | $ | 168,467 |
| | $ | — |
| * | $ | 168,467 |
|
| Trade names | 1,814 |
| | (1,802 | ) | | 12 |
|
| Customer relationships | 286,595 |
| | (61,706 | ) | | 224,889 |
|
| Copyrights/patents/other | 11,066 |
| | (10,593 | ) | | 473 |
|
| | $ | 467,942 |
| | $ | (74,101 | ) | | $ | 393,841 |
|
| *Not subject to amortization | |
| | |
| | |
|
The net change in intangible assets during fiscal 20172023 included the impact of foreign currency fluctuations during the period, additional amortization, and additions related to the Guidance, Ungricht, VCG, RAFEagle acquisition, and Equator acquisitions.disposals related to a small divestiture within the Industrial Technologies segment.
Amortization expense on intangible assets was $23,313, $20,821,$42,068, $57,084, and $18,800$84,233 in fiscal 2017, 20162023, 2022 and 2015,2021, respectively. Fiscal year amortization expense is estimated to be $24,187approximately $35,380 in 2018, $22,7312024, $20,394 in 2019, $21,2812025, $14,158 in 2020, $20,2372026, $13,081 in 20212027 and $19,161$11,030 in 2022.2028.
21. RELATED PARTY TRANSACTION:23. ASSET WRITE-DOWNS:
In May 2016,The Company has certain operations in Russia within its SGK Brand Solutions segment. During fiscal 2022, in light of the war between Russia and Ukraine, and the resulting regional instability and evolving political and economic conditions within the region, the Company purchased 970,000 common shares from membersevaluated certain of its assets for recoverability and impairment. As a result of this assessment, and due to the Schawk family, including David A. Schawk (who is a member ofuncertainty in projecting future cash flows for the Board of Directors ofCompany's operations in Russia, the Company recorded asset write-downs totaling $10,050 (net of recoveries) during fiscal 2022 to reduce the carrying value of these assets to zero. Asset write-downs (primarily related to property, plant and the Company's President, SGK Brand Solutions)equipment) totaling $9,686 and certain family members$364 were reported within cost of Mr. Schawk and/or trusts establishedsales and administrative expense, respectively, for the benefit of Mr. Schawk or his family members. The purchase price for the shares purchase was $50.6921625 per share, which was equal to 96.76% of the average of the high and low trading prices for the common stock as reported on the Nasdaq Global Select Market on May 12, 2016.year ended September 30, 2022.
74
22. LEGAL MATTER:
During fiscal 2017, the Company recognized loss recoveries of $11,325 related to the previously disclosed theft of funds by a former employee initially identified in fiscal 2015.
SUPPLEMENTARY FINANCIAL INFORMATION
Selected Quarterly Financial Data (Unaudited):
The following table sets forth certain items included in the Company's unaudited consolidated financial statements for each quarter of fiscal 2017 and fiscal 2016.
|
| | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | |
| | December 31 | | March 31 | | June 30 | | September 30 | | Year Ended September 30 |
| | (Dollar amounts in thousands, except per share data) | | |
| FISCAL YEAR 2017: | | | | | | | | | |
| | | | | | | | | | |
| Sales | $ | 348,998 |
| | $ | 380,916 |
| | $ | 389,630 |
| | $ | 396,064 |
| | $ | 1,515,608 |
|
| | | | | | | | | | |
| Gross profit | 127,267 |
| | 138,422 |
| | 144,094 |
| | 153,604 |
| | 563,387 |
|
| | | | | | | | | | |
| Operating profit | 19,063 |
| | 26,828 |
| | 36,786 |
| | 29,926 |
| | 112,603 |
|
| | | | | | | | | | |
| Net income attributable to Matthews shareholders | 10,322 |
| (1) | 14,920 |
| | 29,485 |
| | 19,641 |
| | 74,368 |
|
| | | | | | | | | | |
| Earnings per share: | |
| | |
| | |
| | |
| | |
|
| Basic | $ | 0.32 |
| (1) | $ | 0.46 |
| | $ | 0.91 |
| | $ | 0.61 |
| | $ | 2.31 |
|
| Diluted | 0.32 |
| (1) | 0.46 |
| | 0.91 |
| | 0.60 |
| | 2.28 |
|
| | | | | | | | | | |
| | | | | | | | | | |
| FISCAL YEAR 2016: | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | |
| Sales | $ | 354,232 |
| | $ | 367,176 |
| | $ | 382,061 |
| | $ | 376,995 |
| | $ | 1,480,464 |
|
| | | | | | | | | | |
| Gross profit | 126,567 |
| | 137,760 |
| | 145,297 |
| | 146,830 |
| | 556,454 |
|
| | | | | | | | | | |
| Operating profit | 12,038 |
| | 26,435 |
| | 40,670 |
| | 39,672 |
| | 118,815 |
|
| | | | | | | | | | |
| Net income attributable to Matthews shareholders | 4,614 |
| | 14,357 |
| | 23,915 |
| | 23,863 |
| | 66,749 |
|
| | | | | | | | | | |
| Earnings per share: | |
| | |
| | |
| | |
| | |
|
| Basic | $ | 0.14 |
| | $ | 0.44 |
| | $ | 0.73 |
| | $ | 0.74 |
| | $ | 2.04 |
|
| Diluted | 0.14 |
| | 0.43 |
| | 0.73 |
| | 0.74 |
| | 2.03 |
|
| |
(1) | Results for the first quarter of fiscal 2017 have been revised to reflect the adoption of ASU 2016-09. The adoption of this ASU resulted in a reduction to income tax expense of $1,234 and a corresponding favorable impact on earnings per share of $0.04. |
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | |
| Description | Balance at Beginning of Period | | Charged to Expense | | Charged to other Accounts | | Deductions (1) | | Balance at End of Period |
| | (Dollar amounts in thousands) |
| Allowance for Doubtful Accounts: | | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | |
| September 30, 2023 | $ | 10,138 | | | $ | 1,625 | | | $ | — | | | $ | (979) | | | $ | 10,784 | |
| September 30, 2022 | 10,654 | | | 1,368 | | | — | | | (1,884) | | | 10,138 | |
| September 30, 2021 | 9,618 | | | 2,182 | | | — | | | (1,146) | | | 10,654 | |
(1)Amounts determined not to be collectible (including direct write-offs), net of recoveries.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | Balance at Beginning of Period | | Provision (Credited) Charged To Expense (1, 3) | | Allowance Changes | | Other (Deductions) Additions (2) | | Balance at End of Period |
| | (Dollar amounts in thousands) |
| Deferred Tax Asset Valuation Allowance: | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | |
| September 30, 2023 | $ | 27,552 | | | $ | (4,709) | | | $ | — | | | $ | (337) | | | $ | 22,506 | |
| September 30, 2022 | 28,619 | | | (1,300) | | | — | | | 233 | | | 27,552 | |
| September 30, 2021 | 22,527 | | | 5,709 | | | — | | | 383 | | | 28,619 | |
(1)Amounts relate primarily to adjustments in net operating loss carryforwards which are precluded from use.
(2)Consists principally of adjustments related to foreign exchange.
(3)Fiscal 2022 amount is comprised of a $5,004 benefit related to non-survivability of deferred tax assets with full valuation allowance due to entity dissolution and a $3,704 expense primarily related to adjustments in net operating loss carryforwards which are precluded from use.
|
| | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | |
| Description | Balance at Beginning of Period | | Charged to Expense | | Charged to other Accounts(1) | | Deductions(2) | | Balance at End of Period |
| | (Dollar amounts in thousands) | | |
| Allowance for Doubtful Accounts: | | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | |
| September 30, 2017 | $ | 11,516 |
| | $ | 1,733 |
| | $ | 642 |
| | $ | (2,269 | ) | | $ | 11,622 |
|
| September 30, 2016 | 10,015 |
| | 3,055 |
| | 435 |
| | (1,989 | ) | | 11,516 |
|
| September 30, 2015 | 10,937 |
| | 2,101 |
| | (134 | ) | | (2,889 | ) | | 10,015 |
|
| |
(1) | Amount comprised principally of acquisitions and purchase accounting adjustments in connection with acquisitions, and amounts reclassified to other accounts. |
| |
(2) | Amounts determined not to be collectible (including direct write-offs), net of recoveries. |
|
| | | | | | | | | | | | | | | | | | | |
| Description | Balance at Beginning of Period | | Provision Charged (Credited) To Expense(1) | | Allowance Changes(2) | | Other Deductions(3) | | Balance at End of Period |
| | (Dollar amounts in thousands) | | |
| Deferred Tax Asset Valuation Allowance: | | | | | | | | | |
| Fiscal Year Ended: | | | | | | | | | |
| September 30, 2017 | $ | 22,412 |
| | $ | (1,279 | ) | | $ | — |
| | $ | (267 | ) | | $ | 20,866 |
|
| September 30, 2016 | 20,977 |
| | 2,438 |
| | — |
| | (1,003 | ) | | 22,412 |
|
| September 30, 2015 | 24,540 |
| | 399 |
| | (1,705 | ) | | (2,257 | ) | | 20,977 |
|
| |
(1) | Amounts relate primarily to adjustments in net operating loss carryforwards which are precluded from use. |
| |
(2) | Fiscal 2015 amounts primarily reflect a release of a valuation allowance resulting from a fiscal 2015 legal structure reorganization in foreign jurisdictions that enabled the utilization of certain tax attributes. |
| |
(3) | Consists principally of adjustments related to foreign exchange. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure 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 (the "Exchange Act")) are designed to provide reasonable assurance that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this Annual Report on Form 10-K, are recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission ("SEC"). 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 Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures in effect as of September 30, 2017.2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,2023, 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, processed, 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 Annual Report on Form 10-K.
The Company is in the process of implementing a global operating and financial reporting information technology system, SAP, as part of a multi-year plan to integrate and upgrade its systems and processes. As the phased implementation of this system occurs, certain changes will be made to the Company's processes and procedures which, in turn, result in changes to its internal control over financial reporting. While the Company expects to strengthen its internal financial controls by automating certain manual processes and standardizing business processes and reporting across its global organization, management will continue to evaluate and monitor its internal controls as processes and procedures in each of the affected areas evolve.
(b) Management's Report on Internal Control over Financial Reporting.
Management's Report on Internal Control over Financial Reporting is included in Management's Report to Shareholders in Item 8 of this Annual Report on Form 10-K.
(c) Report of Independent Registered Public Accounting Firm.
The Company's internal control over financial reporting as of September 30, 20172023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K.
(d) Changes in Internal Control over Financial Reporting.
Other than changes with respect to the SAP implementation described above, thereThere have been no changes in the Company's internal controls over financial reporting that occurred during the fourth fiscal quarter ended September 30, 20172023 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION.
(a)
None.
(b) Securities Trading Plans of Directors and Executive Officers.
None of the Company’s directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023. In addition, the Company did not adopt or terminate any Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
In addition to the information reported in Part I of this Annual Report on Form 10-K, under the caption "Officers and Executive Management of the Registrant," the information required by this item as to the directors of the Company is hereby incorporated by reference from the information appearing under the captions "General Information Regarding Corporate Governance – Audit Committee," "Proposal No. 1 – Elections of Directors" and "Compliance with"Delinquent Section 16(a) of the Exchange Act"Reports" (if applicable) in the Company's definitive proxy statement, which involves the election of the directors and is to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30, 2017.2023.
The Company's Code of Ethics Applicable to Executive Management is set forth in Exhibit 14.1 hereto. Any amendment to the Company's Code of Ethics or waiver of the Company's Code of Ethics for senior financial officers, executive officers or directors will be posted on the Company's website within four business days following the date of the amendment or waiver, and such information will remain available on the website for at least a twelve-month period.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item as to the compensation of directors and executive management of the Company is hereby incorporated by reference from the information appearing under the captions "Compensation of Directors" and "Executive Compensation and Retirement Benefits" in the Company's definitive proxy statement which involves the election of directors and is to be filed with the SEC pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30, 2017.2023. The information contained in the "Compensation Committee Report" is specifically not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item as to the ownership by management and others of securities of the Company is hereby incorporated by reference from the information appearing under the caption "Stock Ownership" in the Company's definitive proxy statement, which involves the election of directors and is to be filed with the SEC pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30, 2017.2023.
Equity Compensation Plans:
The Company maintains an equity incentive plan (the "2012(as amended and restated, 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. The Company also maintains an equity incentive planplans (the "2012 Equity Incentive Plan" and "2007 Equity Incentive Plan") and a stock incentive plan (the "1992 Incentive Stock Plan") that previously provided for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. Under the 20122017 Equity Incentive Plan, which has a ten yearsten-year term from the date the Company's Board of Directors approved of the amendment and restatement of the 2017 Equity Incentive Plan, the maximum number of shares available for grants or awards is an aggregate of 2,500,000.3,450,000 (subject to adjustment upon certain events such as stock dividends or stock splits), following the amendment and restatement of the 2017 Equity Incentive Plan at the Company's 2022 Annual Shareholder Meeting. There will be no further grants under the 2012 Equity Incentive Plan, the 2007 Equity Incentive Plan, or the 1992 Incentive Stock Plan. At September 30, 2017, there were 589,2382023, 496,508 shares reserved for future issuancehave been issued under the 20122017 Equity Incentive Plan.1,041,615 time-based restricted share units, 1,313,162 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan. 1,803,697 of these share-based awards are outstanding as of September 30, 2023. All plans are administered by the Compensation Committee of the Board of Directors. The number of shares issued under performance-based restricted share units may be up to 200% of the number of performance-based restricted share units, based on the satisfaction of specific criteria established by the plan administrator.
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 43% 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.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued
The option price for each stock option granted under any of the plans may not be less than the fair market value of the Company's Class A Common Stock on the date of grant. As of September 30, 2017, there were no stock options outstanding.
With respect to outstanding restricted sharestock option grants, for grants made prior to fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. For grants made in and after fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the sharesoptions 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 ofannually over three years from the grant date. For grants made in July 2014, generally one-half of the shares vest on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon the attainment of pre-defined levels of adjusted EBITDA. Unvested restricted shares generallystock options expire on the earlier of five years from the date of grant, or 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 fromgenerally settles employee stock option exercises with treasury shares.
The Company maintains the 1994Amended and Restated 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the Amended and Restated 20141994 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 Amended and Restated 20142019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2017,2023, either cash or shares of the Company's Class A Common Stock with a value equal to $75,000.$90,000. The annual retainer fee for fiscal 20172023 paid to athe non-employee Chairman of the Board is $175,000.$210,000. 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 Amended and Restated 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 300,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits), following the amendment and restatement of the 2019 Director Fee Plans at the Company's 2023 Annual Shareholder Meeting. The value of deferred shares is recorded in other liabilities. A total of 16,13945,218 shares and share units had been deferred under the Director Fee Plans at September 30, 2017.2023. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares)shares or units) with a value of $125,000$140,000 for fiscal year 2017. A total2023. As of 22,300 stock options have been granted under the Director Fee Plans. At September 30, 2017, there were no options outstanding. Additionally, 161,7242023, 336,127 restricted shares ofand restricted stockshare units have been granted under the Director Fee Plans, 58,574162,898 of which were issued under the Amended and Restated 20142019 Director Fee Plan. 25,157 shares of60,057 restricted stockshare units are unvested at September 30, 2017. A total of 150,000 shares have been authorized to be issued2023 under the Amended and Restated 2014 Director Fee Plan.Plans.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued
The following table provides information about grants under the Company's equity compensation plans as of September 30, 2017:2023:
| | | | | | | | | | | | | | | | | | | | |
| | Equity Compensation Plan Information | | | |
| Plan category | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights | | Weighted-average
exercise price
of outstanding
options, warrants
and rights | | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a)) | |
| | (a) | | (b) | | (c) | |
| Equity compensation plans approved by security holders | 120,218 | | (1) | $ | 41.70 | | (2) | 4,548,853 | | (3) |
| Equity compensation plans not approved by security holders | None | | None | | None | |
| Total | 120,218 | | | $ | 41.70 | | | 4,548,853 | | |
(1) Includes (1) deferred awards under Director Fee Plans; and (2) outstanding stock options.
(2) Weighted-average exercise price of outstanding stock options included in column (a).
(3) Includes (1) shares reserved under the 2017 Equity Incentive Plan, which provides for the grant or award of stock options, restricted shares, stock-based performance units and certain other types of stock based awards; (2) shares reserved under the 2019 Amended and Restated Director Fee Plan, which provides for the grant, award or deferral of stock options, restricted shares, stock-based performance units and certain other types of stock based awards and compensation; and (3) the shares purchased under the Employee Stock Purchase Plan which are purchased in the open market by employees at the fair market value of the Company's stock. The Company provides a matching contribution of 10% of such purchases subject to certain limitations under the Employee Stock Purchase Plan. As the Employee Stock Purchase Plan is an open market purchase plan, it does not have a dilutive effect.
|
| | | | | | | | | | |
| | Equity Compensation Plan Information | | | |
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| | (a) | | (b) | | (c) | |
| Equity compensation plans | | | | | | |
| approved by security holders: | | | | | | |
| 1992 Stock Incentive Plan | — |
| | $ | — |
| | — |
| (1) |
| 2007 Equity Incentive Plan | — |
| | — |
| | — |
| (2) |
| 2012 Equity Incentive Plan | — |
| | — |
| | 589,238 |
| (3) |
| Employee Stock Purchase Plan | — |
| | — |
| | 1,531,567 |
| (4) |
| 1994 Director Fee Plan | 10,105 |
| | — |
| | — |
| (5) |
| Amended and Restated 2014 Director Fee Plan | 6,034 |
| | — |
| | 85,392 |
| (6) |
| Equity compensation plans not approved by security holders | None |
| | None |
| | None |
| |
| Total | 16,139 |
| | $ | — |
| | 2,206,197 |
| |
| |
(1) | As a result of the approval of the 2007 Equity Incentive Plan, no further grants or awards will be made under the 1992 Incentive Stock Plan. |
| |
(2) | As a result of the approval of the 2012 Equity Incentive Plan, no further grants or awards will be made under the 2007 Incentive Stock Plan. |
| |
(3) | The 2012 Equity Incentive Plan was approved in February 2013. The Plan provides for the grant or award of stock options, restricted shares, stock-based performance units and certain other types of stock based awards, with a maximum of 2,500,000 shares available for grants or awards. |
| |
(4) | Shares under the Employee Stock Purchase Plan (the "Plan") are purchased in the open market by employees at the fair market value of the Company's stock. The Company provides a matching contribution of 10% of such purchases subject to certain limitations under the Plan. As the Plan is an open market purchase plan, it does not have a dilutive effect. |
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(5) | As a result of the approval of the Amended and Restated 2014 Director Fee Plan, no further grants or awards will be made under the 1994 Director Fee Plan. |
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(6) | Shares of restricted stock may be issued under the Amended and Restated 2014 Director Fee Plan. The maximum number of shares authorized to be issued under this plan is 150,000 shares. |
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND RELATED TRANSACTIONS.DIRECTOR INDEPENDENCE.
The information required by this item as to certain relationships and transactions with management and other related parties of the Company is hereby incorporated by reference from the information appearing under the captions "Proposal No. 1 – Election of Directors" and "Certain Transactions"Transactions with Related Persons" in the Company's definitive proxy statement, which involves the election of directors and is to be filed with the SEC pursuant to the Exchange Act, within 120 days of the end of the Company's fiscal year ended September 30, 2017.2023.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item as to the fees billed and the services provided by the principal accounting firm of the Company is hereby incorporated by reference from the information appearing under the caption "Relationship with Independent Registered Public Accounting Firm" in the Company's definitive proxy statement, which involves the election of directors and is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year ended September 30, 2017.2023.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following items are included in Part II, Item 8:
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| Pages |
| Management's Report to Shareholders | |
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| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | |
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| Report of Independent Registered Public Accounting Firm | |
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Report of Independent Registered Public Accounting Firm | |
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Consolidated Balance Sheets as of September 30, 20172023 and 20162022 | |
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Consolidated Statements of Income (Loss) for the years ended September 30, 2017, 20162023, 2022 and 20152021 | |
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Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2017, 2016 2023, 2022 and 2015 2021 | |
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Consolidated Statements of Shareholders' Equity for the years ended September 30, 2017, 20162023, 2022 and 20152021 | |
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Consolidated Statements of Cash Flows for the years ended September 30, 2017, 20162023, 2022 and 20152021 | |
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| Notes to Consolidated Financial Statements | |
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Supplementary Financial Information (unaudited) | |
2. Financial Statement Schedules:
The following item is included in Part II, Item 8:
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| | | | |
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| Schedule II - Valuation and Qualifying Accounts | |
3. Exhibits Filed:
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX
The following Exhibits to this report are filed herewith or, if marked with an asterisk (*), are incorporated by reference. Exhibits marked with an "a" represent a management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
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| Exhibit No. | | Description | | Prior Filing or Sequential Page Numbers Herein |
| | | | |
2.13.1 | | Purchase Agreement, dated June 8, 2015, by and among Matthews International Corporation, a Pennsylvania corporation, The York Group, Inc., a Delaware corporation, Aurora Products Group, LLC, each of the persons listed on Annex A thereto, and Kohlberg management VII, L.P., in its capacity as the seller's representative* | | Exhibit Number 2.1 to the Current Report on Form 8-K filed on June 11, 2015 |
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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 |
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| 3.2 | | | | Exhibit Number 3.1 to the Current Report on Form 8-K filed on July 26, 2017Filed Herewith |
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4.1 a | | Form of Revised Option Agreement of Repurchase (effective October 1, 1993)* | | Exhibit Number 4.5 to the Annual Report on Form 10-K for the year ended September 30, 1993 |
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4.2 | | Form of Share Certificate for Class A Common Stock* | | Exhibit Number 4.9 to the Annual Report on Form 10-K for the year ended September 30, 1994 |
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10.14.2 | | | | Exhibit Number 10.14.1 to the Current Report on Form 8-K filed on April 28, 2016December 7, 2017 |
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10.24.3 | | | | Exhibit Number 4.2 to the Current Report on Form 8-K filed on December 7, 2017 |
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| 4.4 | | | | Filed Herewith |
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| 10.1 | | | | Exhibit Number 10.2 to the Current Report on Form 8-K filed on March 19, 2014 |
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10.310.2 a | | | | Exhibit A to the Definitive Proxy Statement on Schedule 14A filed on January 20, 2015 |
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10.4 a | | | | Exhibit Number 10.1 to the Current Report on Form 8-K filed on May 16, 2016 |
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MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
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Exhibit No.10.3 a | | Description | | Prior Filing or Sequential Page Numbers Herein |
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10.5 a | | | | Exhibit Number 10.5 to the Annual Report on Form 10-K for the year ended September 30, 2010 |
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10.610.4 a | | | | Exhibit Number 10.4 to the Annual Report on Form 10-K for the year ended September 30, 2021 |
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| 10.5 a | | | | Exhibit Number 10.6 to the Annual Report on Form 10-K for the year ended September 30, 2009 |
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10.710.6 a | | | | Exhibit Number 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 |
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10.8 a | | | | Exhibit Number 10.710.6 to the Annual Report on Form 10-K for the year ended September 30, 20082021 |
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10.910.7 a | | | | Exhibit Number 10.8 to the Annual Report on Form 10-K for the year ended September 30, 2008 |
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10.10 a | | | | Exhibit Number 10.7 to the Annual Report on Form 10-K for the year ended September 30, 2013 |
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10.11 | | | | |
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| 10.8 a | | | | Exhibit Number 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
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10.1210.9 a | | | | Exhibit Number 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 |
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
| | | | | | | | | | | | | | |
| Exhibit No. | | Description | | Prior Filing or Sequential Page Numbers Herein |
10.13 a | | | | Exhibit Number 10.11 to the Annual Report on Form 10-K for the year ended September 30, 2008 |
| 10.10 a | | | | |
10.14 a | | | | Exhibit A to the Definitive Proxy Statement on Schedule 14A filed on January 22, 2013 |
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10.1510.11 a | | | | Exhibit A to the Definitive Proxy Statement on Schedule 14A filed on January 19, 2016 |
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14.110.12 a | | | | Exhibit Number 99.1 to the Registration Statement on Form S-8 filed on April 29, 2022 |
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| 10.13 a | | | | Exhibit Number 99.2 to the Registration Statement on Form S-8 filed on May 3, 2019 |
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| 10.14 a | | | | Exhibit Number 10.1 to the Current Report on Form 8-K filed on February 17, 2023 |
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| 10.15 a | | | | Exhibit Number 99.4 to the Registration Statement on Form S-8 filed on May 3, 2019 |
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| 10.16 a | | | | Exhibit Number 10.1 to Current Report on Form 8-K filed on October 3, 2019 |
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| 10.17 | | | | Exhibit Number 10.1 to the Current Report on Form 8-K filed on March 30, 2020 |
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| 10.18 | | | | Exhibit Number 10.1 to the Quarterly Report on Form 10-Q filed on April 30, 2021 |
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| 10.19 | | | | Exhibit Number 10.1 to the Quarterly Report on Form 10-Q filed on July 29, 2022 |
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| 10.20 | | | | Exhibit Number 10.20 to the Annual Report on Form 10-K for the year ended September 30, 2022 |
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| 10.21 | | | | Exhibit Number 10.1 to the Current Report on Form 8-K filed on December 30, 2022 |
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| 10.22 a | | | | Exhibit Number 10.1 to the Quarterly Report on Form 10-Q filed on January 27, 2023 |
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| 10.23 | | | | Exhibit Number 10.2 to the Quarterly Report on Form 10-Q filed on April 28, 2023 |
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| 14.1 | | | | Exhibit Number 14.1 to the Annual Report on Form 10-K for the year ended September 30, 2004 |
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| 21 | | | | Filed Herewith |
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MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS INDEX, Continued
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| Exhibit No. | | Description | | Prior Filing or Sequential Page Numbers Herein |
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Exhibit No.23.1 | | Description | | Prior Filing or Sequential Page Numbers Herein |
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23.1 | | | | Filed Herewith |
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23.231.1 | | | | Filed Herewith |
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31.1 | | | | Filed Herewith |
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| 31.2 | | | | Filed Herewith |
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| 32.1 | | | | Furnished Herewith |
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| 32.2 | | | | Furnished Herewith |
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101.INS97 | | | | Filed Herewith |
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| 101.INS | | XBRL Instance DocumentDocument- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | Filed Herewith |
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| 101.SCH | | XBRL Taxonomy Extension Schema | | Filed Herewith |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | Filed Herewith |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | Filed Herewith |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase | | Filed Herewith |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | Filed Herewith |
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| 104. | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) | | Filed Herewith |
Copies of any Exhibits will be furnished to shareholders upon written request. Requests should be directed to Mr. Steven F. Nicola, Chief Financial Officer and Secretary of the Registrant.
Pursuant to the requirements of Section 13 or 15(d) 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, on November 21, 2017.17, 2023.
| | | | | | | | |
| | MATTHEWS INTERNATIONAL CORPORATION |
| | (Registrant) |
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| By | MATTHEWS INTERNATIONAL CORPORATION |
| | (Registrant) |
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| By | /s/ Joseph C. Bartolacci |
| | Joseph C. Bartolacci |
| | President and Chief Executive Officer |
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Each person whose individual signature appears below hereby authorizes and appoints Joseph C. Bartolacci, Steven F. Nicola and Brian D. Walters, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on November 21, 2017:17, 2023:
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| /s/ Joseph C. Bartolacci | | /s/ Steven F. Nicola |
| Joseph C. Bartolacci | | Steven F. Nicola |
| President and Chief Executive Officer | | Chief Financial Officer and Secretary |
| (Principal Executive Officer) | | (Principal Financial and Accounting Officer) |
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| /s/ Alvaro Garcia-Tunon | | /s/ Morgan K. O'Brien |
| Alvaro Garcia-Tunon, Chairman of the Board | | Morgan K. O'Brien, Director |
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| /s/ Gregory S. Babe | | /s/ Aleta W. Richards |
| Gregory S. Babe, Director | | Aleta W. Richards, Director |
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| /s/ Katherine E. Dietze | | /s/ David A. Schawk |
| Katherine E. Dietze, Director | | David A. Schawk, Director |
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| /s/ Terry L. Dunlap | | /s/ Jerry R. Whitaker |
| Terry L. Dunlap, Director | | Jerry R. Whitaker, Director |
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/s/ Joseph C. Bartolacci | | /s/ Steven F. Nicola |
Joseph C. Bartolacci/s/ Lillian D. Etzkorn | | Steven F. Nicola |
President and Chief Executive OfficerLillian D. Etzkorn, Director | | Chief Financial Officer and Secretary |
(Principal Executive Officer) | | (Principal Financial and Accounting Officer) |
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/s/ John D. Turner | | /s/ Morgan K. O'Brien |
John D. Turner, Chairman of the Board | | Morgan K. O'Brien, Director |
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/s/ Gregory S. Babe | | /s/ Don W. Quigley, Jr. |
Gregory S. Babe, Director | | Don W. Quigley, Jr., Director |
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/s/ Katherine E. Dietze | | /s/ David A. Schawk |
Katherine E. Dietze, Director | | David A. Schawk, Director |
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/s/ Terry L. Dunlap | | /s/ Jerry R. Whitaker |
Terry L. Dunlap, Director | | Jerry R. Whitaker, Director |
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/s/ Alvaro Garcia-Tunon | | |
Alvaro Garcia-Tunon, Director | | |
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