MATTHEWS INTERNATIONAL CORP - Quarter Report: 2022 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

____________________________________________________________

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from _____ to _____

Commission File No. 0-09115

____________________________________________________________

MATTHEWS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________________________


Pennsylvania						25-0644320
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Two Northshore Center, Pittsburgh, PA 15212-5851

(Address of principal executive offices) (Zip Code)

(412) 442-8200

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A Common Stock, $1.00 par value

MATW

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ý

As of December 31, 2022, shares of common stock outstanding were: Class A Common Stock 30,419,705 shares.

PART I ‑ FINANCIAL INFORMATION

Item 1. Financial Statements

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands)


	December 31, 2022				September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	42,718			$	69,016
Accounts receivable, net			221,613				221,015
Inventories, net			245,565				225,440
Restricted cash, current			2,398				2,398
Other current assets			120,950				110,747

Total current assets			633,244				628,616


Investments			26,448				25,976


Property, plant and equipment, net			264,684				256,065
Operating lease right-of-use assets			74,613				71,974
Deferred income taxes			3,159				3,610
Goodwill			692,015				675,421
Other intangible assets, net			193,756				202,154
Other assets			15,023				18,955

Total assets			$	1,902,942			$	1,882,771

LIABILITIES
Current liabilities:
Long-term debt, current maturities			$	2,977			$	3,277
Current portion of operating lease liabilities			22,971				22,869
Trade accounts payable			101,279				121,359
Accrued compensation			42,632				58,272
Accrued income taxes			7,582				9,277
Other current liabilities			189,303				196,321

Total current liabilities			366,744				411,375

Long-term debt			834,127				795,291
Operating lease liabilities			54,053				51,445
Accrued pension			13,798				12,437
Postretirement benefits			12,038				11,983
Deferred income taxes			93,034				92,589
Other liabilities			24,231				20,575
Total liabilities			1,398,025				1,395,695

SHAREHOLDERS' EQUITY
Shareholders' equity-Matthews:
Common stock	$	36,334			$	36,334
Additional paid-in capital	157,393				160,255
Retained earnings	701,658				706,749
Accumulated other comprehensive loss	(169,090)				(190,191)
Treasury stock, at cost	(221,050)				(225,795)
Total shareholders' equity-Matthews			505,245				487,352
Noncontrolling interests			(328)				(276)
Total shareholders' equity			504,917				487,076

Total liabilities and shareholders' equity			$	1,902,942			$	1,882,771

The accompanying notes are an integral part of these consolidated financial statements.

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended December 31,
		2022		2021

Sales		$	449,240	$	438,579
Cost of sales		(310,310)		(306,942)

Gross profit		138,930		131,637

Selling expense		(33,439)		(30,743)
Administrative expense		(77,921)		(68,569)
Intangible amortization		(10,342)		(21,546)


Operating profit		17,228		10,779


Interest expense		(10,215)		(6,507)
Other income (deductions), net		(2,054)		(30,710)

Income (loss) before income taxes		4,959		(26,438)

Income tax (provision) benefit		(1,312)		6,628

Net income (loss)		3,647		(19,810)

Net loss attributable to noncontrolling interests		56		7

Net income (loss) attributable to Matthews shareholders		$	3,703	$	(19,803)

Earnings (loss) per share attributable to Matthews shareholders:
Basic		$	0.12	$	(0.62)

Diluted		$	0.12	$	(0.62)

The accompanying notes are an integral part of these consolidated financial statements.

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Dollar amounts in thousands)


	Three Months Ended December 31,
	Matthews				Noncontrolling Interest				Total
	2022		2021		2022		2021		2022		2021

Net income (loss):	$	3,703	$	(19,803)	$	(56)	$	(7)	$	3,647	$	(19,810)
Other comprehensive income (loss) ("OCI"), net of tax:
Foreign currency translation adjustment	20,560		(1,989)		4		4		20,564		(1,985)
Pension plans and other postretirement benefits	945		34,133		—		—		945		34,133

Unrecognized gain (loss) on cash flow hedges:
Net change from periodic revaluation	93		875		—		—		93		875
Net amount reclassified to earnings	(497)		606		—		—		(497)		606
Net change in unrecognized (loss) gain on cash flow hedges	(404)		1,481		—		—		(404)		1,481
OCI, net of tax	21,101		33,625		4		4		21,105		33,629
Comprehensive income (loss)	$	24,804	$	13,822	$	(52)	$	(3)	$	24,752	$	13,819

The accompanying notes are an integral part of these consolidated financial statements.

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

for the three months ended December 31, 2022 and 2021 (Unaudited)

(Dollar amounts in thousands, except per share data)


	Shareholders' Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Non- controlling Interests		Total
Balance, September 30, 2022	$	36,334	$	160,255	$	706,749	$	(190,191)	$	(225,795)	$	(276)	$	487,076
Net income (loss)	—		—		3,703		—		—		(56)		3,647
Minimum pension liability	—		—		—		945		—		—		945
Translation adjustment	—		—		—		20,560		—		4		20,564
Fair value of cash flow hedges	—		—		—		(404)		—		—		(404)
Total comprehensive income													24,752
Stock-based compensation	—		4,334		—		—		—		—		4,334
Purchase of 89,025 shares of treasury stock	—		—		—		—		(2,451)		—		(2,451)
Issuance of 245,006 shares of treasury stock	—		(9,154)		—		—		9,154		—		—
Cancellations of 34,327 shares of treasury stock	—		1,958		—		—		(1,958)		—		—
Dividends	—		—		(8,794)		—		—		—		(8,794)


Balance, December 31, 2022	$	36,334	$	157,393	$	701,658	$	(169,090)	$	(221,050)	$	(328)	$	504,917


	Shareholders' Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Non- controlling Interests		Total
Balance, September 30, 2021	$	36,334	$	149,484	$	834,208	$	(192,739)	$	(190,739)	$	(145)	$	636,403
Net loss	—		—		(19,803)		—		—		(7)		(19,810)
Minimum pension liability	—		—		—		34,133		—		—		34,133
Translation adjustment	—		—		—		(1,989)		—		4		(1,985)
Fair value of cash flow hedges	—		—		—		1,481		—		—		1,481
Total comprehensive income													13,819
Stock-based compensation	—		3,709		—		—		—		—		3,709
Purchase of 62,746 shares of treasury stock	—		—		—		—		(2,435)		—		(2,435)
Issuance of 174,107 shares of treasury stock	—		(6,859)		—		—		6,859		—		—
Cancellations of 31,057 shares of treasury stock	—		2,091		—		—		(2,091)		—		—
Dividends	—		—		(6,824)		—		—		—		(6,824)


Balance, December 31, 2021	$	36,334	$	148,425	$	807,581	$	(159,114)	$	(188,406)	$	(148)	$	644,672

The accompanying notes are an integral part of these consolidated financial statements.

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollar amounts in thousands)


	Three Months Ended December 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	3,647	$	(19,810)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization	23,729		33,501
Stock-based compensation expense	4,334		3,709
Deferred tax (benefit) provision	(46)		47
Gain on sale of assets, net	(17)		(276)



Defined benefit plan settlement losses	1,271		30,856

Defined benefit plan settlement payments	(24,242)		(35,706)
Changes in working capital items	(43,152)		(40,816)
Decrease in other assets	1,524		2,112
Increase (decrease) in other liabilities	545		(3,415)

Other operating activities, net	(3,817)		2,642

Net cash used in operating activities	(36,224)		(27,156)

Cash flows from investing activities:
Capital expenditures	(12,398)		(12,640)
Acquisitions, net of cash acquired	(1,759)		—



Other investing activities, net	4		171




Net cash used in investing activities	(14,153)		(12,469)

Cash flows from financing activities:
Proceeds from long-term debt	240,826		174,859
Payments on long-term debt	(208,104)		(102,514)

Purchases of treasury stock	(2,451)		(2,435)
Dividends	(7,003)		(6,824)

Other financing activities	(946)		(725)

Net cash provided by financing activities	22,322		62,361

Effect of exchange rate changes on cash	1,757		(928)

Net change in cash, cash equivalents and restricted cash	(26,298)		21,808
Cash, cash equivalents and restricted cash at beginning of year	71,414		68,343
Cash, cash equivalents and restricted cash at end of period	$	45,116	$	90,151

The accompanying notes are an integral part of these consolidated financial statements.

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2022

(Dollar amounts in thousands, except per share data)

Note 1. Nature of Operations

Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a global provider of memorialization products, industrial technologies and brand solutions. The Company manages its businesses under three segments: Memorialization, Industrial Technologies and SGK Brand 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 and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. 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 North America, Europe, Asia, Australia, and Central and South America.

Note 2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2022. The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating 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 method investments. All intercompany accounts and transactions have been eliminated. The Company applies highly inflationary accounting for subsidiaries when the cumulative inflation rate for a three-year period meets or exceeds 100 percent.

Effective April 1, 2022, the Company applies highly inflationary accounting to its Turkish subsidiaries. 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. As of December 31, 2022, the Company had net monetary assets related to its Turkish subsidiaries of $5,229. For the three months ended December 31, 2022, exchange losses related to highly inflationary accounting totaled $1,088 and were included in the Consolidated Statements of Income within other income (deductions), net.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 2. Basis of Presentation (continued)

New Accounting Pronouncements:

Issued

In October 2021, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 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 inconsistency related to recognition of an 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.

Note 3. Revenue Recognition

The Company delivers a variety of products and services through its business segments. The Memorialization segment produces and delivers 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 designs, manufactures, services and distributes high-tech custom energy storage solutions, product identification and warehouse automation technologies and solutions, including order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The SGK Brand Solutions segment delivers 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 disaggregates revenue from contracts with customers by geography, as it believes geographic regions best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated sales by segment and region for the three months ended December 31, 2022 and 2021 were as follows:


	Memorialization				Industrial Technologies				SGK Brand Solutions				Consolidated
	Three Months Ended December 31,				Three Months Ended December 31,				Three Months Ended December 31,				Three Months Ended December 31,
	2022		2021		2022		2021		2022		2021		2022		2021
North America	$	195,199	$	196,751	$	36,140	$	36,365	$	67,580	$	74,190	$	298,919	$	307,306
Central and South America	—		—		—		—		1,337		1,020		1,337		1,020
Europe	8,363		11,514		71,301		36,555		48,517		61,002		128,181		109,071
Australia	2,940		2,441		—		—		2,299		2,868		5,239		5,309
Asia	—		—		1,702		1,411		13,862		14,462		15,564		15,873
Total Sales	$	206,502	$	210,706	$	109,143	$	74,331	$	133,595	$	153,542	$	449,240	$	438,579

Revenue from products or services provided to customers over time accounted for approximately 13% of revenue for the three months ended December 31, 2022 and 2021. As of December 31, 2022 and September 30, 2022, the Company had contract assets of $59,046 and $48,210, respectively, that were recorded in other current assets within the Consolidated Balance Sheets. As of December 31, 2022 and September 30, 2022, the Company had contract liabilities of $23,747 and $31,871, respectively, that were recorded in other current liabilities within the Consolidated Balance Sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 4. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below:



			Level 1:			Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
			Level 2:			Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
			Level 3:			Unobservable inputs for the asset or liability.

The fair values of the Company's assets and liabilities measured on a recurring basis are categorized as follows:


	December 31, 2022								September 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Derivatives (1)	$	—	$	10,079	$	—	$	10,079	$	—	$	14,421	$	—	$	14,421

Life insurance policies	—		4,608		—		4,608		—		4,439		—		4,439
Total assets at fair value	$	—	$	14,687	$	—	$	14,687	$	—	$	18,860	$	—	$	18,860

Liabilities:
Derivatives (1)	$	—	$	2,082	$	—	$	2,082	$	—	$	—	$	—	$	—
Total liabilities at fair value	$	—	$	2,082	$	—	$	2,082	$	—	$	—	$	—	$	—

(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 at December 31, 2022 and September 30, 2022.

Note 5. Inventories

Inventories consisted of the following:


	December 31, 2022		September 30, 2022
Raw materials	$	61,017	$	52,586
Work in process	109,732		94,804
Finished goods	74,816		78,050
	$	245,565	$	225,440

Note 6. Investments

Non-current investments consisted of the following:


	December 31, 2022		September 30, 2022

Life insurance policies	$	4,608	$	4,439
Equity-method investments	2,974		2,729
Other (primarily cost-method) investments	18,866		18,808
	$	26,448	$	25,976

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 7. Debt and Financing Arrangements

Long-term debt at December 31, 2022 and September 30, 2022 consisted of the following:


	December 31, 2022		September 30, 2022
Revolving credit facilities	$	509,489	$	480,107


2025 Senior Notes	298,096		297,961

Other borrowings	23,080		13,434
Finance lease obligations	6,439		7,066
Total debt	837,104		798,568
Less current maturities	(2,977)		(3,277)
Long-term debt	$	834,127	$	795,291

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750,000 senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.25% at December 31, 2022) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $1,370 and $1,522 at December 31, 2022 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 $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 December 31, 2022 and September 30, 2022 were $495,391 and $472,057, respectively. The weighted-average interest rate on the outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at December 31, 2022 and 2021 was 4.24% and 1.86%, respectively.

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 subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $1,529 and $1,664 at December 31, 2022 and September 30, 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 entered into a receivables purchase agreement (“RPA”) to sell up to $125,000 of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables.

The proceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers. Gross receivables sold and cash collections reinvested under the RPA program were $203,561 and $89,561 for the three months ended December 31, 2022, respectively. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. As of December 31, 2022 and September 30, 2022, the amount sold to the Purchasers was $114,000 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 $40,766 and $44,262 as of December 31, 2022 and September 30, 2022, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 7. Debt and Financing Arrangements (continued)

Previously, the Company had a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions that matured in March 2022. The Securitization Facility did not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remained on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility were based on LIBOR plus 0.75% and the Company was required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. At December 31, 2021, the interest rate on borrowings under this facility was 0.85%.

The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €25.0 million ($26,771), which includes €8.0 million ($8,567) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €13.2 million ($14,098) and €8.2 million ($8,050) at December 31, 2022 and September 30, 2022, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 3.96% at December 31, 2022.

Other borrowings totaled $23,080 and $13,434 at December 31, 2022 and September 30, 2022, respectively. The weighted-average interest rate on all other borrowings was 3.09% and 1.88% at December 31, 2022 and 2021, respectively.

As of December 31, 2022 and September 30, 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 December 31, 2022.

Note 8. Derivatives and Hedging Instruments

The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. At December 31, 2022 and September 30, 2022, derivative instruments were reflected on a gross-basis in the consolidated balance sheets as follows:


Derivatives:	December 31, 2022				September 30, 2022
	Interest Rate Swaps		Cross- Currency Swaps		Interest Rate Swaps		Cross- Currency Swaps
Current assets:
Other current assets	$	3,366	$	—	$	3,358	$	—
Long-term assets:
Other assets	6,713		—		7,341		3,722
Current liabilities:
Other current liabilities	—		—		—		—
Long-term liabilities:
Other liabilities	—		2,082		—		—
Total derivatives	$	10,079	$	2,082	$	10,699	$	3,722

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


	December 31, 2022			September 30, 2022
Notional amount	$	125,000		$	125,000

Weighted-average maturity period (years)	2.6			3.1
Weighted-average received rate	4.39		%	3.14		%
Weighted-average pay rate	1.04		%	1.04		%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 8. Derivatives and Hedging Instruments (continued)

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized gain of $10,079 ($7,533 after tax) at December 31, 2022 and an unrealized gain of $10,699 ($7,937 after tax) at September 30, 2022, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at December 31, 2022, a gain (net of tax) of approximately $2,516 included in AOCI is expected to be recognized in earnings over the next twelve months.

The Company has a U.S. Dollar/Euro cross currency swap with a notional amount of $81,392 as of December 31, 2022 and September 30, 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 $1,556 (net of income taxes of $526) 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 December 31, 2022 and September 30, 2022, respectively. Income of $272 and $365, 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 the three months ended December 31, 2022 and 2021, respectively. At December 31, 2022 and September 30, 2022, the swap totaled $2,082 and $3,722, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.

Refer to Note 12, "Accumulated Other Comprehensive Income" for further details regarding amounts recorded in AOCI and the Consolidated Statements of Income (Loss) related to derivatives.

Note 9. Share-Based Payments

The Company maintains an equity incentive plan (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 2017 Equity Incentive Plan, which has a ten-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 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 December 31, 2022, 465,613 shares have been issued under the 2017 Equity Incentive Plan. 1,041,215 time-based restricted share units, 1,312,562 performance-based restricted share units, and 75,000 stock options have been granted under the 2017 Equity Incentive Plan. 1,831,042 of these share-based awards are outstanding as of December 31, 2022. The 2017 Equity Incentive Plan is 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.

For the three-month periods ended December 31, 2022 and 2021, stock-based compensation cost totaled $4,334 and $3,709, respectively. The associated future income tax benefit recognized for stock-based compensation was $551 and $409 for the three-month periods ended December 31, 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 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 the units become vested.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 9. Share-Based Payments (continued)

The transactions for restricted shares and restricted share units for the three months ended December 31, 2022 were as follows:


	Shares /Units	Weighted- average Grant-date Fair Value
Non-vested at September 30, 2022	1,459,233	$	33.78
Granted	617,050	27.69
Vested	(180,263)	35.25
Expired or forfeited	(139,978)	40.78
Non-vested at December 31, 2022	1,756,042	$	30.93

During the third quarter of fiscal 2021, 75,000 stock options were granted under the 2017 Equity Incentive Plan. The option price for each stock option granted was $41.70, which was equal to the fair market value of the Company's Class A Common Stock on the date of grant. These options vest in one-third increments annually over three years from the grant date. Unvested stock options expire on the earlier of five years from the date of grant, or upon employment termination, retirement or death. The Company generally settles employee stock option exercises with treasury shares.

As of December 31, 2022, the total unrecognized compensation cost related to all unvested stock-based awards was $32,573 and is expected to be recognized over a weighted average period of 2.5 years.

The Company maintains the 2019 Director Fee Plan, the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan (collectively, the "Director Fee Plans"). There will be no further fees or share-based awards granted under the Amended and Restated 2014 Director Fee Plan and the 1994 Director Fee Plan. Under the 2019 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2023, either cash or shares of the Company's Class A Common Stock with a value equal to $90. The annual retainer fee for fiscal 2023 paid to the non-employee Chairman of the Board is $210. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The total number of shares of stock that have been authorized to be issued under the 2019 Director Fee Plan or credited to a deferred stock compensation account for subsequent issuance is 150,000 shares of Common Stock (subject to adjustment upon certain events such as stock dividends or stock splits). In November 2022, the Board of Directors approved the Amended and Restated 2019 Director Fee Plan (the "Amended 2019 Plan"), which increases the maximum number of shares available for grants or awards to an aggregate of 300,000. The Amended 2019 Plan is subject to shareholder approval at the Company's 2023 Annual Shareholder Meeting. The value of deferred shares is recorded in other liabilities. A total of 45,738 shares and share units had been deferred under the Director Fee Plans as of December 31, 2022. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares or units) with a value of $140 for fiscal 2023. As of December 31, 2022, 305,911 restricted shares and restricted share units have been granted under the Director Fee Plans and are outstanding as of December 31, 2022, 132,682 of which were issued under the 2019 Director Fee Plan. 58,008 restricted shares and restricted share units are unvested at December 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 10. Earnings Per Share Attributable to Matthews' Shareholders

The information used to compute earnings (loss) per share attributable to Matthews' common shareholders was as follows:


	Three Months Ended December 31,
		2022		2021
Net income (loss) attributable to Matthews shareholders		$	3,703	$	(19,803)


Weighted-average shares outstanding (in thousands):
Basic shares		30,712		31,719
Effect of dilutive securities		241		—
Diluted shares		30,953		31,719

Dividends declared per common share		$	0.23	$	0.22

Anti-dilutive securities excluded from the dilution calculation were insignificant for the three months ended December 31, 2022. 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.

Note 11. Pension and Other Postretirement Benefit Plans

The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:


	Three months ended December 31,
	Pension				Other Postretirement
	2022		2021		2022		2021

Service cost	$	57	$	380	$	19	$	41
Interest cost *	143		990		161		103
Expected return on plan assets *	—		(1,042)		—		—
Amortization:
Prior service credit	—		47		(91)		(91)
Net actuarial loss *	(10)		201		(177)		—
Settlement losses *	1,271		30,856		—		—


Net benefit cost	$	1,461	$	31,432	$	(88)	$	53
* Non-service components of pension and postretirement expense are included in other income (deductions), net.

Benefit payments under the Company's principal defined benefit retirement plan ("DB Plan") were made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are made from the Company's operating funds.

In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24,242 to fully settle the supplemental retirement plan ("SERP") and defined benefit portion of the officers retirement restoration plan ("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 three months ended December 31, 2022. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP.

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 three months ended December 31, 2021. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 12. Accumulated Other Comprehensive Income

The changes in AOCI by component, net of tax, for the three-month periods ended December 31, 2022 and 2021 were as follows:


	Post-retirement benefit plans			Currency translation adjustment		Cash Flow Hedges			Total
Attributable to Matthews:
Balance, September 30, 2022	$	5,182		$	(203,310)	$	7,937		$	(190,191)
OCI before reclassification	203			20,763		93			21,059
Amounts reclassified from AOCI	742		(a)	(203)		(497)		(b)	42
Net current-period OCI	945			20,560		(404)			21,101
Balance, December 31, 2022	$	6,127		$	(182,750)	$	7,533		$	(169,090)
Attributable to noncontrolling interest:
Balance, September 30, 2022	$	—		$	255	$	—		$	255
OCI before reclassification	—			4		—			4
Net current-period OCI	—			4		—			4
Balance, December 31, 2022	$	—		$	259	$	—		$	259


	Post-retirement benefit plans			Currency translation adjustment		Cash Flow Hedges			Total
Attributable to Matthews:
Balance, September 30, 2021	$	(35,930)		$	(155,251)	$	(1,558)		$	(192,739)
OCI before reclassification	10,718			(1,713)		875			9,880
Amounts reclassified from AOCI	23,415		(a)	(276)		606		(b)	23,745
Net current-period OCI	34,133			(1,989)		1,481			33,625
Balance, December 31, 2021	$	(1,797)		$	(157,240)	$	(77)		$	(159,114)
Attributable to noncontrolling interest:
Balance, September 30, 2021	$	—		$	241	$	—		$	241
OCI before reclassification	—			4		—			4
Net current-period OCI	—			4		—			4
Balance, December 31, 2021	$	—		$	245	$	—		$	245

(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see Note 11).

(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see Note 8).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 12. Accumulated Other Comprehensive Income (continued)

Reclassifications out of AOCI for the three-month periods ended December 31, 2022 and 2021 were as follows:




Details about AOCI Components	Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		Affected line item in the Statement of income

Postretirement benefit plans
Prior service credit (a)	$	91	$	44
Actuarial losses	187		(201)		Other income (deductions), net
Settlement losses	(1,271)		(30,856)		Other income (deductions), net
	(993)		(31,013)		Income before income tax (b)
	251		7,598		Income taxes
	$	(742)	$	(23,415)	Net income
Derivatives
Cash flow hedges	$	655	$	(801)	Interest expense
Net investment hedges	272		365		Interest expense
	927		(436)		Income before income tax (b)
	(227)		106		Income taxes
	$	700	$	(330)	Net income


(a) Prior service cost amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses. For additional information, see Note 11.
(b) For pre-tax items, positive amounts represent income and negative amounts represent expense.

Note 13. Income Taxes

Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the first three months of fiscal 2023 were an expense of $1,312, compared to a benefit of $6,628 for the first three months of fiscal 2022. The difference between the Company’s consolidated income taxes for the first three months of fiscal 2023 compared to the same period for fiscal 2022 primarily resulted from consolidated pre-tax income in fiscal 2023 compared to a pre-tax loss in fiscal 2022. The Company’s fiscal 2023 three month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits. The Company’s fiscal 2022 three month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits.

The Company had unrecognized tax benefits (excluding penalties and interest) of $4,249 and $4,123 on December 31, 2022 and September 30, 2022, respectively, which would impact the annual effective rate at December 31, 2022 and September 30, 2022, respectively. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $1,425 in the next 12 months primarily due to the completion of audits and the expiration of the statute of limitations.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $994 and $876 at December 31, 2022 and September 30, 2022, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 13. Income Taxes (continued)

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions. As of December 31, 2022, the tax years that remain subject to examination by major jurisdictions generally are:


United States – Federal			2019 and forward
United States – State			2018 and forward
Canada			2018 and forward
Germany			2019 and forward
United Kingdom			2021 and forward
Singapore			2018 and forward
Australia			2017 and forward

Note 14. Segment Information

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. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries.

The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 14. Segment Information (continued)

The following table sets forth information about the Company's segments, including a reconciliation of adjusted EBITDA to net income.


	Three Months Ended December 31,
		2022		2021
Sales:
Memorialization		$	206,502	$	210,706
Industrial Technologies		109,143		74,331
SGK Brand Solutions		133,595		153,542
Consolidated Sales		$	449,240	$	438,579


Adjusted EBITDA:
Memorialization	$	39,137	$	43,370
Industrial Technologies	12,202		7,183
SGK Brand Solutions	12,232		15,414
Corporate and Non-Operating	(14,280)		(12,634)
Total Adjusted EBITDA	$	49,291	$	53,333

RPA financing fees (1)	(456)		—
Acquisition costs (2)**	(1,285)		—
Strategic initiatives and other charges (3)**	(1,760)		(3,823)
Non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs (4)***	—		(690)
Exchange losses related to highly inflationary accounting (5)	(1,088)		—
Defined benefit plan termination related items (6)	(21)		(426)

Stock-based compensation	(4,334)		(3,709)

Non-service pension and postretirement expense (7)	(1,388)		(31,108)
Depreciation and amortization *	(23,729)		(33,501)
Interest expense	(10,215)		(6,507)
Net loss attributable to noncontrolling interests	(56)		(7)
Income (loss) before income taxes	4,959		(26,438)
Income tax (provision) benefit	(1,312)		6,628
Net income (loss)	$	3,647	$	(19,810)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 14. Segment Information (continued)


(1) Represents fees for receivables sold under the RPA (see Note 7, "Debt and Financing Arrangements").
(2) Includes certain non-recurring costs associated with recent acquisition activities.
(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, costs associated with global ERP system integration efforts, and asset write-downs associated with certain operations in Russia, net of recoveries.
(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, "Basis of Presentation").
(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) 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 $5,574 and $5,810 for the Memorialization segment, $5,853 and $2,653 for the Industrial Technologies segment, $11,060 and $23,725 for the SGK Brand Solutions segment, and $1,242 and $1,313 for Corporate and Non-Operating, for the three months ended December 31, 2022 and 2021, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $378 and $671 for the Memorialization segment, $937 and $32 for the Industrial Technologies segment, $521 and $1,229 for the SGK Brand Solutions segment, and $1,209 and $1,891 for Corporate and Non-Operating, for the three months ended December 31, 2022 and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $464 for the Memorialization segment, $4 for the Industrial Technologies segment, $220 for the SGK Brand Solutions segment, and $2 for Corporate and Non-Operating, for the three months ended December 31, 2021.

Note 15. Acquisitions

Fiscal 2023:

During the first fiscal quarter of 2023, the Company completed small acquisitions within the SGK Brand Solutions segment for a combined purchase price of $1,759 (net of holdbacks). The preliminary purchase price allocations were not finalized as of December 31, 2022 and remain subject to change as the Company obtains additional information related to working capital and other assets and liabilities.

Fiscal 2022:

In August 2022, the Company acquired German-based engineering firms OLBRICH and R+S Automotive for a purchase price of approximately €43,700 ($44,469) (net of cash acquired) within the Industrial Technologies segment. OLBRICH is a production and intelligent equipment manufacturer, specializing in purpose-built rotary processing equipment, including equipment used in the manufacturing of dry and 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 preliminary purchase price allocation was not finalized as of December 31, 2022 and remains subject to change as the Company obtains additional information related to fixed assets, intangible assets, and other assets and liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

(Dollar amounts in thousands, except per share data)

Note 16. Goodwill and Other Intangible Assets

A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:


	Memorialization		Industrial Technologies		SGK Brand Solutions		Consolidated




Net goodwill at September 30, 2022	$	361,782	$	107,022	$	206,617	$	675,421
Additions during period	—		—		410		410

Translation and other adjustments	2,253		4,507		9,424		16,184



Net goodwill at December 31, 2022	$	364,035	$	111,529	$	216,451	$	692,015

The net goodwill balances at December 31, 2022 and September 30, 2022 included $261,186 of accumulated impairment losses. Accumulated impairment losses at December 31, 2022 and September 30, 2022 were $5,000, $23,946 and $232,240 for the Memorialization, Industrial Technologies and SGK Brand Solutions segments, respectively.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2022 (January 1, 2022) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary. The Company performed an interim assessment of its SGK Brand Solutions goodwill reporting unit as of September 1, 2022 and 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. 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.

The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of December 31, 2022 and September 30, 2022, respectively.


	Carrying Amount		Accumulated Amortization		Net
December 31, 2022:
Indefinite-lived trade names	$	30,540	$	—	$	30,540
Definite-lived trade names	151,064		(119,029)		32,035
Customer relationships	383,983		(259,161)		124,822
Copyrights/patents/other	21,389		(15,030)		6,359
	$	586,976	$	(393,220)	$	193,756
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

The net change in intangible assets during the three months ended December 31, 2022 included the impact of foreign currency fluctuations during the period and additional amortization.

Amortization expense on intangible assets was $10,342 and $21,546 for the three-month periods ended December 31, 2022 and 2021, respectively. Amortization expense is estimated to be $31,072 for the remainder of fiscal 2023, $39,203 in 2024, $16,158 in 2025, $14,357 in 2026 and $13,364 in 2027.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES:

The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation ("Matthews" or the "Company") and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in interest rates, changes in the cost of materials used in the manufacture of the Company's products, changes in mortality and cremation rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates or other factors such as supply chain disruptions, labor shortages or labor cost increases, changes in product demand or pricing as a result of domestic or international competitive pressures, ability to achieve cost-reduction objectives, unknown risks in connection with the Company's acquisitions, cybersecurity concerns, effectiveness of the Company's internal controls, compliance with domestic and foreign laws and regulations, technological factors beyond the Company's control, impact of pandemics or similar outbreaks or other disruptions to our industries, customers or supply chains, 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-Q and Item 1A - "Risk Factors" in the Company's Form 10-K for the fiscal year ended September 30, 2022. In addition, although the Company does not currently have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors. Matthews cautions that the foregoing list of important factors is not all inclusive. Readers are also cautioned not to place undue reliance on any forward looking statements, which reflect management's analysis only as of the date of this report, even if subsequently made available by Matthews on its website or otherwise. Matthews does not undertake to update any forward looking statement, whether written or oral, that may be made from time to time by or on behalf of Matthews to reflect events or circumstances occurring after the date of this report.

Included in this report are measures of financial performance that are not defined by generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures assist management in comparing the Company's performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company's core operations. For additional information and reconciliations from the consolidated financial statements see "Non-GAAP Financial Measures" below.

RESULTS OF OPERATIONS:

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

The following table sets forth the sales and adjusted EBITDA for the Company's three reporting segments for the three-month periods ended December 31, 2022 and 2021. Refer to Note 14, "Segment Information" in Item 1 - "Financial Statements" for the Company's financial information by segment.


	Three Months Ended December 31,
		2022		2021
Sales:		(Dollar amounts in thousands)
Memorialization		$	206,502	$	210,706
Industrial Technologies		109,143		74,331
SGK Brand Solutions		133,595		153,542
Consolidated Sales		$	449,240	$	438,579


Adjusted EBITDA:
Memorialization	$	39,137	$	43,370
Industrial Technologies	12,202		7,183
SGK Brand Solutions	12,232		15,414
Corporate and Non-Operating	(14,280)		(12,634)
Total Adjusted EBITDA (1)	$	49,291	$	53,333

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

Sales for the three months ended December 31, 2022 were $449.2 million, compared to $438.6 million for the three months ended December 31, 2021, representing an increase of $10.7 million. The increase in fiscal 2023 sales reflected higher sales in the Industrial Technologies segment, partially offset by lower sales in the Memorialization and SGK Brand Solutions segments. On a consolidated basis, changes in foreign currency exchange rates were estimated to have an unfavorable impact of $17.0 million on fiscal 2023 sales compared to the prior year.

Memorialization segment sales for the first three months of fiscal 2023 were $206.5 million, compared to $210.7 million for the first three months of fiscal 2022. The decrease in sales resulted from lower unit sales of caskets and bronze memorial products, reflecting a decrease in coronavirus disease 2019 ("COVID-19") related deaths in fiscal 2023. These decreases were partially offset by improved price realization, higher sales of granite memorial products and increased cremation equipment sales. Changes in foreign currency exchange rates had an unfavorable impact of $1.5 million on the segment's sales compared to the prior year. Industrial Technologies segment sales were $109.1 million for the first three months of fiscal 2023, compared to $74.3 million for the first three months of fiscal 2022. The sales increase primarily reflected benefits from the recently completed acquisitions of OLBRICH GmbH ("OLBRICH") and R+S Automotive GmbH ("R+S Automotive") (see Acquisitions 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 reduced sales of warehouse automation solutions. Changes in foreign currency exchange rates had an unfavorable impact of $4.8 million on the segment's sales compared to the prior year. In the SGK Brand Solutions segment, sales for the first three

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

months of fiscal 2023 were $133.6 million, compared to $153.5 million for the first three months of fiscal 2022, representing a decrease of $19.9 million. Changes in foreign currency exchange rates had an unfavorable impact of $10.7 million on the segment's sales compared to the prior year. The decrease in sales also reflected lower brand sales in the U.S. and Europe, lower retail-based sales (principally merchandising solutions) and sales declines in the private-label brand market.

Gross profit for the three months ended December 31, 2022 was $138.9 million, compared to $131.6 million for the same period a year ago. Consolidated gross profit as a percent of sales was 30.9% and 30.0% for the first three months of fiscal 2023 and fiscal 2022, respectively. The increase in gross profit primarily reflected the impact of higher sales (including the benefits from the OLBRICH and R+S Automotive acquisitions), benefits from the realization of productivity improvements and other cost-reduction initiatives, and improved margins for engineered products within the Industrial Technologies segment. These increases in gross profit were partially offset by the impact of unfavorable changes in sales mix, higher material, labor and transportation costs, and lower margins on U.K. cremation equipment projects. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $855,000 and $1.5 million for the three months ended December 31, 2022 and 2021, respectively.

Selling and administrative expenses for the three months ended December 31, 2022 were $111.4 million, compared to $99.3 million for the first three months of fiscal 2022. Consolidated selling and administrative expenses, as a percent of sales, were 24.8% for the three months ended December 31, 2022, compared to 22.6% for the same period last year. Fiscal 2023 selling and administrative expenses reflected the impact of higher salaries and wage rates, higher travel and entertainment ("T&E") costs, and additional expenses from the recently completed OLBRICH and R+S Automotive acquisitions. These increases in 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-reduction initiatives totaling $2.7 million in fiscal 2023, compared to $3.5 million in fiscal 2022. Intangible amortization for the three months ended December 31, 2022 was $10.3 million, compared to $21.5 million for the three months ended December 31, 2021. Fiscal 2022 intangible amortization included $9.5 million of amortization related to certain trade names that have been discontinued.

Adjusted EBITDA was $49.3 million for the three months ended December 31, 2022 and $53.3 million for the three months ended December 31, 2021. Memorialization segment adjusted EBITDA was $39.1 million for the first three months of fiscal 2023 compared to $43.4 million for the first three months of fiscal 2022. Fiscal 2023 segment adjusted EBITDA reflected benefits from improved price realization and productivity initiatives, which were offset by the impact of lower unit sales of caskets and bronze memorials, unfavorable changes in sales mix, higher material, labor, transportation and T&E costs, and lower margins on certain cremation equipment projects. Adjusted EBITDA for the Industrial Technologies segment was $12.2 million for the three months ended December 31, 2022 compared to $7.2 million for the three months ended December 31, 2021. Industrial Technologies segment adjusted EBITDA primarily reflected the impact of higher sales and improved margins for engineered products. Changes in foreign currency exchange rates had an unfavorable impact of $1.1 million on the segment's adjusted EBITDA compared to the prior year. Adjusted EBITDA for the SGK Brand Solutions segment was $12.2 million for the first three months of fiscal 2023 compared to $15.4 million for the same period a year ago. The decrease in segment adjusted EBITDA primarily reflected the impact of lower sales and higher labor and T&E costs, partially offset by benefits from cost-reduction initiatives. Changes in foreign currency exchange rates had an unfavorable impact of $1.0 million on the segment's adjusted EBITDA compared to the prior year.

Interest expense for the first three months of fiscal 2023 was $10.2 million, compared to $6.5 million for the same period last year. The increase in interest expense reflected an increase in average borrowing levels and higher average interest rates in the current fiscal year. Other income (deductions), net, for the three months ended December 31, 2022 represented a decrease in pre-tax income of $2.1 million, compared to a decrease in pre-tax income of $30.7 million for the same period last year. Other income (deductions), net includes the non-service components of pension and postretirement expense, which totaled $1.4 million and $31.1 million for the three months ended December 31, 2022 and 2021, 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 11, "Pension and Other Postretirement Benefit Plans" in Item 1 - "Financial Statements" 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 2023 other income (deductions), net included $1.1 million of currency losses associated with highly inflationary accounting for the Company's subsidiaries in Turkey (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements").

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the first three months of fiscal 2023 were an expense of $1.3 million, compared to a benefit of $6.6 million for the first three months of fiscal 2022. The difference between the Company’s consolidated income taxes for the first three months of fiscal 2023 compared to the same period for fiscal 2022 primarily resulted from consolidated pre-tax income in fiscal 2023 compared to a pre-tax loss in fiscal 2022. The Company’s fiscal 2023 three month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits. The Company’s fiscal 2022 three month effective tax rate varied from the U.S. statutory tax rate of 21.0% primarily due to state taxes, foreign statutory rate differentials, and tax credits.

Net losses attributable to noncontrolling interests were $56,000 for the three months ended December 31, 2022 and $7,000 for the three months ended December 31, 2021. The net losses attributable to noncontrolling interests primarily reflected losses in less than wholly-owned businesses.

NON-GAAP FINANCIAL MEASURES:

Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense. Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company's core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provides investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures.

The Company believes that adjusted EBITDA provides relevant and useful information, which is used by the Company’s management in assessing the performance of its business. Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. Adjusted EBITDA provides the Company with an understanding of earnings before the impact of investing and financing charges and income taxes, and the effects of certain acquisition and ERP integration costs, and items that do not reflect the ordinary earnings of the Company’s operations. This measure may be useful to an investor in evaluating operating performance. It is also useful as a financial measure for lenders and is used by the Company’s management to measure business performance. Adjusted EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. The Company's definition of adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

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


	Three Months Ended December 31,
		2022		2021
		(Dollar amounts in thousands)
Net income (loss)		$	3,647	$	(19,810)
Income tax provision (benefit)		1,312		(6,628)
Income (loss) before income taxes		4,959		(26,438)
Net loss attributable to noncontrolling interests		56		7
Interest expense		10,215		6,507
Depreciation and amortization *		23,729		33,501
RPA financing fees (1)		456		—
Acquisition costs (2)**		1,285		—
Strategic initiatives and other charges (3)**		1,760		3,823
Non-recurring / incremental COVID-19 costs (4)***		—		690
Exchange losses related to highly inflationary accounting (5)		1,088		—
Defined benefit plan termination related items (6)		21		426

Stock-based compensation		4,334		3,709

Non-service pension and postretirement expense (7)		1,388		31,108
Total Adjusted EBITDA		$	49,291	$	53,333


(1) Represents fees for receivables sold under the RPA (see "Liquidity and Capital Resources").
(2) Includes certain non-recurring costs associated with recent acquisition activities.
(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, costs associated with global ERP system integration efforts, and asset write-downs associated with certain operations in Russia, net of recoveries.
(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, "Basis of Presentation" in Item 1 - "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) 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 $5.6 million and $5.8 million for the Memorialization segment, $5.9 million and $2.7 million for the Industrial Technologies segment, $11.1 million and $23.7 million for the SGK Brand Solutions segment, and $1.2 million and $1.3 million for Corporate and Non-Operating, for the three months ended December 31, 2022 and 2021, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $378,000 and $671,000 for the Memorialization segment, $937,000 and $32,000 for the Industrial Technologies segment, $521,000 and $1.2 million for the SGK Brand Solutions segment, and $1.2 million and $1.9 million for Corporate and Non-Operating, for the three months ended December 31, 2022 and 2021, respectively.

*** Non-recurring/incremental COVID-19 costs were $464,000 for the Memorialization segment, $4,000 for the Industrial Technologies segment, $220,000 for the SGK Brand Solutions segment, and $2,000 for Corporate and Non-Operating, for the three months ended December 31, 2021.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

LIQUIDITY AND CAPITAL RESOURCES:

Net cash used in operating activities was $36.2 million for the first three months of fiscal 2023, compared to $27.2 million for the first three months of fiscal 2022. Operating cash flow for both periods principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, non-cash pension expense, other non-cash adjustments, and changes in working capital 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. Fiscal 2022 operating cash flow reflected $35.7 million of contributions to fully fund the settlement of the Company's DB Plan obligations. Net changes in working capital items decreased operating cash flow by $43.2 million and $40.8 million in fiscal 2023 and fiscal 2022, respectively. The fiscal 2023 change in working capital principally reflected fiscal year-end compensation-related payments, decreases in accounts payable, and higher inventory levels, partially offset by proceeds from the sale of receivables under a receivables purchase agreement (see below for further discussion).

Cash used in investing activities was $14.2 million for the three months ended December 31, 2022, compared to $12.5 million for the three months ended December 31, 2021. Investing activities for the first three months of fiscal 2023 primarily reflected capital expenditures of $12.4 million and acquisitions, net of cash acquired, of $1.8 million. Investing activities for the first three months of fiscal 2022 primarily reflected capital expenditures of $12.6 million.

Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency and capacity, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $43.5 million for the last three fiscal years. Capital spending for fiscal 2023 is currently estimated to be approximately $75 million. Capital spending in fiscal 2023 reflects additional capital projects to support new production capabilities and increased efficiencies within the Memorialization and Industrial Technologies segments. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cash provided by financing activities for the three months ended December 31, 2022 was $22.3 million, primarily reflecting proceeds, net of repayments, on long-term debt of $32.7 million, treasury stock purchases of $2.5 million, and cash dividends of $7.0 million to the Company's shareholders. Cash provided by financing activities for the three months ended December 31, 2021 was $62.4 million, primarily reflecting proceeds, net of repayments, on long-term debt of $72.3 million, treasury stock purchases of $2.4 million and dividends of $6.8 million to the Company's shareholders.

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750.0 million senior secured revolving credit facility, which matures in March 2025. A portion of the revolving credit facility (not to exceed $350.0 million) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at LIBOR plus a factor ranging from 0.75% to 2.00% (1.25% at December 31, 2022) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $1.4 million and $1.5 million at December 31, 2022 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 $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 December 31, 2022 and September 30, 2022 were $495.4 million and $472.1 million, respectively. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at December 31, 2022 and 2021 was 4.24% and 1.86%, respectively.

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 subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $1.5 million and $1.7 million at December 31, 2022 and September 30, 2022, respectively.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures in March 2024, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables.

The proceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers. Gross receivables sold and cash collections reinvested under the RPA program were $203.6 million and $89.6 million for the three months ended December 31, 2022, respectively. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. As of December 31, 2022 and September 30, 2022, the amount sold to the Purchasers was $114.0 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 $40.8 million and $44.3 million as of December 31, 2022 and September 30, 2022, respectively.

Previously, the Company had a $115.0 million accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matured in March 2022. The Securitization Facility did not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remained on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility were based on LIBOR plus 0.75% and the Company was required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. At December 31, 2021, the interest rate on borrowings under this facility was 0.85%.

The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €25.0 million ($26.8 million), which includes €8.0 million ($8.6 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €13.2 million ($14.1 million) and €8.2 million ($8.1 million) at December 31, 2022 and September 30, 2022, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 3.96% at December 31, 2022.

Other borrowings totaled $23.1 million and $13.4 million at December 31, 2022 and September 30, 2022, respectively. The weighted-average interest rate on these borrowings was 3.09% and 1.88% at December 31, 2022 and 2021, respectively.

The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. The following table presents information related to interest rate swaps entered into by the Company and designated as cash flow hedges:


	December 31, 2022			September 30, 2022
	(Dollar amounts in thousands)
Notional amount	$	125,000		$	125,000
Weighted-average maturity period (years)	2.6			3.1
Weighted-average received rate	4.39		%	3.14		%
Weighted-average pay rate	1.04		%	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. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized gain of $10.1 million ($7.5 million after tax) at December 31, 2022 and an unrealized gain of $10.7 million ($7.9 million after tax) at September 30, 2022, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at December 31, 2022, a gain (net of tax) of approximately $2.5 million included in AOCI is expected to be recognized in earnings over the next twelve months.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

The Company has a U.S. Dollar/Euro cross currency swap with a notional amount of $81.4 million as of December 31, 2022 and September 30, 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 $1.6 million (net of income taxes of $526,000) and a gain of $2.8 million (net of income taxes of $940,000), which represented effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at December 31, 2022 and September 30, 2022, respectively. Income of $272,000 and $365,000, 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 the three months ended December 31, 2022 and 2021, respectively. At December 31, 2022 and September 30, 2022, the swap totaled $2.1 million and $3.7 million, respectively, and was included in other accrued liabilities and other assets in the Consolidated Balance Sheets, respectively.

The Company has a stock repurchase program. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation. Under the current authorization, 1,205,817 shares remain available for repurchase as of December 31, 2022. Refer to Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds" in Part II - "Other Information" for further details on the Company's repurchases in fiscal 2023.

Consolidated working capital of the Company was $266.5 million at December 31, 2022, compared to $217.2 million at September 30, 2022. Cash and cash equivalents were $42.7 million at December 31, 2022, compared to $69.0 million at September 30, 2022. The Company's current ratio was 1.7 at December 31, 2022 and 1.5 at September 30, 2022, respectively.

Long-Term Contractual Obligations:

The following table summarizes the Company's contractual obligations at December 31, 2022, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.


	Payments due in fiscal year:
	Total		2023 Remainder		2024 to 2025		2026 to 2027		After 2027
Contractual Cash Obligations:	(Dollar amounts in thousands)
Revolving credit facilities	$	509,489	$	—	$	495,391	$	—	$	14,098


2025 Senior Notes	345,346		7,875		31,500		305,971		—


Finance lease obligations (1)	7,050		1,754		2,494		1,538		1,264
Non-cancelable operating leases (1)	81,365		18,898		39,558		18,890		4,019
Other	23,005		723		11,837		2,155		8,290
Total contractual cash obligations	$	966,255	$	29,250	$	580,780	$	328,554	$	27,671

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

Benefit payments under the SERP and postretirement benefit plan are made from the Company's operating funds.

In the first quarter of fiscal 2023, the Company made lump sum payments totaling $24.2 million 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 $1.3 million, which has been presented as a component of other income (deductions), net for the three months ended December 31, 2022. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of December 31, 2022, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.2 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

REGULATORY MATTERS:

The Company’s operations are subject to various federal, state and local laws and regulations requiring strict compliance, including, but not limited to, the protection of the environment. The Company has established numerous internal compliance programs to further ensure lawful satisfaction of the applicable regulations. In addition, the Company is party to specific environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at operating and non-operating sites. The Company is currently performing environmental assessments and remediation at certain sites, as applicable.

ACQUISITIONS:

Refer to Note 15, "Acquisitions" in Item 1 - "Financial Statements" for further details on the Company's acquisitions.

FORWARD-LOOKING INFORMATION:

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

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

Recent labor cost increases, supply chain challenges, and other inflation-related impacts are expected to impact the Company's results for the near future. The Company expects to partially mitigate these cost increases through price realization and cost-reduction initiatives.

CRITICAL ACCOUNTING POLICIES:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2022. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition.

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets in the second quarter of fiscal 2022 (January 1, 2022) and determined that the estimated fair values for all goodwill reporting units exceeded their carrying values, therefore no impairment charges were necessary. The Company performed an interim assessment of its SGK Brand Solutions goodwill reporting unit as of September 1, 2022 and recorded a goodwill write-down totaling $82.5 million during the fiscal 2022 fourth quarter. Subsequent to this write-down, the fair value of the SGK Brand Solutions reporting unit

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued

approximated its carrying value at September 1, 2022. If current projections are not achieved or specific valuation factors outside the Company's control (such as discount rates and continued economic and industry challenges) significantly change, additional goodwill write-downs may be necessary in future periods.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk during the three months ended December 31, 2022. For additional information see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Item 4. Controls and Procedures

The Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that information required to be disclosed in our reports filed under that Act (the "Exchange Act"), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. These disclosure controls and procedures also are designed to provide reasonable assurance that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of December 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, and that such information is recorded, summarized and properly reported within the appropriate time period, relating to the Company and its consolidated subsidiaries, required to be included in the Exchange Act reports, including this Quarterly Report on Form 10-Q.

There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Management does not expect that the results of any of these legal proceedings will have a material adverse effect on Matthews' financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2022. The risk factors disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, in addition to the other information set forth in this report, could adversely affect the Company's operating performance and financial condition. Additional risks not currently known or deemed immaterial may also result in adverse effects on the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchase Plan

The following table shows the monthly fiscal 2023 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






Total	89,025	$	27.54	89,025

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits and Reports on Form 8-K


(a)	Exhibits

	Exhibit No.	Description	Method of Filing

	3.1	Restated Articles of Incorporation*	Exhibit Number 3.1 to the Annual Report on Form 10-K for the year ended September 30, 1994 (filed in paper format)
	3.2	Restated By-laws of Matthews International Corporation, as amended January 8, 2021*	Exhibit Number 3.1 to the Current Report on Form 8-K filed on January 14, 2021
	10.1	Matthews International Corporation Management Deferred Compensation Plan	Filed herewith
	10.2	Agreement, dated as of December 30, 2022, by and among Matthews International Corporation, Barington Companies Equity Partners, L.P., Barington Capital Group, L.P. and Barington Companies Management, LLC.	Exhibit Number 10.1 to current report on Form 8-K filed on December 30, 2022
	31.1	Certification of Principal Executive Officer for Joseph C. Bartolacci	Filed herewith
	31.2	Certification of Principal Financial Officer for Steven F. Nicola	Filed herewith
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Joseph C. Bartolacci	Furnished herewith
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Steven F. Nicola	Furnished herewith
	101.INS	XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	Filed herewith
	101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
	101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
	101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith
	104	Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)	Filed herewith

* Incorporated by reference

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		MATTHEWS INTERNATIONAL CORPORATION
		(Registrant)

Date:	January 27, 2023	By: /s/ Joseph C. Bartolacci
		Joseph C. Bartolacci, President
		and Chief Executive Officer


Date:	January 27, 2023	By: /s/ Steven F. Nicola
		Steven F. Nicola, Chief Financial Officer
		and Secretary