Matthews International Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Segment Information

Segment Information

6 Months Ended

Mar. 31, 2020

The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

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.

Note 14. Segment Information (continued)

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

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


	Three Months Ended March 31,						Six Months Ended March 31,
	2020		2019		2020		2019
Sales:
SGK Brand Solutions	$	172,855	$	190,651	$	347,735	$	375,951
Memorialization	161,819		162,176		316,224		316,062
Industrial Technologies	40,126		38,573		75,785		73,564
Consolidated Sales	$	374,800	$	391,400	$	739,744	$	765,577


Adjusted EBITDA:
SGK Brand Solutions	$	22,224	$	29,370	$	40,962	$	56,721
Memorialization	35,193		34,965		65,286		65,286
Industrial Technologies	6,212		4,792		10,526		8,387
Corporate and Non-Operating	(14,232)		(12,939)		(27,147)		(27,725)
Total Adjusted EBITDA	$	49,397	$	56,188	$	89,627	$	102,669

Acquisition costs ^(1)**	(660)		(3,374)		(2,608)		(5,406)
ERP integration costs ^(2)**	(750)		(1,805)		(1,415)		(3,982)
Strategic initiatives and other charges ^(3)**	(9,219)		(2,112)		(19,470)		(2,112)
Loss on divestiture ⁽⁴⁾	—		—		—		(4,465)
Joint Venture depreciation, amortization, interest expense and other charges ⁽⁵⁾	(1,462)		—		(2,259)		—
Non-recurring / incremental COVID-19 costs ⁽⁶⁾	(663)		—		(663)		—
Goodwill write-down⁽⁷⁾	(90,408)		—		(90,408)		—
Stock-based compensation	(2,508)		(1,366)		(4,539)		(5,013)
Non-service pension and postretirement expense ⁽⁸⁾	(2,227)		(970)		(4,455)		(1,901)
Depreciation and amortization ^*	(29,317)		(21,050)		(58,250)		(40,276)
Interest expense	(9,613)		(10,259)		(18,853)		(20,560)
Net loss attributable to noncontrolling interests	(231)		(223)		(71)		(336)
(Loss) income before income taxes	(97,661)		15,029		(113,364)		18,618
Income tax benefit (provision)	11,066		165		16,463		(440)
Net (loss) income	$	(86,595)	$	15,194	$	(96,901)	$	18,178

Note 14. Segment Information (continued)


⁽¹⁾ Includes certain non-recurring costs associated with recent acquisition activities.
⁽²⁾ Represents costs associated with global ERP system integration efforts.
⁽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.
⁽⁴⁾ Represents a loss on the sale of a controlling interest in a subsidiary within the Memorialization segment.
⁽⁵⁾ Represents the Company's portion of depreciation, intangible amortization, interest expense, and other non-recurring charges incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment.
⁽⁶⁾Includes certain non-recurring direct incremental costs (such as costs for purchases of computer peripherals and devices to facilitate working-from-home, additional personal protective equipment and cleaning supplies and services, etc.) incurred in response to COVID-19. This amount does not include the impact of any lost sales or underutilization due to COVID-19.
⁽⁷⁾Represents the goodwill write-down for two reporting units within the SGK Brand Solutions segment (see Note 16, "Goodwill and Other Intangible Assets").
⁽⁸⁾ Non-service pension and postretirement expense includes interest cost, expected return on plan assets and amortization of actuarial 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. 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 $21,785 and $13,165 for the SGK Brand Solutions segment, $4,839 and $5,039 for the Memorialization segment, $1,428 and $1,559 for the Industrial Technologies segment, and $1,265 and $1,287 for Corporate and Non-Operating, for the three months ended March 31, 2020 and 2019, respectively. Depreciation and amortization was $43,441 and $24,607 for the SGK Brand Solutions segment, $9,475 and $10,058 for the Memorialization segment, $2,870 and $3,085 for the Industrial Technologies segment, and $2,464 and $2,526 for Corporate and Non-Operating, for the six months ended March 31, 2020 and 2019, respectively.

** Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $3,818 and $2,808 for the SGK Brand Solutions segment and $5,813 and $4,483 for Corporate and Non-Operating, for the three months ended March 31, 2020 and 2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $730 for the Memorialization segment and $268 for the Industrial Technologies segment, for the three months ended March 31, 2020. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $7,264 and $3,409 for the SGK Brand Solutions segment and $14,904 and $8,091 for Corporate and Non-Operating, for the six months ended March 31, 2020 and 2019, respectively. Acquisition costs, ERP integration costs, and strategic initiatives and other charges were $1,057 for the Memorialization segment and $268 for the Industrial Technologies segment, for the six months ended March 31, 2020.