10-K 1 form10k-2014.htm MATTHEWS 2014 FORM 10-K



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2014
Commission File Number 0-09115

MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

COMMONWEALTH OF PENNSYLVANIA
25-0644320
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
TWO NORTHSHORE CENTER, PITTSBURGH, PA
15212-5851
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code
(412) 442-8200

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, $1.00 par value
 
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x                          No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o                          No x

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.  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405a of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes x
No o
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No x

The aggregate market value of the Class A Common Stock outstanding and held by non-affiliates of the registrant, based upon the closing sale price of the Class A Common Stock on the NASDAQ Global Select Market on March 31, 2014, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $1.1 billion.

As of October 31, 2014, shares of common stock outstanding were: Class A Common Stock 32,874,065 shares

Documents incorporated by reference: Specified portions of the Proxy Statement for the 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

The index to exhibits is on pages 82-84.





PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

Any forward-looking statements contained in this Annual Report on Form 10-K (specifically those contained in Item 1, "Business", Item 1A, "Risk Factors" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations") are included in this report pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results of Matthews International Corporation ("Matthews" or the "Company") in future periods to be materially different from management's expectations.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.  Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company's products, changes in death rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of domestic or international competitive pressures, unknown risks in connection with the Company's acquisitions, including the risks associated with the Company's recent acquisition of Schawk, Inc. ("Schawk"), and technological factors beyond the Company's control.  In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors.


ITEM 1.  BUSINESS.

Matthews, founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of memorialization products and brand solutions.  Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment for the cemetery and funeral home industries.  Brand solutions include graphics imaging products and services, merchandising solutions, and marking and fulfillment systems products. The Company's products and operations are comprised of six business segments:  Cemetery Products, Funeral Home Products, Cremation, Graphics Imaging, Merchandising Solutions and Marking and Fulfillment Systems.  The Cemetery Products segment is a leading manufacturer of cast bronze and granite memorials and other memorialization products, cast and etched architectural products and is a leading builder of mausoleums in the United States.  The Funeral Home Products segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood, metal and cremation caskets.  The Cremation segment is a leading designer and manufacturer of cremation equipment in North America and Europe. The Graphics Imaging segment provides brand development, brand management, printing plates, gravure cylinders, pre-media services and imaging services.  At September 30, 2014, the Graphics Imaging segment included the acquisition of Schawk, a global brand development, activation and deployment company, in July 2014 (see "Acquisitions" in Management's Discussion and Analysis).  The Merchandising Solutions segment designs and manufactures merchandising displays and systems and provides creative merchandising and marketing solutions services.  The Marking and Fulfillment Systems segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, industrial automation products and order fulfillment systems that are used for identifying, tracking, picking and conveying  consumer and industrial products.

Beginning October 1, 2014, the Company realigned its operations into three reporting segments, SGK Brand Solutions, Memorialization, and Industrial. The SGK Brand Solutions segment is comprised of the graphics imaging business, including Schawk, and the merchandising solutions operations.  The Memorialization segment is comprised of the Company's cemetery products, funeral home products and cremation operations.  The Industrial segment is comprised of the Company's marking and automation products and fulfillment systems.
2






ITEM 1. BUSINESS, (continued)

At October 31, 2014, the Company and its majority-owned subsidiaries had approximately 9,400 employees.  The Company's principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212, its telephone number is
(412) 442-8200 and its internet website is www.matw.com.  The Company files all required reports with the Securities and Exchange Commission ("SEC") in accordance with the Exchange Act.  The Company's Annual Report on Form 10-K, Quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge on the Company's website as soon as reasonably practicable after being filed or furnished to the SEC. The reports filed with the SEC are also available to read and copy at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by contacting the SEC at 1-800-732-0330.  All reports filed with the SEC can be found on its website at www.sec.gov.

The following table sets forth reported sales and operating profit for the Company's business segments for the past three fiscal years.  Detailed financial information relating to business segments and to domestic and international operations is presented in Note 17 ("Segment Information") to the Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K.

   
Years Ended September 30,
 
   
2014
   
2013
   
2012
 
   
Amount
   
Percent
   
Amount
   
Percent
   
Amount
   
Percent
 
   
(Dollars in Thousands)
 
Sales to unaffiliated customers:
                 
Memorialization:
                       
Cemetery Products
 
$
221,992
     
20.0
%
 
$
226,586
     
23.0
%
 
$
215,943
     
24.0
%
Funeral Home Products
   
234,583
     
21.2
     
242,803
     
24.6
     
230,943
     
25.6
 
Cremation
   
51,845
     
4.7
     
48,522
     
4.9
     
45,981
     
5.1
 
     
508,420
     
45.9
     
517,911
     
52.5
     
492,867
     
54.7
 
Brand Solutions:
                                               
Graphics Imaging
   
398,223
     
36.0
     
294,571
     
29.9
     
259,865
     
28.9
 
Merchandising Solutions
   
99,105
     
9.0
     
79,370
     
8.1
     
72,964
     
8.1
 
Marking and Fulfillment Systems
   
100,849
     
9.1
     
93,505
     
9.5
     
74,621
     
8.3
 
     
598,177
     
54.1
     
467,446
     
47.5
     
407,450
     
45.3
 
Total
 
$
1,106,597
     
100.0
%
 
$
985,357
     
100.0
%
 
$
900,317
     
100.0
%
                                                 
Operating profit:
                                               
Memorialization:
                                               
Cemetery Products
 
$
36,165
     
43.6
%
 
$
32,571
     
34.0
%
 
$
33,195
     
35.5
%
Funeral Home Products
   
28,025
     
33.8
     
37,263
     
38.9
     
26,525
     
28.3
 
Cremation
   
5,116
     
6.2
     
3,097
     
3.2
     
3,869
     
4.1
 
     
69,306
     
83.6
     
72,931
     
76.1
     
63,589
     
67.9
 
Brand Solutions:
                                               
Graphics Imaging
   
(4,617
)
   
(5.5
)
   
9,724
     
10.2
     
14,843
     
15.9
 
Merchandising Solutions
   
7,153
     
8.6
     
4,275
     
4.5
     
5,084
     
5.4
 
Marking and Fulfillment Systems
   
11,049
     
13.3
     
8,862
     
9.2
     
10,061
     
10.8
 
     
13,585
     
16.4
     
22,861
     
23.9
     
29,988
     
32.1
 
Total
 
$
82,891
     
100.0
%
 
$
95,792
     
100.0
%
 
$
93,577
     
100.0
%

3






ITEM 1. BUSINESS, (continued)

In fiscal 2014, approximately 61% of the Company's sales were made from the United States, and 35%, 2%, 1% and 1% were made from Europe, Asia, Australia and Canada, respectively. For further information on segments, see Note 17 ("Segment Information") in Item 8 "Financial Statements and Supplementary Data" on pages 65-67 of this report. Cemetery Products segment products are sold throughout the world with the segment's principal operations located in the United States, Europe, Canada, and Australia.  Funeral Home Products segment products are primarily sold in North America. Cremation segment products and services are sold primarily in North America, Europe, Asia, and Australia.  Products and services of the Graphics Imaging segment are sold primarily in Europe, the United States and Asia.  Merchandising Solutions segment products and services are sold principally in the United States.  The Marking and Fulfillment Systems segment sells equipment and consumables directly to industrial consumers and distributors in the United States and internationally through the Company's subsidiaries in Canada, Sweden and China, and through other foreign distributors.  Matthews owns a minority interest in Marking and Fulfillment Systems distributors in Asia, Australia and Europe.

MEMORIALIZATION PRODUCTS AND MARKETS:

Cemetery Products:

The Cemetery Products segment manufactures and markets a full line of memorialization products used primarily in cemeteries.  The segment's products, which are sold principally in the United States, Europe, Canada and Australia, include cast bronze memorials, granite memorials and other memorialization products.  The segment also manufactures and markets architectural products that are produced from bronze, aluminum and other metals, which are used to identify or commemorate people, places, events and accomplishments.

Memorial products, which comprise the majority of the Cemetery Products segment's sales, include flush bronze and granite memorials, upright granite memorials and monuments, cremation memorialization products, granite benches, flower vases, crypt plates and letters, cremation urns, niche units, cemetery features and statues, along with other related products and services. Flush memorials are bronze plaques or granite memorials which contain personal information about a deceased individual (such as name, birth date, and death date), photos and emblems.  Flush bronze and granite memorials are even or "flush" with the ground and therefore are preferred by many cemeteries for easier mowing and general maintenance.  The segment's memorial products also include community and family mausoleums within North America.  In addition, the segment's other memorial products include bronze plaques, letters, emblems, vases, lights and photo ceramics that can be affixed to granite monuments, mausoleums, crypts and flush memorials.  Principal customers for memorial products are cemeteries and memorial parks, which in turn sell the Company's products to the consumer.

Customers of the Cemetery Products segment can also purchase memorials and vases on a "pre-need" basis.  The "pre-need" concept permits families to arrange for these purchases in advance of their actual need.  Upon request, the Company will manufacture the memorial to the customer's specifications (e.g., name and birth date) and place it in storage for future delivery.  Memorials in storage have been paid in full with title conveyed to each pre-need purchaser.

The Cemetery Products segment manufactures a full line of memorial products for cremation, including urns in a variety of sizes, styles and shapes as well as standard and custom designed granite cremation pedestals and benches.  The segment also manufactures bronze and granite niche units, which are comprised of numerous compartments used to display cremation urns in mausoleums and churches.  In addition, the Company also markets turnkey cremation gardens, which include the design and all related products for a cremation memorial garden. As part of the Memorialization group, the segment works with the Funeral Home Products and Cremation segments to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets.

Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate and identify people, places, events and accomplishments.  The Company's plaques are frequently used to identify the name of a building or the names of companies or individuals located within a building.  Such products are also used to commemorate events or accomplishments, such as military service or financial donations.  The principal markets for the segment's architectural products are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies.  These products are sold to and distributed through a network of independent dealers including sign suppliers, awards and recognition companies, and trophy dealers.
4






ITEM 1. BUSINESS, (continued)

Raw materials used by the Cemetery Products segment consist principally of bronze and aluminum ingot, granite, sheet metal, coating materials, photopolymers and construction materials and are generally available in adequate supply.  Ingot is obtained from various North American, European and Australian smelters.

Competition from other cemetery product manufacturers is on the basis of reputation, product quality, delivery, price, and design availability. The Company believes that its superior quality, broad product lines, innovative designs, delivery capability, customer responsiveness, experienced personnel and consumer-oriented merchandising systems are competitive advantages in its markets.  Competition in the mausoleum construction industry includes various construction companies throughout North America and is on the basis of design, quality and price.  Competitors in the architectural market are numerous and include companies that manufacture cast and painted signs, plastic materials, sand-blasted wood and other fabricated products.

Funeral Home Products:

The Funeral Home Products segment is a leading manufacturer and distributor of caskets and other funeral home products in North America.  The segment produces and markets metal, wood and cremation caskets. Caskets are offered in a variety of colors, interior designs, handles and trim in order to accommodate specific religious, ethnic or other personal preferences. The segment also markets other funeral home products such as urns, jewelry, stationery and other funeral home products. The segment offers individually personalized caskets and urns through the Company-owned distribution network.

Metal caskets are made from various gauges of cold-rolled steel, stainless steel, copper and bronze.  Metal caskets are generally categorized by whether the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper, or steel) and in the case of steel, by the gauge (thickness) of the metal.  Wood caskets are manufactured from nine different species of wood, as well as from veneer.  The species of wood used are poplar, pine, ash, oak, pecan, maple, cherry, walnut and mahogany.  The Funeral Home Products segment is a leading manufacturer of all-wood constructed caskets, which are manufactured using pegged and dowelled construction, and include no metal parts.  All-wood constructed caskets are preferred by certain religious groups. Cremation caskets are made primarily from wood or cardboard covered with cloth or veneer.  These caskets appeal primarily to cremation consumers, the environmentally concerned, and value buyers.

The Funeral Home Products segment also produces casket components.  Casket components include stamped metal parts, metal locking mechanisms for gasketed metal caskets, adjustable beds and interior panels.  Metal casket parts are produced by stamping cold-rolled steel, stainless steel, copper and bronze sheets into casket body parts.  Locking mechanisms and adjustable beds are produced by stamping and assembling a variety of steel parts.  The segment purchases from sawmills and lumber distributors various species of uncured wood, which it dries and cures.  The cured wood is processed into casket components.

The segment provides product and service assortment planning, as well as merchandising and display products to funeral service businesses. These products assist funeral service professionals in providing information, value and satisfaction to their client families.

The primary materials required for casket manufacturing are cold-rolled steel and lumber. The segment also purchases copper, bronze, stainless steel, particleboard, corrugated materials, paper veneer, cloth, ornamental hardware and coating materials. Purchase orders or supply agreements are typically negotiated with large, integrated steel producers that have demonstrated timely delivery, high quality material and competitive prices.  Lumber is purchased from a number of sawmills and lumber distributors.  The Company purchases most of its lumber from sawmills within 150 miles of its wood casket manufacturing facility in York, Pennsylvania.
5






ITEM 1. BUSINESS, (continued)

The segment markets its casket products in the United States through a combination of Company-owned and independent casket distribution facilities.  The Company operates approximately 60 distribution centers in the United States.  Over 70% of the segment's casket products are currently sold through Company-owned distribution centers.  As part of the Memorialization group, the segment works with the Cemetery Products and Cremation segments to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets.

The casket business is highly competitive. The segment competes with other manufacturers on the basis of product quality, price, service, design availability and breadth of product line.  The segment provides a line of casket products that it believes is as comprehensive as any of its major competitors.  There are a large number of casket industry participants operating in North America, and the industry has recently seen a few new foreign casket manufacturers, primarily from China, enter the North American market.

Cremation:

The Cremation segment provides the following groups of products and services:

·
Cremation Systems
·
Waste Management/Incineration Systems
·
Environmental and Energy Systems
·
Service and Supplies
·
Crematory Management/Operations
·
Cremation Urns and Memorialization Products

Servicing the human, pet and specialized incineration markets, the segment's primary market areas are North America and Europe.  The segment also sells into Latin America and the Caribbean, Australia and Asia.

Cremation systems includes both traditional flame-based and water-based bio-cremation systems for cremation of humans and pets, as well as equipment for processing the cremated remains and other related equipment (ventilated work stations, tables, cooler racks, vacuums).  The principal markets for these products are funeral homes, cemeteries, crematories, pet crematories, animal disposers and veterinarians. These products primarily are marketed directly by segment personnel.

Waste management/incineration systems encompass both batch load and continuous feed, static and rotary systems for incineration of all waste types, as well as equipment for in-loading waste, out-loading ash and energy recovery. The principal markets for these products are medical waste disposal, oil and gas "work camp" wastes, industrial wastes and bio mass generators.

Environmental and energy systems include emissions filtration units, waste heat recovery equipment, waste gas treatment products, as well as energy recovery.  The principal markets are municipalities or public/state agencies, the cremation industry and other industries which utilize incinerators for waste reduction and energy production.

Service and supplies consists of operator training, preventative maintenance and "at need" service work performed on various makes and models of equipment. This work can be as simple as replacing defective bulbs or as complex as complete reconstruction and upgrading or retro-fitting on site. Supplies are consumable items associated with normal operations.

Crematory management/operations represent the actual operation and management of client-owned crematories.  Currently the segment provides these services primarily to municipalities in Europe and private operators in the U.S.

Cremation urns and memorialization products include urns which support various forms of memorialization (burial, niche, scattering, and home décor). Merchandise includes any other family-related products such as cremation jewelry, mementos, remembrance products and other assorted at-need merchandise.

Raw materials used by the Cremation segment consist principally of structural steel, sheet metal, electrical components, combustion devices and refractory materials. These are generally available in adequate supply from numerous suppliers.
6






ITEM 1. BUSINESS, (continued)

The Company competes with several manufacturers in the cremation and accessory equipment market principally on the basis of product design, quality and price.  The Cremation segment and its three largest global competitors account for a substantial portion of the U.S. and European cremation equipment market.  As part of the Memorialization group, the segment works with the Cemetery Products and Funeral Home Products segments to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets.

BRAND SOLUTIONS PRODUCTS AND MARKETS:

Graphics Imaging:

The Graphics Imaging segment provides brand development, brand management, pre-media services, printing plates and cylinders, embossing tools, and creative design services principally to consumer packaged goods and retail customers, and the primary packaging and corrugated industries. With the acquisition of Schawk in July 2014, the Company significantly expanded its product offerings and capabilities related to brand development and brand management serving the consumer packaged goods and retail industries.  The primary packaging industry consists of manufacturers of printed packaging materials such as boxes, flexible packaging, folding cartons and bags commonly displayed at retailers of consumer goods. The corrugated packaging industry consists of manufacturers of printed corrugated containers.  Other major industries served include the wallpaper, flooring, automotive, and textile industries.

The principal products and services of this segment include brand development, brand management, pre-media graphics services, printing plates, gravure cylinders, steel bases, embossing tools, special purpose machinery, engineering assistance, print process assistance, print production management, digital asset management, content management, and package design.  These products and services are used by brand owners and packaging manufacturers to develop and print packaging graphics that help identify and sell the product in the marketplace.  Other packaging graphics can include nutritional information, directions for product use, consumer warning statements and UPC codes. The primary packaging manufacturer produces printed packaging from paper, film, foil and other composite materials used to display, protect and market the product. The corrugated packaging manufacturer produces printed containers from corrugated sheets.  Using the Company's products, these sheets are printed and die cut to make finished containers.

The segment offers a wide array of value-added services and products.  These include print process and print production management services; print engineering consultation; pre-media preparation, which includes computer-generated art, film and proofs; plate mounting accessories and various press aids; and press-side print production assurance.  The segment also provides creative digital graphics services to brand owners and packaging markets.

The Company works closely with manufacturers to provide the proper printing forms and tooling required to print the packaging to the user's specifications.  The segment's printing plate products are made principally from photopolymer resin and sheet materials.  Upon customer request, plates can be pre-mounted press-ready in a variety of configurations that maximize print quality and minimize press set‑up time.  Gravure cylinders, manufactured from steel, copper and chrome, can be custom engineered for multiple print processes and specific customer print applications.

The Graphics Imaging segment customer base consists primarily of brand owners and packaging industry converters.  Brand owners are generally large, well-known consumer products companies and retailers with a national or global presence.  These types of companies tend to purchase their graphics needs directly and supply the printing forms, or the electronic files to make the printing plates and gravure cylinders, to the packaging printer for their products.  The Graphics Imaging segment serves customers primarily in Europe, the United States and Asia.

Major raw materials for this segment's products include photopolymers, steel, copper, film and graphic art supplies.  All such materials are presently available in adequate supply from various industry sources.

7






ITEM.1.                          BUSINESS, (continued)

The Graphics Imaging segment is one of several providers of brand management, brand development and pre-media services and manufacturers of printing plates and cylinders with an international presence.  The combination of the Company's Graphics Imaging business in Europe, the United States and Asia is an important part of Matthews' strategy to become a worldwide leader in the graphics industry in providing consistent service to multinational customers on a global basis.  Competition is on the basis of product quality, timeliness of delivery and price.  The Company differentiates itself from the competition by consistently meeting these customer demands, its ability to service customers both nationally and globally, and its ability to provide a variety of value-added support services.

Merchandising Solutions:

The Merchandising Solutions segment provides merchandising, retail graphics and printing solutions for brand owners and retailers.  The segment designs, manufactures and installs merchandising and display systems, and provides total turnkey project management services.  The segment also provides creative merchandising and marketing solutions services.

The majority of the segment's sales are derived from the design, engineering, manufacturing and execution of merchandising and display systems.  These systems include permanent and temporary displays, custom store fixtures, brand concept shops, interactive media, custom packaging, and screen and digitally printed promotional signage.  Design and engineering services include concept and model development, graphics design and prototyping.  Merchandising and display systems are manufactured to specifications developed by the segment in conjunction with the customer.  These products are marketed and sold primarily in the United States.

The segment operates in a fragmented industry consisting primarily of a number of small, locally operated companies.  Industry competition is intense and the segment competes on the basis of reliability, creativity and providing a broad array of merchandising products and services.  The segment is unique in its ability to provide in-depth marketing and merchandising services as well as design, engineering and manufacturing capabilities. These capabilities allow the segment to deliver complete turnkey merchandising solutions quickly and cost effectively.

Major raw materials for the segment's products include wood, particleboard, corrugated materials, structural steel, plastic, laminates, inks, film and graphic art supplies.  All of these raw materials are presently available in adequate supply from various sources.

Marking and Fulfillment Systems:

The Marking and Fulfillment Systems segment designs, manufactures and distributes a wide range of marking, coding and industrial automation solutions, and related consumables.  Manufacturers, suppliers and distributors worldwide rely on Matthews' integrated systems to identify, track, control and pick their products.

Marking systems range from mechanical marking solutions to microprocessor-based ink-jet printing systems that integrate into a customer's manufacturing, inventory tracking and material handling control systems.  The Company manufactures and markets products and systems that employ different marking technologies, including contact printing, indenting, etching, laser and ink-jet printing.  Customers frequently use a combination of these methods to achieve an appropriate mark.  These technologies apply product information required for identification and traceability, as well as to facilitate inventory and quality control, regulatory compliance and brand name communication.

Fulfillment systems complement the tracking and distribution of a customer's products with automated order fulfillment technologies, motor-driven rollers for product conveyance, and controls for material handling systems.  Material handling customers include some of the largest automated assembly, distribution and mail sorting companies in the United States.  The Company also engineers innovative, custom solutions to address specific customer requirements in a variety of industries, including oil exploration and security scanning.
8






ITEM 1. BUSINESS, (continued)

A significant portion of the revenue of the Marking and Fulfillment Systems segment is attributable to the sale of consumables and replacement parts required by the marking, coding and tracking hardware sold by Matthews.  The Company develops inks, rubber and steel consumables in conjunction with the marking equipment in which they are used, which is critical to ensure ongoing equipment reliability and mark quality.  Most marking equipment customers use Matthews' inks, solvents and cleaners.

The principal customers for the Company's marking and fulfillment systems products are manufacturers, suppliers and distributors of durable goods, building products, consumer goods manufacturers (including food and beverage processors) and producers of pharmaceuticals.  The Company also serves a wide variety of industrial markets, including metal fabricators, manufacturers of woven and non-woven fabrics, plastic, rubber and automotive products.

A portion of this segment's sales are outside the United States, with distribution sourced through the Company's subsidiaries in Canada, Sweden, Germany and China in addition to other international distributors.  The Company owns a minority interest in distributors in Asia, Australia and Europe.

Major raw materials for this segment's products include precision components, electronics, printing components, tool steels, rubber and chemicals, all of which are presently available in adequate supply from various sources.

Competitors in the marking and fulfillment systems industries are diverse, with some companies offering limited product lines for well-defined specialty markets, while others operate similarly to the Company, offering a broad product line and competing in multiple product markets and countries.  Competition for marking and fulfillment systems products is based on product performance, ease of integration into the manufacturing and/or distribution process, service and price.  The Company typically competes with specialty companies in specific brand marking solutions and traceability applications.  The Company believes that, in general, it offers one of the broadest lines of products to address a wide variety of marking, coding and industrial automation applications.

PATENTS, TRADEMARKS AND LICENSES:

The Company holds a number of domestic and foreign patents and trademarks.  However, the Company believes the loss of any individual or a significant number of patents or trademarks would not have a material impact on consolidated operations or revenues.

BACKLOG:

Because the nature of the Company's Cemetery Products, Graphics Imaging and Merchandising Solutions businesses are primarily custom products made to order and services with short lead times, backlogs are not generally material except for mausoleums in the Cemetery Products segment, cremation equipment in the Cremation segment, roto-gravure engineering projects in the Graphics Imaging segment and industrial automation and order fulfillment systems in the Marking and Fulfillment segment.  Backlogs vary in a range of approximately one year of sales for mausoleums and roto-gravure engineering projects.  Backlogs for the Funeral Home Products segment are not material. Cremation equipment sales backlogs vary in a range of eight to ten months of sales.  Backlogs for Marking and Fulfillment Systems segment sales generally vary in a range of up to six weeks for standard products and twelve weeks for custom systems.  The Company's backlog is expected to be substantially filled in fiscal 2015.

REGULATORY MATTERS:

The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment.  These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations.  As such, the Company has developed environmental, health and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.
9






ITEM 1. BUSINESS, (continued)

The Company is party to various environmental matters.  These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites.  The Company is currently performing environmental assessments and remediation at these sites, as appropriate.

At September 30, 2014, an accrual of approximately $4.9 million had been recorded for environmental remediation (of which $1.1 million was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations.  The accrual does not consider the effects of inflation and anticipated expenditures are not discounted to their present value.  While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.

ITEM 1A.  RISK FACTORS.

There are inherent risks and uncertainties associated with the Company's businesses that could adversely affect its operating performance and financial condition.  Set forth below are descriptions of those risks and uncertainties that the Company currently believes to be material.  Additional risks not currently known or deemed immaterial may also result in adverse effects on the Company.

Changes in Economic Conditions.  Generally, changes in domestic and international economic conditions affect the industries in which the Company and its customers and suppliers operate.  These changes include changes in the rate of consumption or use of the Company's products due to economic downturns, volatility in currency exchange rates, and changes in raw material prices resulting from supply and/or demand conditions.

Uncertainty about current global economic conditions poses a risk, as consumers and businesses may continue to postpone or cancel spending.  Other factors that could influence customer spending include energy costs, conditions in the credit markets, consumer confidence and other factors affecting consumer spending behavior.  These and other economic factors could have an effect on demand for the Company's products and services and negatively impact the Company's financial condition and results of operations.

Changes in Foreign Currency Exchange Rates.  Manufacturing and sales of a significant portion of the Company's products are outside the United States, and accordingly, the Company holds assets, incurs liabilities, earns revenue and pays expenses in a variety of currencies.  The Company's consolidated financial statements are presented in U.S. dollars, and therefore, the Company must translate the reported values of its foreign assets, liabilities, revenue and expenses into U.S. dollars.  Increases or decreases in the value of the U.S. dollar compared to foreign currencies may negatively affect the value of these items in the Company's consolidated financial statements, even though their value has not changed in local currency.

Increased Prices for Raw Materials.  The Company's profitability is affected by the prices of the raw materials used in the manufacture of its products.  These prices may fluctuate based on a number of factors, including changes in supply and demand, domestic and global economic conditions, and volatility in commodity markets, currency exchange rates, labor costs and fuel-related costs.  If suppliers increase the price of critical raw materials, alternative sources of supply, or an alternative material, may not exist.

The Company has standard selling price structures (i.e., list prices) in several of its segments, which are reviewed for adjustment generally on an annual basis.  In addition, the Company has established pricing terms with several of its customers through contracts or similar arrangements.  Based on competitive market conditions and to the extent that the Company has established pricing terms with customers, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited.  Significant raw material price increases that cannot be mitigated by selling price increases or productivity improvements will negatively affect the Company's results of operations.




10





ITEM 1A. RISK FACTORS, (continued)

Changes in Mortality and Cremation Rates.  Generally, life expectancy in the United States and other countries in which the Company's Memorialization businesses operate has increased steadily for several decades and is expected to continue to do so in the future.  The increase in life expectancy is also expected to impact the number of deaths in the future.  Additionally, cremations have steadily grown as a percentage of total deaths in the United States since the 1960's, and are expected to continue to increase in the future.  The Company expects that these trends will continue in the future, and the result may affect the volume of bronze and granite memorialization products and burial caskets sold in the United States.  However, sales of the Company's Cremation segment may benefit from the growth in cremations.

Changes in Product Demand or Pricing. The Company's businesses have and will continue to operate in competitive markets. Changes in product demand or pricing are affected by domestic and foreign competition and an increase in consolidated purchasing by large customers operating in both domestic and global markets. The Memorialization businesses generally operate in markets with ample supply capacity and demand which is correlated to death rates.  The Brand Solutions businesses serve global customers that are requiring their suppliers to be global in scope and price competitive.  Additionally, in recent years the Company has witnessed an increase in products manufactured offshore, primarily in China, and imported into the Company's U.S. markets.  It is expected that these trends will continue and may affect the Company's future results of operations.

Risks in Connection with Acquisitions.  The Company has grown in part through acquisitions, and continues to evaluate acquisition opportunities that have the potential to support and strengthen its businesses.  There is no assurance however that future acquisition opportunities will arise, or that if they do, that they will be consummated.  In addition, acquisitions involve inherent risks that the businesses acquired will not perform in accordance with expectations, or that synergies expected from the integration of the acquisitions will not be achieved as rapidly as expected, if at all. Failure to effectively integrate acquired businesses could prevent the realization of expected rates of return on the acquisition investment and could have a negative effect on the Company's results of operations and financial condition.

In July 2014, the Company completed the acquisition of Schawk.  In connection with the acquisition, additional risks and uncertainties could affect the Company's financial performance and actual results.  Specifically, the acquisition could cause actual results for fiscal 2015 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by the Company's management.  The risks associated with the Schawk acquisition include risks related to combining the businesses and achieving expected cost savings and synergies, assimilating the Schawk businesses, and the fact that merger integration costs related to the acquisition are difficult to predict with a level of certainty, and may be greater than expected.

Technological Factors Beyond the Company's Control.  The Company operates in certain markets in which technological product development contributes to its ability to compete effectively.  There can be no assurance that the Company will be able to develop new products, that new products can be manufactured and marketed profitably, or that new products will successfully meet the expectations of customers.

Changes in the Distribution of the Company's Products or the Loss of a Large Customer.  Although the Company does not have any customer that is considered individually significant to consolidated sales, it does have contracts with several large customers in both the Memorialization and Brand Solutions businesses.  While these contracts provide important access to large purchasers of the Company's products, they can obligate the Company to sell products at contracted prices for extended periods of time.  Additionally, any significant divestiture of business properties or operations by current customers could result in a loss of business if the Company is not able to maintain the business with the subsequent owners of the properties.


ITEM 1B.  UNRESOLVED STAFF COMMENTS.

Not Applicable.




11





 ITEM 2.  PROPERTIES.

Principal properties of the Company and its majority-owned subsidiaries as of October 31, 2014 were as follows (properties are owned by the Company except as noted):

Location
 
Description of Property
 
Cemetery Products:
     
Pittsburgh, PA
 
Manufacturing / Division Offices
 
Elberton, GA
 
Manufacturing
 
Kingwood, WV
 
Manufacturing
 
Melbourne, Australia
 
Manufacturing
(1)
Monterrey, Mexico
 
Manufacturing
(1)
Parma, Italy
 
Manufacturing / Warehouse
(1)
Searcy, AR
 
Manufacturing
 
Whittier, CA
 
Manufacturing
(1)
       
Funeral Home Products (2):
     
Monterrey, Mexico
 
Manufacturing
(1)
Richmond, IN
 
Manufacturing
(1)
Richmond, IN
 
Manufacturing / Metal Stamping
 
York, PA
 
Manufacturing
 
       
Cremation:
     
Apopka, FL
 
Manufacturing / Division Offices
 
Manchester, England
 
Manufacturing
(1)
Udine, Italy
 
Manufacturing
(1)
       
Graphics Imaging:
     
Des Plaines, IL
 
Division Offices
 
Pittsburgh, PA
 
Manufacturing
 
Antwerp, Belgium
 
Manufacturing
 
Atlanta, GA
 
Manufacturing
 
Atlanta, GA
 
Operating facility
(1)
Battle Creek, MI
 
Operating facility
(1)
Bristol, England
 
Operating facility
 
Budapest, Hungary
 
Manufacturing
 
Chenai, China
 
Operating facility
(1)
Chicago, IL
 
Operating facility
(1)
Chicago, IL
 
Operating facility
(1)
Chicago, IL
 
Subletting
(1)
Cincinnati, OH
 
Operating facility
(1)
Cincinnati, OH
 
Operating facility
(1)
Cincinnati, OH
 
Manufacturing
(1)
Des Plaines, IL
 
Operating facility
(1)
Duchow, Poland
 
Manufacturing
 
Goslar, Germany
 
Manufacturing
(1)
Grenzach-Wyhlen, Germany
 
Manufacturing
 
Hilversum, Netherlands
 
Operating facility
(1)
Izmir, Turkey
 
Manufacturing
 
Julich, Germany
 
Manufacturing
 
Kalamazoo, MI
 
Operating facility
 
Leeds, England
 
Operating facility
(1)
London, England
 
Operating facility
(1)
Los Angeles, CA
 
Operating facility
(1)

12






ITEM 2. PROPERTIES, (continued)

Location
 
Description of Property
 
       
Graphics Imaging, (continued):
     
Manchester, England
 
Manufacturing
(1)
Minneapolis, MN
 
Manufacturing
 
Mississauga, Canada
 
Operating facility
(1)
Monchengladbach, Germany
 
Manufacturing
 
Mt. Olive, NJ
 
Operating facility
(1)
Munich, Germany
 
Manufacturing
(1)
New Berlin, WI
 
Manufacturing
(1)
New York, NY
 
Operating facility
(1)
New, York, NY
 
Operating facility
(1)
Newcastle, England
 
Operating facility
(1)
Northbrook, IL
 
Vacant
(1)
North Sydney, Australia
 
Operating facility
(1)
Nuremberg, Germany
 
Manufacturing
(1)
Oakland, CA
 
Operating facility
(1)
Paris, France
 
Operating facility
(1)
Penang, Malaysia
 
Operating facility
 
Poznan, Poland
 
Manufacturing
 
Queretaro, Mexico
 
Manufacturing
 
Redmond, WA
 
Operating facility
(1)
St. Louis, MO
 
Manufacturing
 
San Francisco, CA
 
Operating facility
(1)
San Francisco, CA
 
Operating facility
(1)
Shanghai, China
 
Operating facility
(1)
Shanghai, China
 
Operating facility
(1)
Shenzhen, China
 
Manufacturing
(1)
Singapore, Singapore
 
Operating facility
(1)
Stamford, CT
 
Operating facility
(1)
Sterling Heights, MI
 
Operating facility
(1)
Swindon, England
 
Subletting
(1)
Toronto, Canada
 
Manufacturing
(1)
Vienna, Austria
 
Manufacturing
(1)
Vreden, Germany
 
Manufacturing
 
Wan Chai, Hong Kong
 
Manufacturing
(1)
Woburn, MA
 
Operating facility
(1)
       
Marking and Fulfillment Systems:
     
Pittsburgh, PA
 
Manufacturing / Division Offices
 
Beijing, China
 
Manufacturing
(1)
Cincinnati, OH
 
Manufacturing
(1)
Germantown, WI
 
Manufacturing
(1)
Gothenburg, Sweden
 
Manufacturing / Distribution
(1)
Ixonia, WI
 
Manufacturing
(1)
Tualatin, OR
 
Manufacturing
(1)
Tianjin City, China
 
Manufacturing
(1)

13






ITEM 2. PROPERTIES, (continued)

Location
 
Description of Property
 
       
Merchandising Solutions:
     
East Butler, PA
 
Manufacturing / Division Offices
 
Portland, OR
 
Sales Office
(1)
       
Corporate Office:
     
Pittsburgh, PA
 
General Offices
 


(1) These properties are leased by the Company under operating lease arrangements. Rent expense incurred by the Company for all leased facilities was approximately $21.8 million in fiscal 2014.
(2) In addition to the properties listed, the Funeral Home Products segment leases warehouse facilities totaling approximately 1.0 million square feet in 30 states under operating leases.

All of the owned properties are unencumbered.  The Company believes its facilities are generally well suited for their respective uses and are of adequate size and design to provide the operating efficiencies necessary for the Company to be competitive.  The Company's facilities provide adequate space for meeting its near-term production requirements and have availability for additional capacity.  The Company intends to continue to expand and modernize its facilities as necessary to meet the demand for its products.


ITEM 3.  LEGAL PROCEEDINGS.

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


ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.
14





OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT

The following information is furnished with respect to officers and executive management as of November 15, 2014:

Name
 
Age
 
Positions with Registrant
         
Joseph C. Bartolacci
 
54
 
President and Chief Executive Officer
         
David F. Beck
 
62
 
Vice President and Controller
 
Marcy L. Campbell
 
51
 
Vice President, Human Resources
         
Brian J. Dunn
 
57
 
Executive Vice President, Strategy and Corporate Development
         
Steven D. Gackenbach
 
51
 
Group President, Memorialization
         
Steven F. Nicola
 
54
 
Chief Financial Officer, Secretary and Treasurer
         
Paul F. Rahill
 
57
 
President, Cremation Division
         
David A. Schawk
 
58
 
President, Graphics Imaging
         
Brian D. Walters
 
45
 
Vice President and General Counsel


Joseph C. Bartolacci was appointed President and Chief Executive Officer effective October 2006.

David F. Beck was appointed Vice President and Controller effective February 2010.  Prior thereto he had been Controller since September 15, 2003.

Marcy L. Campbell was appointed Vice President, Human Resources effective November 2014.  Ms. Campbell served as Director, Regional Human Resources from January 2013, and as Manager, Regional Human Resources from November 2005 to December 2012.

Brian J. Dunn was appointed Executive Vice President, Strategy and Corporate Development effective July 24, 2014.  Prior thereto, he served as Group President, Brand Solutions since February 2010, and Group President, Graphics and Marking Products from September 2007 to January 2010.

Steven D. Gackenbach was appointed Group President, Memorialization effective October 31, 2011.  Prior thereto he had been Chief Commercial Officer, Memorialization since January 2011 when he joined the Company.  Prior to joining the Company, Mr. Gackenbach served as the Senior Director of Strategy for Kraft Foods' Cheese and Dairy Division from 2002 to 2010.

Steven F. Nicola was appointed Chief Financial Officer, Secretary and Treasurer effective December 2003.

Paul F. Rahill was appointed President, Cremation Division in October 2002.

David A. Schawk joined the Company in July 2014 as President, Graphics Imaging upon Matthews' acquisition of Schawk.  Mr. Schawk served as Schawk's Chief Executive Officer from July 2012, and Chief Executive Officer and President for more than five years prior thereto. Mr. Schawk was a member of the Schawk Board of Directors since 1992.

Brian D. Walters was appointed Vice President and General Counsel effective February 2009.
15





PART II


ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information:

The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1 par value.  At September 30, 2014, 32,879,865 shares were outstanding.  The Company's Class A Common Stock is traded on the NASDAQ Global Select Market under the symbol "MATW".  The following table sets forth the high, low and closing prices as reported by NASDAQ for the periods indicated:

   
High
   
Low
   
Close
 
Fiscal 2014:
           
Quarter ended:         September 30, 2014
 
$
47.60
   
$
40.99
   
$
43.89
 
June 30, 2014
   
43.32
     
39.54
     
41.57
 
March 31, 2014
   
44.33
     
37.08
     
40.81
 
December 31, 2013
   
42.80
     
37.58
     
42.61
 
                         
Fiscal 2013:
                       
Quarter ended:    September 30, 2013
 
$
40.50
   
$
36.27
   
$
38.08
 
June 30, 2013
   
39.37
     
32.81
     
37.70
 
March 31, 2013
   
35.31
     
31.43
     
34.92
 
December 31, 2012
   
32.95
     
27.42
     
32.10
 


The Company has a stock repurchase program.  Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews' common stock under the program, of which 965,881 shares remain available for repurchase as of September 30, 2014.  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 of the Company's Restated Articles of Incorporation.

All purchases of the Company's common stock during fiscal 2014 were part of this repurchase program.
16





ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)

The following table shows the monthly fiscal 2014 stock repurchase activity:

Period
 
Total number of shares purchased
   
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 2013
   
509
   
$
40.83
     
509
     
1,194,161
 
November 2013
   
86,287
     
40.95
     
86,287
     
1,107,874
 
December 2013
   
15,381
     
41.67
     
15,381
     
1,092,493
 
January 2014
   
6,428
     
42.39
     
6,428
     
1,086,065
 
February 2014
   
-
     
-
     
-
     
1,086,065
 
March 2014
   
-
     
-
     
-
     
1,086,065
 
April 2014
   
-
     
-
     
-
     
1,086,065
 
May 2014
   
3,806
     
40.17
     
3,806
     
1,082,259
 
June 2014
   
452
     
41.09
     
452
     
1,081,807
 
July 2014
   
-
     
-
     
-
     
1,081,807
 
August 2014
   
46,060
     
45.12
     
46,060
     
1,035,747
 
September 2014
   
69,866
     
45.63
     
69,866
     
965,881
 
    Total
   
228,789
   
$
43.29
     
228,789
         


Holders:

Based on records available to the Company, the number of registered holders of the Company's common stock was 596 at
October 31, 2014.

Dividends:

A quarterly dividend of $.13 per share was paid for the fourth quarter of fiscal 2014 to shareholders of record on November 24, 2014. The Company paid quarterly dividends of $.11 per share for the first three quarters of fiscal 2014 and the fourth quarter of fiscal 2013.  The Company paid quarterly dividends of $.10 per share for the first three quarters of fiscal 2013 and the fourth quarter of fiscal 2012.  The Company paid quarterly dividends of $.09 per share for the first three quarters of fiscal 2012 and the fourth quarter of fiscal 2011.

Cash dividends have been paid on common shares in every year for at least the past forty-five years.  It is the present intention of the Company to continue to pay quarterly cash dividends on its common stock.  However, there is no assurance that dividends will be declared and paid as the declaration and payment of dividends is at the discretion of the Board of Directors of the Company and is dependent upon the Company's financial condition, results of operations, cash requirements, future prospects and other factors deemed relevant by the Board.

Securities Authorized for Issuance Under Equity Compensation Plans:

See Equity Compensation Plans in Item 12 "Security Ownership of Certain Beneficial Owners and Management" on page 76 of this report.
17





ITEM 5.                          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)


PERFORMANCE GRAPH


COMPARISON OF FIVE-YEAR CUMULATIVE RETURN *
AMONG MATTHEWS INTERNATIONAL CORPORATION,
S&P 500 INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX **




*  Total return assumes dividend reinvestment
** Fiscal year ended September 30

Note: Performance graph assumes $100 invested on October 1, 2009 in Matthews International Corporation Common Stock, Standard & Poor's (S&P) 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index.  The results are not necessarily indicative of future performance.

18





ITEM 6.  SELECTED FINANCIAL DATA.



   
Years Ended September 30,
 
   
2014(1)
   
2013(2)
   
2012(3)
   
2011(4)
   
2010(5)
 
   
(Amounts in thousands, except per share data)
 
   
(Unaudited)
 
                     
Net sales
 
$
1,106,597
   
$
985,357
   
$
900,317
   
$
898,821
   
$
821,829
 
                                         
Operating profit
   
82,891
     
95,792
     
93,577
     
118,516
     
116,581
 
                                         
Interest expense
   
12,628
     
12,925
     
11,476
     
8,241
     
7,419
 
                                         
Net income attributable to Matthews shareholders
   
43,674
     
54,888
     
55,843
     
72,372
     
69,057
 
                                         
                                         
Earnings per common share:
                                       
Basic
 
 
$1.54
   
 
$1.99
   
 
$1.98
   
 
$2.47
   
 
$2.32
 
Diluted
   
1.53
     
1.98
     
1.98
     
2.46
     
2.31
 
                                         
Weighted-average common
                                       
shares outstanding:
                                       
Basic
   
28,209
     
27,255
     
27,753
     
28,775
     
29,656
 
Diluted
   
28,483
     
27,423
     
27,839
     
28,812
     
29,706
 
                                         
Cash dividends per share
 
 
$.460
   
 
$.410
   
 
$.370
   
 
$.330
   
 
$.290
 
                                         
Total assets
 
$
2,031,735
   
$
1,215,900
   
$
1,128,042
   
$
1,097,455
   
$
993,825
 
Long-term debt, non-current
   
714,027
     
351,068
     
298,148
     
299,170
     
225,256
 


(1) Fiscal 2014 included net charges of approximately $39,569 (pre-tax), primarily related to acquisition-related costs, strategic cost reduction initiatives, and litigation expenses related to a legal dispute in the Funeral Home Products segment.  Charges of $38,598 and $971 impacted operating profit and other deductions, respectively.  In addition, fiscal 2014 included the unfavorable effect of adjustments of $1,347 to income tax expense related to non-deductible expenses related to acquisition activities.
(2) Fiscal 2013 included net charges of approximately $14,095 (pre-tax), which primarily related to strategic cost reduction initiatives, incremental costs related to an ERP implementation in the Cemetery Products segment, acquisition-related costs and an impairment charge related to the carrying value of a trade name. The unusual charges were partially offset by a gain on the final settlement of the purchase price of the remaining ownership interest in one of the Company's subsidiaries and the benefit of adjustments to contingent consideration.
(3) Fiscal 2012 included net charges of approximately $7,850 (pre-tax), which primarily consisted of charges related to cost reduction initiatives and incremental costs related to an ERP implementation in the Cemetery Products segment.  In addition, fiscal 2012 included the favorable effect of an adjustment of $528 to income tax expense primarily related to changes in estimated tax accruals for open tax periods.
(4) Fiscal 2011 included the favorable effect of an adjustment of $606 to income tax expense primarily related to changes in estimated tax accruals for open tax periods.
(5) Fiscal 2010 included the favorable effect of an adjustment of $838 to income tax expense primarily related to changes in estimated tax accruals for open tax periods.

19





ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the consolidated financial statements of Matthews and related notes thereto.  In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K.


RESULTS OF OPERATIONS:

The following table sets forth sales and operating profit for the Company's Memorialization and Brand Solutions businesses for each of the last three fiscal years.

   
Years Ended September 30,
 
   
2014
   
2013
   
2012
 
Sales:
           
    Memorialization
 
$
508,420
   
$
517,911
   
$
492,867
 
    Brand Solutions
   
598,177
     
467,446
     
407,450
 
    Consolidated
 
$
1,106,597
   
$
985,357
   
$
900,317
 
                         
Operating Profit:
                       
    Memorialization
 
$
69,306
   
$
72,931
   
$
63,589
 
    Brand Solutions
   
13,585
     
22,861
     
29,988
 
    Consolidated
 
$
82,891
   
$
95,792
   
$
93,577
 
                         

Comparison of Fiscal 2014 and Fiscal 2013:

Sales for the year ended September 30, 2014 were $1.1 billion, compared to $985.4 million for the year ended September 30, 2013.  The increase in fiscal 2014 sales principally reflected the acquisition of Schawk, Inc. ("Schawk") in July 2014, higher sales in the Company's Graphics Imaging and Marking and Fulfillment Systems segments, the incremental impact of acquisitions completed in fiscal 2013 and the impact of significant projects in the Cremation and Merchandising Solutions segments.  Consolidated sales for fiscal 2014 also reflected the benefit of favorable changes in foreign currencies against the U.S. dollar of approximately $6.2 million.

In the Memorialization businesses, Cemetery Products segment sales for fiscal 2014 were $222.0 million compared to $226.6 million for fiscal 2013.  The decrease primarily reflected lower unit volume of memorials, partially offset by higher mausoleum sales.  Sales for the Funeral Home Products segment were $234.6 million for fiscal 2014 compared to $242.8 million for fiscal 2013.  The decrease principally resulted from lower unit volume of caskets.  Based on published CDC data, the Company estimated that the number of casketed, in-ground burial deaths in the U.S. declined in fiscal 2014 compared to a year ago, which was the primary factor in the decrease in unit volume in both the Cemetery Products and Funeral Home Products segments in fiscal 2014.  Sales for the Cremation segment were $51.8 million for fiscal 2014 compared to $48.5 million a year ago.  The increase principally resulted from a large waste incineration project in Saudi Arabia, offset by lower sales volume in the segment's traditional cremator businesses.  In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2014 were $398.2 million, compared to $294.6 million a year ago.  The increase resulted principally from the acquisition of Schawk in July 2014 ($75.1 million), higher sales volume in the segment's principal markets, the incremental impact of the acquisition of Wetzel Holding AG, Wetzel GmbH and certain related affiliates (collectively, "Wetzel") in November 2012 and a $5.9 million favorable impact of changes in foreign currency against the U.S. dollar.  Sales for the Merchandising Solutions segment were $99.1 million for fiscal 2014, compared to $79.4 million a year ago.  The improvement was attributable to higher volume, including a significant merchandising display project during the third and fourth fiscal quarters of 2014.  Marking and Fulfillment Systems segment sales for the year ended September 30, 2014 were $100.8 million, compared to $93.5 million for fiscal 2013.  The increase resulted principally from higher sales in the U.S. and the incremental impact of the acquisition of Pyramid Control Systems ( "Pyramid") in December 2012.
20






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

Gross profit for the year ended September 30, 2014 was $392.5 million, or 35.5% of sales, compared to $356.5 million, or 36.2% of sales, for fiscal 2013.  The increase in fiscal 2014 consolidated gross profit compared to fiscal 2013 reflected higher sales and the benefit of recent acquisitions, partially offset by higher material costs in the Funeral Home Products segment.  In addition, fiscal 2014 gross profit included an expense of $9.5 million for the write-off of inventory step-up value related to the Schawk acquisition.   The decrease in gross profit as a percentage of sales primarily reflected the impact of the write-off of the inventory step-up and higher material costs in the Funeral Home Products segment.

Selling and administrative expenses for the year ended September 30, 2014 were $309.6 million, or 28.0% of sales, compared to $260.7 million, or 26.5% of sales, for fiscal 2013.  Fiscal 2014 selling and administrative expenses included expenses related to acquisition activities (primarily the Schawk acquisition) of $18.2 million, the Company's strategic cost structure initiatives of $4.5 million and litigation expenses of $3.0 million related to a legal dispute in the Funeral Home Products segment.  Fiscal 2013 selling and administrative expenses included expenses of $13.6 million related to strategic cost-structure initiatives, $3.4 million related to acquisition activities, $1.8 million related to litigation-related expenses in the Funeral Home Products segment, and $2.2 million related to asset adjustments.  These fiscal 2013 expenses were partially offset by the benefit of adjustments to contingent consideration of $6.2 million and a gain of $3.0 million on the settlement of the purchase price of the remaining ownership interest in one of the Company's subsidiaries.

Operating profit for fiscal 2014 was $82.9 million, compared to $95.8 million for fiscal 2013.  Cemetery Products segment operating profit for fiscal 2014 was $36.2 million, compared to $32.6 million for fiscal 2013.  The increase in the Cemetery Products operating profit resulted principally from a decline in expenses related to the Company's strategic cost structure initiatives from $5.9 million in fiscal 2013 to $771,000 in fiscal 2014.  Excluding the impact of these expenses from both years, fiscal 2014 operating profit decreased by $1.6 million, compared to fiscal 2013 primarily reflecting lower sales.  Operating profit for the Funeral Home Products segment for fiscal 2014 was $28.0 million, compared to $37.3 million for fiscal 2013.  The decrease in Funeral Home Products segment operating profit for fiscal 2014 primarily reflected the impact of $3.1 million of expenses primarily related to strategic cost-structure initiatives and litigation expenses of $3.0 million related to a legal dispute with one of its competitors.   Fiscal 2013 Funeral Home Product segment operating profit included the impact of expenses of $3.0 million related to strategic cost-structure initiatives, litigation expenses of $1.8 million, and a $6.3 million benefit of adjustments to contingent consideration.  Excluding the impact of these items from both years, Funeral Home Products operating profit decreased $1.7 million, primarily resulting from lower sales, partially offset by the productivity benefits from strategic cost-structure initiatives.  Cremation segment operating profit for the year ended September 30, 2014 was $5.1 million, compared to $3.1 million a year ago.  The increase in operating profit reflected the impact of higher sales, and $100,000 of expenses related to strategic cost-structure initiatives in fiscal 2014, compared to $1.1 million of similar expenses in fiscal 2013.  The Graphics Imaging segment reported an operating loss of $4.6 million for fiscal 2014, compared to operating profit of $9.7 million for 2013.  The decrease in fiscal 2014 primarily reflected the impact of acquisition-related expenses of $17.8 million, the $9.5 million write-off of inventory step-up value and expenses related to strategic cost-structure initiatives of $2.9 million.  Fiscal 2013 Graphics Imaging segment operating profit included expenses of $3.2 million related to acquisition activities, $4.5 million related to strategic cost-structure initiatives and a $1.6 million impairment charge related to the carrying value of a trade name.  These fiscal 2013 expenses were partially offset by a gain of $3.0 million on the settlement of the purchase price of the remaining ownership interest in one the Company's subsidiaries.  Excluding these net charges from both years, Graphics Imaging operating profit increased $9.6 million as a result of higher sales and the acquisition of Schawk.  The Merchandising Solutions segment operating profit was $7.2 million for fiscal 2014, compared to $4.3 million for fiscal 2013.  The increase principally reflected the impact of higher sales, partially offset by a $370,000 increase in expenses related to strategic cost-structure initiatives.  Operating profit for the Marking and Fulfillment Systems segment for fiscal 2014 was $11.0 million, compared to $8.9 million a year ago.  The segment's fiscal 2014 and 2013 operating profit included expenses related to strategic cost-structure initiatives of $220,000 and $1.4 million respectively.  Excluding these expenses from both years, Marking and Fulfillment Systems segment operating profit increased $1.0 million, primarily as a result of higher sales.


21






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

Investment income for the year ended September 30, 2014 was $2.1 million, compared to $2.3 million for the year ended September 30, 2013.  Interest expense for fiscal 2014 was $12.6 million, compared to $12.9 million last year.  The decrease in interest expense reflected lower interest rates, partially offset by increased debt levels in the fourth fiscal quarter of 2014 to finance the Schawk acquisition.

Other income (deductions), net, for the year ended September 30, 2014 represented a decrease in pre-tax income of $4.5 million, compared to a decrease in pre-tax income of $3.7 million in 2013.  Other income and deductions generally include banking-related fees and the impact of currency gains or losses on certain intercompany debt.  The increase in other deductions, net, principally reflected the write-off of prior deferred bank fees upon the amendment of the Company's domestic Revolving Credit Facility in conjunction with the Schawk acquisition.

The Company's effective tax rate for fiscal 2014 was 34.6%, compared to 32.7% for fiscal 2013. The increase in the fiscal 2014 effective tax rate, compared to fiscal 2013, primarily reflected the impact of non-deductible acquisition expenses in fiscal 2014. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.

Net earnings attributable to noncontrolling interests was a deduction of $646,000 for fiscal 2014, compared to income of $116,000 in fiscal 2013.  The change related principally to higher operating income recorded by the Company's less than wholly-owned operations in the U.K.

Comparison of Fiscal 2013 and Fiscal 2012:

Sales for the year ended September 30, 2013 were $985.4 million, compared to $900.3 million for the year ended September 30, 2012.  The increase in fiscal 2013 sales principally reflected higher sales in the Funeral Home Products and Merchandising Solutions segments and the benefit of acquisitions.

In the Memorialization businesses, Cemetery Products segment sales for fiscal 2013 were $226.6 million compared to $215.9 million for fiscal 2012.  The increase primarily reflected the full year impact of the acquisition of Everlasting Granite Memorial Co., Inc. ("Everlasting Granite") in May 2012.  Sales for the Funeral Home Products segment were $242.8 million for fiscal 2013 compared to $230.9 million for fiscal 2012.  The increase principally resulted from higher unit volume and an improvement in product mix.  Sales for the Cremation segment were $48.5 million for fiscal 2013 compared to $46.0 million for fiscal 2012.  The increase principally resulted from higher sales of cremation equipment in the U.S. and the benefit of a small U.K. acquisition completed in fiscal 2012, partially offset by lower international sales.  In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2013 were $294.6 million, compared to $259.9 million for fiscal 2012.  The increase resulted principally from the acquisition of Wetzel in November 2012, partially offset by lower sales volume in the segment's principal markets due to soft economic conditions, particularly in Europe.  Sales for the Merchandising Solutions segment were $79.4 million for fiscal 2013, compared to $73.0 million for fiscal 2012.  The improvement was attributable to an increase in sales to several large customers in fiscal 2013.  Marking and Fulfillment Systems segment sales for the year ended September 30, 2013 were $93.5 million, compared to $74.6 million for fiscal 2012.  The increase resulted principally from higher sales in the U.S. market and the acquisition of Pyramid in December 2012.

Gross profit for the year ended September 30, 2013 was $356.5 million, or 36.2% of sales, compared to $336.6 million, or 37.4% of sales, for fiscal 2012.  The increase in fiscal 2013 consolidated gross profit compared to fiscal 2012 reflected higher sales and the benefit of acquisitions, partially offset by expenses of $2.3 million related to the Company's strategic cost reduction initiatives.  Gross profit for fiscal 2012 included expenses of $3.0 million related to the Company's strategic cost reduction initiatives.  The decrease in gross profit as a percentage of sales primarily reflected lower margins in the Brand Solutions businesses.


22






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

Selling and administrative expenses for the year ended September 30, 2013 were $260.7 million, or 26.5% of sales, compared to $243.0 million, or 27.0% of sales, for fiscal 2012.  The increase in selling and administrative expenses was attributable to the impacts of acquisitions and higher sales in the Funeral Home Products segment.  In addition, fiscal 2013 selling and administrative expenses included expenses of $13.6 million related to strategic cost-structure initiatives, $3.4 million related to acquisition activities, $1.8 million related to litigation-related expenses in the Funeral Home Products segment, and $2.2 million related to asset adjustments.  These expenses were partially offset by the benefit of adjustments to contingent consideration of $6.2 million and a gain of $3.0 million on the settlement of the purchase price of the remaining ownership interest in one of the Company's subsidiaries.  Selling and administrative expenses for the year ended September 30, 2012 included expenses of $5.0 million related to strategic cost-structure initiatives, $3.8 million related to acquisition activities, and $1.5 million related to asset adjustments.  These expenses were partially offset by the benefit of adjustments to contingent consideration of $3.7 million, a gain of $884,000 on the sale of a business investment and a gain of $837,000 on the settlement of the purchase price of one of the Company's subsidiaries.  The reduction in selling and administrative costs as a percent of sales was due primarily to the benefit of adjustments to contingent consideration and the Company's cost containment efforts in fiscal 2013.

Operating profit for fiscal 2013 was $95.8 million, compared to $93.6 million for fiscal 2012.  Cemetery Products segment operating profit for fiscal 2013 was $32.6 million, compared to $33.2 million for fiscal 2012.  The decrease in fiscal 2013 operating profit compared to fiscal 2012 resulted mainly from expenses related primarily to the Company's strategic cost-structure initiatives that totaled $5.9 million and $6.2 million in fiscal 2013 and fiscal 2012, respectively, and a gain of $837,000 on the settlement of the purchase price of one of the Company's subsidiaries in fiscal 2012.  Operating profit for the Funeral Home Products segment for fiscal 2013 was $37.3 million, compared to $26.5 million for fiscal 2012.  The increase in Funeral Home Products segment operating profit for fiscal 2013 primarily reflected the impact of higher sales, the benefit of improved production and distribution efficiencies, and the $6.3 million benefit of adjustments to contingent consideration. These increases were partially offset by expenses of $3.0 million related to strategic cost-structure initiatives and litigation expenses $1.8 million related to a legal dispute.  Fiscal 2012 also included $3.0 million benefit of an adjustment to contingent consideration, partially offset by expenses of $1.7 million related to strategic cost-structure initiatives.  Cremation segment operating profit for the year ended September 30, 2013 was $3.1 million, compared to $3.9 million for fiscal 2012.  Fiscal 2013 operating profit reflected the impact of higher sales in the U.S. market, partially offset by lower sales in the European and U.K. markets.  In addition, Cremation segment fiscal 2013 operating profit included expenses of $1.1 million related primarily to strategic cost-structure initiatives.  Cremation segment fiscal 2012 operating profit included expenses of $326,000 related to strategic cost-structure initiatives.  Graphics Imaging segment operating profit for fiscal 2013 was $9.7 million, compared to $14.8 million for 2012.  The decrease in fiscal 2013 reflected lower sales (excluding the Wetzel acquisition), expenses of $3.2 million related to acquisition activities and $4.5 million related to strategic cost-structure initiatives and a $1.6 million impairment charge related to the carrying value of a trade name.  The decreases were partially offset by a gain on the settlement of the purchase price of the remaining ownership interest in one of the Company's subsidiaries.  Graphics Imaging segment operating profit in fiscal 2012 included expenses of $3.8 million related to acquisition activities and $1.3 million related to strategic cost-structure initiatives, partially offset by a $740,000 benefit from an adjustment to contingent consideration and a gain of $884,000 on the sale of a business investment.  The Merchandising Solutions segment operating profit was $4.3 million for fiscal 2013, compared to $5.1 million for fiscal 2012.  The decrease principally reflected the impact of higher sales, offset by an increase in employee-related costs and expenses of $841,000 related to strategic cost-structure initiatives.  Operating profit for the Marking and Fulfillment Systems segment for fiscal 2013 was $8.9 million, compared to $10.1 million for fiscal 2012.  The decrease in Marking and Fulfillment Systems segment operating profit principally reflected the impact of expenses of $1.4 million related to strategic cost-structure initiatives, partially offset by the benefit of the Pyramid acquisition and higher sales in the U.S.

Investment income for the year ended September 30, 2013 was $2.3 million, compared to $3.9 million for the year ended September 30, 2012.  The decrease principally reflected lower rates of return on investments held in trust for certain of the Company's benefit plans.  Interest expense for fiscal 2013 was $12.9 million, compared to $11.5 million for fiscal 2012.  The increase in interest expense reflected higher average debt levels.
23






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

Other income (deductions), net, for the year ended September 30, 2013 represented a decrease in pre-tax income of $3.7 million, compared to a decrease in pre-tax income of $2.1 million in 2012.  Other income and deductions generally include banking-related fees and the impact of currency gains or losses on certain intercompany debt.

The Company's effective tax rate for fiscal 2013 was 32.7%, compared to 34.2% for fiscal 2013. Fiscal 2012 included the favorable impact of adjustments totaling $528,000 in income tax expense primarily related to changes in the estimated tax accruals for open tax periods.  Excluding this adjustment from fiscal 2012, the Company's effective tax rate was 34.8%.  The decrease in the fiscal 2013 effective tax rate, compared to fiscal 2012 primarily reflected the impact of the Company's European tax structure initiatives, including the fiscal 2013 benefit of a European tax loss carryback. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.

Net earnings attributable to noncontrolling interest represented income of $116,000 for fiscal 2013, compared to income of $639,000 in fiscal 2012.  The decrease related principally to higher operating income recorded by the Company's Turkish operation in fiscal 2013.

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $92.4 million for the year ended September 30, 2014, compared to $109.3 million and $83.3 million for fiscal 2013 and 2012, respectively.  Operating cash flow for fiscal 2014 principally included net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by an increase in working capital items and a cash contribution of $3.0 million to the Company's principal pension plan.  Operating cash flow for fiscal 2013 principally included net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by an increase in working capital items (primarily accounts receivable and inventory) and a cash contribution of $2.5 million to the Company's principal pension plan.  Operating cash flow for fiscal 2012 principally included net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by an increase in working capital items (primarily accounts receivable and inventory) and a cash contribution of $5.0 million to the Company's principal pension plan.

Cash used in investing activities was $411.1 million for the year ended September 30, 2014, compared to $98.6 million and $45.3 million for fiscal years 2013 and 2012, respectively.  Investing activities for fiscal 2014 primarily included payments (net of cash acquired) of $382.1 million, primarily for the Schawk acquisition, and $29.2 million for capital expenditures.  Investing activities for fiscal 2013 primarily included payments (net of cash acquired) of $74.0 million for acquisitions and $24.9 million for capital expenditures. Investing activities for fiscal 2012 primarily reflected capital expenditures of $33.2 million and payments (net of cash acquired) of $12.5 million for acquisitions.

Capital expenditures were $29.2 million for the year ended September 30, 2014, compared to $24.9 million and $33.2 million for fiscal 2013 and 2012, respectively.  Capital expenditures in fiscal 2012 were higher due to new investments in gravure equipment in Germany and Turkey and investments in information technology systems.  Capital expenditures in each of the last three fiscal years reflected reinvestments in the Company's business segments and were made primarily for the purchase of new manufacturing machinery, equipment and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements.  Capital expenditures for the last three fiscal years were primarily financed through operating cash.

Capital spending for property, plant and equipment has averaged $29.1 million for the last three fiscal years.  Capital spending for fiscal 2015 is currently expected to be approximately $60.0 million.  The increase in fiscal 2015 expected capital spending reflects the addition of the historical capital requirements of Schawk, and additional information technology capital spending related to the Company's systems integration activities arising from the Schawk acquisition.  The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.
24






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

Cash provided by financing activities for the year ended September 30, 2014 was $338.1 million, reflecting proceeds, net of repayments, on long-term debt of $357.3 million, purchases of treasury stock of $9.9 million, payment of contingent consideration of $3.7 million, proceeds from the sale of treasury stock (stock option exercises) of $8.0 million and payment of dividends to the Company's shareholders of $13.4 million ($0.46 per share).  Cash used in financing activities for the year ended September 30, 2013 was $10.8 million, reflecting proceeds, net of repayments, on long-term debt of $33.2 million, purchases of treasury stock of $21.6 million, payment of contingent consideration of $11.3 million and payment of dividends to the Company's shareholders of $11.3 million ($0.41 per share).  Cash used in financing activities for the year ended September 30, 2012 was $41.0 million, reflecting purchases of treasury stock of $31.0 million, and payment of dividends to the Company's shareholders of $10.3 million ($0.37 per share).

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions.  In connection with the acquisition of Schawk in July 2014, the Company amended certain terms of the Revolving Credit Facility to increase the maximum amount of borrowings available under the facility from $500.0 million to $900.0 million.  Borrowings under the amended facility bear interest at LIBOR plus a factor ranging from .75% to 2.00% (1.75% at September 30, 2014) based on the Company's leverage ratio.  The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization).  The Company is required to pay an annual commitment fee ranging from .15% to .25% (based on the Company's leverage ratio) of the unused portion of the facility.

The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios.  A portion of the facility (not to exceed $30.0 million) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at September 30, 2014 and 2013 were $680.0 million and $305.0 million, respectively.  The weighted-average interest rate on outstanding borrowings at September 30, 2014 and 2013 was 2.53% and 2.81%, respectively.

The Company has entered into the following interest rate swaps:

Effective Date
Amount
Fixed Interest Rate
Interest Rate Spread at September 30, 2014
 
Maturity Date
October 2011
  $25 million
1.67%
1.75%
October 2015
November 2011
  25 million
2.13%
1.75%
November 2014
March 2012
  25 million
2.44%
1.75%
March 2015
June 2012
  40 million
1.88%
1.75%
June 2022
August 2012
  35 million
1.74%
1.75%
June 2022
September 2012
  25 million
3.03%
1.75%
December 2015
September 2012
  25 million
1.24%
1.75%
March 2017
November 2012
  25 million
1.33%
1.75%
November 2015
May 2014
  25 million
1.35%
1.75%
May 2018

The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility which are considered probable of occurring.  Based on the Company's assessment, all the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss, net of unrealized gains, of $330,000 ($201,000 after tax) and $908,000 ($554,000 after tax) at September 30, 2014 and 2013, respectively, that is included in equity as part of accumulated other comprehensive income.  Assuming market rates remain constant with the rates at September 30, 2014, a loss (net of tax) of approximately $905,000 included in accumulated other comprehensive income is expected to be recognized in earnings as interest expense over the next twelve months.
25






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

The Company, through certain of its European subsidiaries, has a credit facility with a European bank.  The maximum amount of borrowings available under this facility is 25.0 million Euros ($31.6 million).  Outstanding borrowings under the credit facility totaled 17.5 million Euros ($22.1 million) and 22.5 million Euros ($30.4 million) at September 30, 2014 and 2013, respectively.  The weighted-average interest rate on outstanding borrowings under the facility at September 30, 2014 and 2013 was 1.35% and 1.37%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG ("Saueressig"), has several loans with various European banks.  Outstanding borrowings on these loans totaled 1.2 million Euros ($1.6 million) and 1.7 million Euros ($2.3 million) at September 30, 2014 and 2013, respectively.  The weighted-average interest rate on outstanding borrowings of Saueressig at September 30, 2014 and 2013 was 3.96% and 4.04%, respectively.

The Company, through its German subsidiary, Wetzel, has several loans with various European banks.  Outstanding borrowings under these loans totaled 2.9 million Euros ($3.6 million) and 7.4 million Euros ($10.0 million) at September 30, 2014 and 2013, respectively.  The weighted average interest rate on outstanding borrowings of Wetzel at September 30, 2014 and 2013 was 5.67% and 7.48%, respectively.

The Company, through its wholly-owned subsidiary Matthews International S.p.A., has several loans with various Italian banks.  Outstanding borrowings on these loans totaled 5.5 million Euros ($6.9 million) and 5.1 million Euros ($6.9 million) at September 30, 2014 and 2013, respectively.  Matthews International S.p.A. also has three lines of credit totaling 11.3 million Euros ($14.3 million) with the same Italian banks.  Outstanding borrowings on these lines were 4.8 million Euros ($6.1 million) and 5.6 million Euros ($7.6 million) at September 30, 2014 and 2013, respectively.  The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at September 30, 2014 and 2013 was 3.15% and 3.16%, respectively.

In September 2014, a claim seeking to draw upon a letter of credit issued by the Company approximating $14.0 million was filed with respect to a project for a customer.  Management has assessed the claim to be without merit and, based on information available as of this filing, expects that the ultimate resolution of this matter will not have a material adverse effect on Matthews' financial condition, results of operations or cash flows.

The Company has a stock repurchase program.  Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews' common stock under the program, of which 965,881 shares remain available for repurchase as of September 30, 2014.  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 of the Company's Restated Articles of Incorporation.

At September 30, 2014, approximately $48.0 million of cash and cash equivalents were held by international subsidiaries whose undistributed earnings are considered permanently reinvested. The Company's intent is to reinvest these funds in our international operations and current plans do not demonstrate a need to repatriate them to fund U.S. operations. If the Company decides at a later date to repatriate these funds to the U.S., it would be required to provide taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid.

Consolidated working capital was $320.6 million at September 30, 2014, compared to $219.2 million at September 30, 2013.  The increase in working capital at September 30, 2014 primarily reflected the acquisition of Schawk.  Cash and cash equivalents were $75.6 million at September 30, 2014, compared to $59.0 million at September 30, 2013.  The Company's current ratio was 2.3 and 2.2 at September 30, 2014 and 2013, respectively.
26






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

ENVIRONMENTAL MATTERS:

The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment.  These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations.  As such, the Company has developed environmental, health, and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.

The Company is party to various environmental matters.  These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites.  The Company is currently performing environmental assessments and remediation at these sites, as appropriate.

At September 30, 2014, an accrual of approximately $4.9 million had been recorded for environmental remediation (of which $1.1 million was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations.  The accrual, which reflects previously established reserves assumed with the acquisition of York and additional reserves recorded as a purchase accounting adjustment, does not consider the effects of inflation and anticipated expenditures are not discounted to their present value.  Changes in the accrued environmental remediation obligation from the prior fiscal year reflect payments charged against the accrual.

While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.

ACQUISITIONS:

Fiscal 2014

On July 29, 2014, the Company acquired Schawk, a leading global brand development, activation and brand deployment company, headquartered in Des Plaines, Illinois.    Under the terms of the transaction, Schawk shareholders received $11.80 cash and 0.20582 shares of Matthews' common stock for each Schawk share held.  Based on the closing price of Matthews' stock on July 28, 2014, the transaction represented an implied price of $20.74 per share and a total enterprise value (which included net outstanding debt, net of cash acquired) of $616.7 million.  Schawk provides comprehensive brand development and brand deployment services to clients primarily in the consumer packaged goods, retail and life sciences markets.  Schawk creates and sells its clients' brands, produces brand assets and protects brand equities to help drive brand performance.  Schawk currently delivers its services through more than 155 locations in over 20 countries across North and South America, Europe, Asia and Australia.

Fiscal 2013:

Acquisition spending, net of cash acquired, during the year ended September 30, 2013 totaled $74.0 million.  The acquisitions were not individually significant to the Company's consolidated financial position or results of operations, and primarily included the following:

In March 2013, the Company completed the purchase of the remaining 38.5% interest in Kroma, completing the option arrangement in connection with the July 2011 acquisition of a 61.5% interest in Kroma.

In December 2012, the Company acquired Pyramid, a provider of warehouse control systems and conveyor control solutions for distribution centers.  The acquisition is designed to expand Matthews' fulfillment products and services in the warehouse management market.  The initial purchase price for the transaction was $26.2 million, plus additional consideration of $3.7 million paid in fiscal 2014 based on operating results. 
27






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

In November 2012, the Company acquired Wetzel, a leading European provider of pre-press services and gravure printing forms, with manufacturing operations in Germany and Poland.  Wetzel's products and services are sold primary within Europe, and the acquisition is designed to expand Matthews' products and services in the global graphics imaging market.  The purchase price for Wetzel was 42.6 million Euros ($54.7 million) on a cash-free, debt-free basis.

The Company has completed the allocation of purchase price for all fiscal 2013 acquisitions.

Fiscal 2012:

In May 2012, the Company acquired Everlasting Granite, a supplier of granite memorials, columbariums and private mausoleum estates. The transaction is intended to expand the Company's presence and product breadth in the granite memorial business.

FORWARD-LOOKING INFORMATION:

Matthews has a three-pronged strategy to attain annual growth in earnings per share. This strategy 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), acquisitions and share repurchases under the Company's stock repurchase program (see "Liquidity and Capital Resources").

With respect to fiscal 2015, the Company expects to devote a significant level of effort to the integration of Schawk.  Due to the size of this acquisition and the projected synergy benefits from integration, this effort is anticipated to continue for an extended period of time.  The costs associated with this integration, and acquisition-related step-up expense, will impact the Company's operating results for fiscal 2015.  Consistent with its practice, the Company plans to identify these costs on a quarterly basis as incurred.
 
Beginning October 1, 2014, the Company realigned its operations into three reporting segments, SGK Brand Solutions, Memorialization and Industrial. The SGK Brand Solutions segment is comprised of the graphics imaging business, including Schawk, and the merchandising solutions operations. The Memorialization segment is comprised of the Company's cemetery products, funeral home products and cremation operations. The Industrial segment is comprised of the Company's marking and automation products and fulfillment systems.
 
SUBSEQUENT EVENT:
 
On November 17, 2014, the Company entered into a Release, Settlement Agreement, and Covenant Not To Sue (the "Settlement Agreement"), which concludes litigation arising out of allegations initiated against Harry Pontone, Scott Pontone, Pontone Casket Company and Batesville Casket Company ("Batesville"). Under the terms of the Settlement Agreement, Batesville will pay $17.0 million in one lump sum payment to the Company and an additional $1.75 million for attorney fees of Harry and Scott Pontone, for a total settlement value of $18.75 million. The Settlement Agreement contains customary mutual releases of claims.

CRITICAL ACCOUNTING POLICIES:

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

The Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.  Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition.  The following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's consolidated financial statements for the year ended September 30, 2014.
 
 
28

 

 
ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
 
Trade Receivables and Allowance for Doubtful Accounts:

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days past due. The allowance for doubtful accounts is based on an evaluation of specific customer accounts for which available facts and circumstances indicate collectability may be uncertain.  In addition, the allowance includes a reserve for all customers based on historical collection experience.

Long-Lived Assets:

Property, plant and equipment, goodwill and other intangible assets are carried at cost.  Depreciation on property, plant and equipment is computed primarily on the straight-line method over the estimated useful lives of the assets.  Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate.  An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value which is based on a discounted cash flow analysis.

Goodwill is not amortized, but is subject to periodic review for impairment.  In general, when the carrying value of a reporting unit exceeds its implied fair value, an impairment loss must be recognized.  For purposes of testing for impairment, the Company uses a combination of valuation techniques, including discounted cash flows.  Intangible assets are amortized over their estimated useful lives, unless such lives are considered to be indefinite.  A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets.  The Company performed its annual impairment reviews in the second quarters of fiscal 2014, 2013 and 2012 and determined that no adjustments to the carrying values of goodwill were necessary at those times.  Recent economic conditions in Europe have unfavorably impacted the operating results of the Graphics Imaging business.  For the Graphics Imaging reporting unit, the estimated fair value exceeded its carrying value by less than 10%, resulting in no goodwill impairment for the unit.  While the Graphics Imaging reporting unit passed the first step of the impairment test, if its operating profits or another significant assumption were to deteriorate in the future, it could adversely affect the estimated fair value of the reporting unit.  Factors that could have a negative impact on the estimated fair value of the Graphics Imaging reporting unit include a further delay in the recovery of the European market, continued pricing pressure, declines in expected volumes, and an increase in discount rates.  If the Company is unsuccessful in its plans to recover the profitability of this business, the estimated fair value could decline and lead to a potential goodwill impairment in the future.

The Carrying amount of trade names with indefinite lives as of September 30, 2014 and 2013 totaled $142.5 million and $22.9 million, respectively.  The carrying amount as of September 30, 2014 includes $119.7 million related to the acquisition of Schawk in July 2014.  These trade names are tested for impairment annually in the second quarter.  Matthews performed a quantitative impairment evaluation of its trade names for 2014, and the test indicated the trade names were not impaired.

Share-Based Payment:

Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period.  A binomial lattice model is utilized to determine the fair value of awards.

Pension and Postretirement Benefits:

Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations.  Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost.
 
 
29


 
ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
 
The Company's principal pension plan maintains a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company's pension board.  Based on an analysis of the historical performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for these assets at 7.75% at September 30, 2014 for purposes of determining pension cost and funded status.   The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices as of September 30, 2014 and September 30, 2013 for the fiscal year end valuation. The discount rate was 4.25%, 5.00% and 4.00% in fiscal 2014, 2013 and 2012, respectively.
 
Environmental:

Environmental liabilities are recorded when the Company's obligation is probable and reasonably estimable.  Accruals for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value.

Income Taxes:

Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.  Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.  Deferred income taxes for U.S. tax purposes have not been provided on certain undistributed earnings of foreign subsidiaries, as such earnings are considered to be reinvested indefinitely.  To the extent earnings are expected to be returned in the foreseeable future, the associated deferred tax liabilities are provided.  The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable.

Revenue Recognition:

Revenues are generally recognized when title, ownership, and risk of loss pass to the customer, which is typically at the time of product shipment and is based on the applicable shipping terms.  The shipping terms vary across all businesses and depend on the product and customer.

For pre-need sales of memorials and vases, revenue is recognized when the memorial has been manufactured to the customer's specifications (e.g., name and birth date), title has been transferred to the customer and the memorial and vase are placed in storage for future delivery.  A liability has been recorded for the estimated costs of finishing pre-need bronze memorials and vases that have been manufactured and placed in storage prior to July 1, 2003 for future delivery.  Beginning July 1, 2003, revenue is deferred by the Company on the portion of pre-need sales attributable to the final finishing and storage of the pre-need merchandise.  Deferred revenue for final finishing is recognized at the time the pre-need merchandise is finished and shipped to the customer.  Deferred revenue related to storage is recognized on a straight-line basis over the estimated average time that pre-need merchandise is held in storage.  At September 30, 2014, the Company held 319,134 memorials and 224,204 vases in its storage facilities under the pre-need sales program.

Revenues from mausoleum construction and significant engineering projects, including certain cremation units, are recognized under the percentage-of-completion method of accounting using the cost-to-cost basis for measuring progress toward completion.  As work is performed under contracts, estimates of the costs to complete are regularly reviewed and updated.  As changes in estimates of total costs at completion on projects are identified, appropriate earnings adjustments are recorded using the cumulative catch-up method.  Provisions for estimated losses on uncompleted contracts are recorded during the period in which such losses become evident.

Revenues from brand development and deployment services are recognized using the completed performance method, which is typically when the customer receives the final deliverable.  For arrangements with customer acceptance provisions, revenue is recognized when the customer approves the final deliverable.

30






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

LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at September 30, 2014, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

   
Payments due in fiscal year:
 
                   
After
 
   
Total
   
2015
   
2016 to 2017
   
2018 to 2019
   
2020
 
Contractual Cash Obligations:
 
(Dollar amounts in thousands)
 
Revolving credit facility
 
$
702,055
   
$
-
   
$
22,055
   
$
680,000
   
$
-
 
Notes payable to banks
   
13,315
     
6,674
     
6,115
     
526
     
-
 
Short-term borrowings
   
6,410
     
6,410
     
-
     
-
     
-
 
Capital lease obligations
   
9,167
     
2,400
     
2,154
     
773
     
3,840
 
Pension withdrawal liability
   
38,645
     
1,973
     
3,946
     
3,946
     
28,780
 
Non-cancelable operating leases
   
65,067
     
21,410
     
27,199
     
11,894
     
4,564
 
Total contractual cash obligations
 
$
834,659
   
$
38,867
   
$
61,469
   
$
697,139
   
$
37,184
 

A significant portion of the loans included in the table above bear interest at variable rates.  At September 30, 2014, the weighted-average interest rate was 2.53% on the Company's domestic Revolving Credit Facility, 1.35% on the credit facility through the Company's European subsidiaries, 3.96% on bank loans to its wholly-owned subsidiary, Saueressig, 5.67% on bank loans to its wholly-owned subsidiary, Wetzel, and 3.15% on bank loans to the Company's wholly-owned subsidiary, Matthews International S.p.A.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. Under I.R.S. regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2014, however, in fiscal 2014, the Company made a contribution of $3.0 million to its principal retirement plan.

The Company is not required to make any significant cash contributions to its principal retirement plan in fiscal 2015.  The Company estimates that benefit payments to participants under its retirement plans (including its supplemental retirement plan) and postretirement benefit payments will be approximately $7.7 million and $1.0 million, respectively, in fiscal 2015.  The amounts are expected to increase incrementally each year thereafter, to $9.6 million and $1.3 million, respectively, in 2019.  The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities.  If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary.  As of September 30, 2014, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $4.3 million.  The timing of potential future payments related to the unrecognized tax benefits is not presently determinable.

INFLATION:

Except for the volatility in the cost of bronze ingot, steel, wood and fuel (see "Results of Operations"), inflation has not had a material impact on the Company over the past three years nor is it anticipated to have a material impact for the foreseeable future.

31






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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In June 2014, the Financial Accounting Standards Board ("FASB") issued new guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period.  This guidance is effective for Matthews beginning January 1, 2016 and will not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers: Topic 606". This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. This standard is effective for Matthews beginning October 1, 2017. The Company is in the process of assessing the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2014, the FASB issued new guidance on accounting for certain receive-variable, pay-fixed interest rate swaps.  This guidance provides companies with a practical expedient to qualify for cash flow hedge accounting.  The guidance is effective for Matthews beginning in fiscal 2015, and will not have a material impact on the Company's consolidated financial statements.

In July 2013, the FASB issued new guidance on the presentation in the financial statements of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance takes into account these losses and carryfowards as well as the intended or likelihood of use of the unrecognized tax benefit in determining the balance sheet classification as an asset or liability. This guidance was effective for Matthews beginning January 1, 2014 and did not have a material impact.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The following discussion about the Company's market risk involves forward-looking statements.  Actual results could differ materially from those projected in the forward-looking statements.  The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates.  The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.

Interest Rates - The Company's most significant long-term debt instrument is the domestic Revolving Credit Facility, which bears interest at variable rates based on LIBOR.

The Company has entered into the following interest rate swaps:
Effective Date
Amount
Fixed Interest Rate
Interest Rate Spread at September 30, 2014
 
Maturity Date
October 2011
  $25 million
1.67%
1.75%
October 2015
November 2011
  25 million
2.13%
1.75%
November 2014
March 2012
  25 million
2.44%
1.75%
March 2015
June 2012
  40 million
1.88%
1.75%
June 2022
August 2012
  35 million
1.74%
1.75%
June 2022
September 2012
  25 million
3.03%
1.75%
December 2015
September 2012
  25 million
1.24%
1.75%
March 2017
November 2012
  25 million
1.33%
1.75%
November 2015
May 2014
  25 million
1.35%
1.75%
May 2018


The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility which are considered probable of occurring.  Based on the Company's assessment, all the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.
32






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, (continued)

The fair value of the interest rate swaps reflected an unrealized gain, net of unrealized losses, of $330,000 ($201,000 after tax) at September 30, 2014 that is included in equity as part of accumulated other comprehensive income.  A decrease of 10% in market interest rates (e.g. a decrease from 5.0% to 4.5%) would result in an increase of approximately $500,000 in the fair value liability of the interest rate swaps.

Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to the purchases of certain materials and supplies (such as bronze ingot, steel, fuel and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available.  In addition, based on competitive market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar arrangements, the Company's ability to immediately increase the price of its products to offset the increased costs may be limited.

Foreign Currency Exchange Rates - The Company is subject to changes in various foreign currency exchange rates, primarily including the Euro, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, Chinese Yuan, Hong Kong Dollar, Polish Zloty, Turkish Lira, Indian Rupee and Malaysian Ringgit in the conversion from local currencies to the U.S. dollar of the reported financial position and operating results of its non-U.S. based subsidiaries.  An adverse change (strengthening dollar) of 10% in exchange rates would have resulted in a decrease in reported sales of $45.5 million and a decrease in reported operating income of $1.2 million for the year ended September 30, 2014.


Actuarial Assumptions - The most significant actuarial assumptions affecting pension expense and pension obligations include the valuation of retirement plan assets, the discount rate and the estimated return on plan assets.  The estimated return on plan assets is currently based upon projections provided by the Company's independent investment advisor, considering the investment policy of the plan and the plan's asset allocation.  The fair value of plan assets and discount rate are "point-in-time" measures, and the recent volatility of the debt and equity markets makes estimating future changes in fair value of plan assets and discount rates more challenging.  The following table summarizes the impact on the September 30, 2014 actuarial valuations of changes in the primary assumptions affecting the Company's retirement plans and supplemental retirement plan.

   
Impact of Changes in Actuarial Assumptions
 
   
Change in Discount Rate
   
Change in Expected Return
   
Change in Market Value of Assets
 
     
+1%
 
   
-1%
 
   
+1%
 
   
-1%
 
   
+5%
 
   
-5%
 
   
(Dollar amounts in thousands)
 
Increase (decrease) in net benefit cost
 
 
$   (3,399)
 
 
 
$    4,319
   
 
$(1,286)
 
 
 
$1,286
   
 
$(1,320)
 
 
 
$1,320
 
                                                 
Increase (decrease) in projected benefit obligation
   
   (27,816)
 
   
    35,433
     
-
     
-
     
-
     
-
 
                                                 
Increase (decrease) in funded status
   
    27,816
     
    (35,433)
 
   
-
     
-
     
   6,588
     
  (6,588)
 





33





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Description
 
Pages
     
Management's Report to Shareholders
 
35
     
Report of Independent Registered Public Accounting Firm
 
36-37
     
Financial Statements:
   
     
     Consolidated Balance Sheets as of September 30, 2014 and 2013
 
38-39
     
     Consolidated Statements of Income for the years ended September 30, 2014, 2013 and 2012
 
40
     
     Consolidated Statements of Comprehensive Income for the years ended September 30, 2014, 2013 and 2012
 
41
     
     Consolidated Statements of Shareholders' Equity for the years ended September 30, 2014, 2013 and 2012
 
42
     
     Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013 and 2012
 
43
     
     Notes to Consolidated Financial Statements
 
44-72
     
Supplementary Financial Information (unaudited)
 
73
     
Financial Statement Schedule – Schedule II-Valuation and Qualifying
   
     Accounts for the years ended September 30, 2014, 2013 and 2012
 
74

34






MANAGEMENT'S REPORT TO SHAREHOLDERS

To the Shareholders and Board of Directors of
Matthews International Corporation:

Management's Report on Financial Statements
 
The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the "Company") were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial statements.

Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Company's internal controls over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Schawk, Inc. and its subsidiaries (collectively, "Schawk") have been excluded from management's assessment of internal control over financial reporting as of September 30, 2014, because it was acquired by the Company in a purchase business combination in July 2014.  Schawk is a 100% owned subsidiary whose total assets and total sales represent approximately 9% and 7%, respectively, of the related consolidated financial statement amounts of the Company as of and for the year ended September 30, 2014.

Based on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2014, based on criteria in Internal Control – Integrated Framework (1992) issued by the COSO. The effectiveness of the Company's internal control over financial reporting as of September 30, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
 
Management's Certifications
 
The certifications of the Company's Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in the Company's Form 10-K.




35





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
   Matthews International Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Matthews International Corporation and its subsidiaries at September 30, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2014 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 8.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
36






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)


As described in "Management's Report to Shareholders", management has excluded Schawk, Inc. ("Schawk") from its assessment of internal control over financial reporting as of September 30, 2014 because it was acquired by the Company in a purchase business combination in July 2014.  We have also excluded Schawk from our audit of internal control over financial reporting.  Schawk is a 100% owned subsidiary whose total assets and total sales represent approximately 9% and 7%, respectively, of the related consolidated financial statement amounts of the Company as of and for the year ended September 30, 2014.

/s/PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
November 25, 2014
37






MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)


ASSETS
 
2014
   
2013
 
Current assets:
       
Cash and cash equivalents
 
$
75,604
   
$
58,959
 
Accounts receivable, net of allowance for doubtful
accounts of $10,937 and $10,009, respectively
   
282,730
     
177,623
 
Inventories
   
152,842
     
129,811
 
Deferred income taxes
   
13,283
     
9,826
 
Other current assets
   
49,456
     
30,736
 
                 
Total current assets
   
573,915
     
406,955
 
                 
Investments
   
23,130
     
22,288
 
                 
Property, plant and equipment, net
   
209,315
     
180,731
 
                 
Deferred income taxes
   
4,019
     
1,871
 
                 
Other assets
   
20,027
     
14,402
 
                 
Goodwill
   
819,467
     
524,551
 
                 
Other intangible assets, net
   
381,862
     
65,102
 
                 
Total assets
 
$
2,031,735
   
$
1,215,900
 


The accompanying notes are an integral part of these consolidated financial statements.
38





MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
September 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)


LIABILITIES AND SHAREHOLDERS' EQUITY
 
2014
   
2013
 
Current liabilities:
       
Long-term debt, current maturities
 
$
15,228
   
$
23,587
 
Trade accounts payable
   
72,040
     
45,232
 
Accrued compensation
   
60,690
     
41,916
 
Accrued income taxes
   
7,079
     
5,910
 
Deferred income taxes
   
235
     
-
 
Other current liabilities
   
98,011
     
71,139
 
Total current liabilities
   
253,283
     
187,784
 
                 
Long-term debt
   
714,027
     
351,068
 
                 
Accrued pension
   
78,550
     
61,642
 
                 
Postretirement benefits
   
20,351
     
17,956
 
                 
Deferred income taxes
   
129,335
     
20,332
 
                 
Other liabilities
   
53,296
     
24,188
 
Total liabilities
   
1,248,842
     
662,970
 
                 
Shareholders' equity-Matthews:
               
Class A common stock, $1.00 par value; authorized
70,000,000 shares; 36,333,992 shares issued
   
36,334
     
36,334
 
Preferred stock, $100 par value, authorized 10,000 shares, none issued
   
-
     
-
 
Additional paid-in capital
   
113,225
     
47,315
 
Retained earnings
   
806,040
     
775,762
 
Accumulated other comprehensive loss
   
(66,817
)
   
(26,940
)
Treasury stock, 3,454,127 and 9,083,910 shares, respectively, at cost
   
(109,950
)
   
(283,006
)
Total shareholders' equity-Matthews
   
778,832
     
549,465
 
Noncontrolling interests
   
4,061
     
3,465
 
Total shareholders' equity
   
782,893
     
552,930
 
                 
Total liabilities and shareholders' equity
 
$
2,031,735
   
$
1,215,900
 


The accompanying notes are an integral part of these consolidated financial statements.
39





MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 2014, 2013 and 2012
(Dollar amounts in thousands, except per share data)


   
2014
   
2013
   
2012
 
Sales
 
$
1,106,597
   
$
985,357
   
$
900,317
 
Cost of sales
   
(714,101
)
   
(628,839
)
   
(563,747
)
                         
Gross profit
   
392,496
     
356,518
     
336,570
 
                         
Selling expense
   
(117,905
)
   
(105,963
)
   
(103,659
)
Administrative expense
   
(191,700
)
   
(154,763
)
   
(139,334
)
                         
Operating profit
   
82,891
     
95,792
     
93,577
 
                         
Investment income
   
2,063
     
2,284
     
3,891
 
Interest expense
   
(12,628
)
   
(12,925
)
   
(11,476
)
Other income (deductions), net
   
(4,530
)
   
(3,715
)
   
(2,071
)
                         
Income before income taxes
   
67,796
     
81,436
     
83,921
 
                         
Income taxes
   
(23,476
)
   
(26,664
)
   
(28,717
)
                         
Net income
   
44,320
     
54,772
     
55,204
 
                         
Net (income) loss attributable to noncontrolling interests
   
(646
)
   
116
     
639
 
                         
Net income attributable to Matthews shareholders
 
$
43,674
   
$
54,888
   
$
55,843
 
                         
Earnings per share attributable to Matthews shareholders:
                       
                         
Basic
 
 
$1.54
   
 
$1.99
   
 
$1.98
 
                         
Diluted
 
 
$1.53
   
 
$1.98
   
 
$1.98
 


The accompanying notes are an integral part of these consolidated financial statements.
40






MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended September 30, 2014, 2013 and 2012
(Dollar amounts in thousands, except per share data)

   
Year Ended September 30, 2012
 
   
Matthews
   
Noncontrolling Interest
   
Total
 
             
Net income (loss)
 
$
55,843
   
$
(639
)
 
$
55,204
 
Other comprehensive income (loss), net of tax:
                       
   Foreign currency translation adjustment
   
(1,895
)
   
(29
)
   
(1,924
)
   Pension plans and other postretirement benefits
   
(3,327
)
   
-
     
(3,327
)
Unrecognized gain (loss) on derivatives:
                       
   Net change from periodic revaluation
   
(3,288
)
   
-
     
(3,288
)
   Net amount reclassified to earnings
   
2,085
     
-
     
2,085
 
      Net change in unrecognized gain (loss) on
        derivatives
   
(1,203
)
   
-
     
(1,203
)
Other comprehensive income (loss), net of tax
   
(6,425
)
   
(29
)
   
(6,454
)
Comprehensive income (loss)
 
$
49,418
   
$
(668
)
 
$
48,750
 
                         
   
Year Ended September 30, 2013
 
   
Matthews
   
Noncontrolling Interest
   
Total
 
                         
Net income (loss)
 
$
54,888
   
$
(116
)
 
$
54,772
 
Other comprehensive income (loss), net of tax:
                       
   Foreign currency translation adjustment
   
3,779
     
82
     
3,861
 
   Pension plans and other postretirement benefits
   
29,347
     
-
     
29,347
 
Unrecognized gain (loss) on derivatives:
                       
   Net change from periodic revaluation
   
2,474
     
-
     
2,474
 
   Net amount reclassified to earnings
   
2,543
     
-
     
2,543
 
      Net change in unrecognized gain (loss) on
        derivatives
   
5,017
     
-
     
5,017
 
Other comprehensive income (loss), net of tax
   
38,143
     
82
     
38,225
 
Comprehensive income (loss)
 
$
93,031
   
$
(34
)
 
$
92,997
 
                         
   
Year Ended September 30, 2014
 
   
Matthews
   
Noncontrolling Interest
   
Total
 
                         
Net income (loss)
 
$
43,674
   
$
646
   
$
44,320
 
Other comprehensive income (loss), net of tax:
                       
   Foreign currency translation adjustment
   
(31,081
)
   
115
     
(30,966
)
   Pension plans and other postretirement benefits
   
(9,551
)
   
-
     
(9,551
)
Unrecognized gain (loss) on derivatives:
                       
   Net change from periodic revaluation
   
(1,879
)
   
-
     
(1,879
)
   Net amount reclassified to earnings
   
2,634
     
-
     
2,634
 
      Net change in unrecognized gain (loss) on
        derivatives
   
755
     
-
     
755
 
Other comprehensive income (loss), net of tax
   
(39,877
)
   
115
     
(39,762
)
Comprehensive income (loss)
 
$
3,797
   
$
761
   
$
4,558
 
                         
The accompanying notes are an integral part of these consolidated financial statements.
41






MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2014, 2013 and 2012
(Dollar amounts in thousands, except per share data)

               
Accumulated
             
               
Other
             
       
Additional
       
Comprehensive
       
Non-
     
   
Common
   
Paid-in
   
Retained
   
Income (Loss)
   
Treasury
   
controlling
     
   
Stock
   
Capital
   
Earnings
   
(net of tax)
   
Stock
   
interests
   
Total
 
Balance, September 30, 2011
 
$
36,334
   
$
48,554
   
$
681,658
   
$
(58,658
)
 
$
(243,246
)
 
$
3,451
   
$
468,093
 
Net income
   
-
     
-
     
55,843
     
-
     
-
     
(639
)
   
55,204
 
Minimum pension liability
   
-
     
-
     
-
     
(3,327
)
   
-
     
-
     
(3,327
)
Translation adjustment
   
-
     
-
     
-
     
(1,895
)
   
-
     
(29
)
   
(1,924
)
Fair value of derivatives
   
-
     
-
     
-
     
(1,203
)
   
-
     
-
     
(1,203
)
Total comprehensive income
                                                   
48,750
 
Stock-based compensation
   
-
     
5,472
     
-
     
-
     
-
     
-
     
5,472
 
Purchase of 1,015,879 shares
                                                       
  of treasury stock
   
-
     
-
     
-
     
-
     
(31,017
)
   
-
     
(31,017
)
Issuance of 196,076 shares
 of treasury stock
   
-
     
(6,426
)
   
-
     
-
     
6,057
     
-
     
(369
)
Cancellations of 7,931 shares
                                                       
   of treasury stock
   
-
     
293
     
-
     
-
     
(293
)
   
-
     
-
 
Dividends, $.37 per share
   
-
     
-
     
(10,325
)
   
-
     
-
     
-
     
(10,325
)
Distribution to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
(170
)
   
(170
)
Balance, September 30, 2012
   
36,334
     
47,893
     
727,176
     
(65,083
)
   
(268,499
)
   
2,613
     
480,434
 
Net income
   
-
     
-
     
54,888
     
-
     
-
     
(116
)
   
54,772
 
Minimum pension liability
   
-
     
-
     
-
     
29,347
     
-
     
-
     
29,347
 
Translation adjustment
   
-
     
-
     
-
     
3,779
     
-
     
82
     
3,861
 
Fair value of derivatives
   
-
     
-
     
-
     
5,017
     
-
     
-
     
5,017
 
Total comprehensive income
                                                   
92,997
 
Stock-based compensation
   
-
     
5,562
     
-
     
-
     
-
     
-
     
5,562
 
Purchase of 619,981 shares
 of treasury stock
   
-
     
-
     
-
     
-
     
(21,622
)
   
-
     
(21,622
)
Issuance of 295,079 shares
 of treasury stock
   
-
     
(8,125
)
   
-
     
-
     
9,100
     
-
     
975
 
Cancellation of 47,084 shares
                                                       
   of treasury stock
   
-
     
1,985
     
-
     
-
     
(1,985
)
   
-
     
-
 
Dividends, $.41 per share
   
-
     
-
     
(11,282
)
   
-
     
-
     
-
     
(11,282
)
Distribution to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
(767
)
   
(767
)
Arrangement-noncontrolling interest
   
-
     
-
     
4,980
     
-
     
-
     
1,653
     
6,633
 
Balance, September 30, 2013
   
36,334
     
47,315
     
775,762
     
(26,940
)
   
(283,006
)
   
3,465
     
552,930
 
Net income
   
-
     
-
     
43,674
     
-
     
-
     
646
     
44,320
 
Minimum pension liability
   
-
     
-
     
-
     
(9,551
)
   
-
     
-
     
(9,551
)
Translation adjustment
   
-
     
-
     
-
     
(31,081
)
   
-
     
115
     
(30,966
)
Fair value of derivatives
   
-
     
-
     
-
     
755
     
-
     
-
     
755
 
Total comprehensive income
                                                   
4,558
 
Stock-based compensation
   
-
     
6,812
     
-
     
-
     
-
     
-
     
6,812
 
Purchase of 228,789 shares
 treasury stock
   
-
     
-
     
-
     
-
     
(9,905
)
   
-
     
(9,905
)
Issuance of 5,936,169 shares
 treasury stock
   
-
     
55,942
     
-
     
-
     
186,117
     
-
     
242,059
 
Cancellations of 77,597 shares
                                                       
   of treasury stock
           
3,156
     
-
     
-
     
(3,156
)
   
-
     
-
 
Dividends, $.46 per share
   
-
     
-
     
(13,396
)
   
-
     
-
     
-
     
(13,396
)
Distribution to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
(165
)
   
(165
)
Balance, September 30, 2014
 
$
36,334
   
$
113,225
   
$
806,040
   
$
(66,817
)
 
$
(109,950
)
 
$
4,061
   
$
782,893
 

The accompanying notes are an integral part of these consolidated financial statements.
42





MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2014, 2013 and 2012
(Dollar amounts in thousands, except per share data)


   
2014
   
2013
   
2012
 
Cash flows from operating activities:
           
Net income
 
$
44,320
   
$
54,772
   
$
55,204
 
Adjustments to reconcile net income to net cash
  provided by operating activities:
                       
Depreciation and amortization
   
42,864
     
37,865
     
28,821
 
Stock-based compensation expense
   
6,812
     
5,562
     
5,472
 
Increase in deferred taxes
   
5,893
     
3,812
     
6,050
 
Gain on sale of assets
   
(228
)
   
(347
)
   
(2,418
)
Gain on sale of investment
   
(1,064
)
   
(1,666
)
   
(2,839
)
Changes in working capital items
   
(6,165
)
   
(3,003
)
   
(16,403
)
Decrease in other assets
   
944
     
1,628
     
4,456
 
(Decrease) increase in other liabilities
   
(3,568
)
   
2,789
     
(3,854
)
Increase in pension and postretirement
   benefit obligations
   
3,755
     
11,839
     
7,634
 
Other, net
   
(1,164
)
   
(3,925
)
   
1,203
 
Net cash provided by operating activities
   
92,399
     
109,326
     
83,326
 
Cash flows from investing activities:
                       
Capital expenditures