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

Form 10‑Q

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Quarterly Period Ended June 30, 2015

Commission File No. 0‑9115

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

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

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

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

 
Yes x
No 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 the definitions 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
  

As of July 31, 2015, shares of common stock outstanding were:

  Class A Common Stock 32,964,476 shares

PART I ‑ FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)


   
June 30, 2015
    
September 30, 2014
  
         
ASSETS
                
Current assets:
                
Cash and cash equivalents
      
$
69,788
        
$
63,003
  
Accounts receivable, net
        
268,306
          
282,730
  
Inventories
        
142,911
          
152,842
  
Deferred income taxes
        
13,589
          
18,197
  
Other current assets
        
54,274
          
49,456
  
                         
Total current assets
        
548,868
          
566,228
  
                         
Investments
        
26,937
          
23,130
  
Property, plant and equipment: Cost
  
$
466,601
            
$
459,388
          
Less accumulated depreciation
    
(267,609
)
            
(250,073
)
        
             
198,992
              
209,315
  
Deferred income taxes
            
6,062
              
4,019
  
Other assets
            
14,271
              
20,027
  
Goodwill
            
788,936
              
819,467
  
Other intangible assets, net
            
346,316
              
381,862
  
                                 
Total assets
          
$
1,930,382
            
$
2,024,048
  
                                 
LIABILITIES
                                
Current liabilities:
                                
Long-term debt, current maturities
          
$
11,981
            
$
15,228
  
Trade accounts payable
            
61,445
              
72,040
  
Accrued compensation
            
63,595
              
60,690
  
Accrued income taxes
            
5,324
              
7,079
  
Deferred income tax
            
111
              
235
  
Other current liabilities
            
106,558
              
98,011
  
                                 
Total current liabilities
            
249,014
              
253,283
  
                                 
Long-term debt
            
676,418
              
714,027
  
Accrued pension
            
80,263
              
78,550
  
Postretirement benefits
            
20,430
              
20,351
  
Deferred income taxes
            
124,291
              
129,335
  
Other liabilities
            
28,444
              
53,296
  
Total liabilities
            
1,178,860
              
1,248,842
  
                                 
SHAREHOLDERS' EQUITY
                                
Shareholders' equity-Matthews:
                                
Common stock
  
$
36,334
            
$
36,334
          
Additional paid-in capital
    
114,428
              
113,225
          
Retained earnings
    
831,914
              
798,353
          
Accumulated other comprehensive loss
    
(124,400
)
            
(66,817
)
        
Treasury stock, at cost
    
(110,451
)
            
(109,950
)
        
Total shareholders' equity-Matthews
            
747,825
              
771,145
  
Noncontrolling interests
            
3,697
              
4,061
  
Total shareholders' equity
            
751,522
              
775,206
  
                                 
Total liabilities and shareholders' equity
          
$
1,930,382
            
$
2,024,048
  


The accompanying notes are an integral part of these consolidated financial statements.
2

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)


   
Three Months Ended
    
Nine Months Ended
  
   
June 30,
    
June 30,
  
   
2015
    
2014
    
2015
    
2014
  
                 
                 
                 
Sales
  
$
364,752
    
$
279,983
    
$
1,057,730
    
$
756,765
  
Cost of sales
    
(229,316
)
    
(175,753
)
    
(669,929
)
    
(480,977
)
                                 
Gross profit
    
135,436
      
104,230
      
387,801
      
275,788
  
                                 
Selling and administrative expenses
    
(108,031
)
    
(72,400
)
    
(315,536
)
    
(208,736
)
                                 
Operating profit
    
27,405
      
31,830
      
72,265
      
67,052
  
                                 
Investment income
    
58
      
456
      
1,031
      
1,683
  
Interest expense
    
(4,849
)
    
(2,785
)
    
(15,116
)
    
(8,240
)
Other income (deductions), net
    
9,845
      
(899
)
    
6,420
      
(2,773
)
                                 
Income before income taxes
    
32,459
      
28,602
      
64,600
      
57,722
  
                                 
Income taxes
    
(9,245
)
    
(9,185
)
    
(18,314
)
    
(19,616
)
                                 
Net income
    
23,214
      
19,417
      
46,286
      
38,106
  
                                 
Net (income) loss attributable to noncontrolling interests
    
(74
)
    
(376
)
    
189
      
(286
)
                                 
Net income attributable to  Matthews shareholders
  
$
23,140
    
$
19,041
    
$
46,475
    
$
37,820
  
                                 
Earnings per share attributable to Matthews shareholders:
                                
                                 
Basic
  
 
$0.70
    
 
$0.70
    
 
$1.41
    
 
$1.38
  
                                 
Diluted
  
 
$0.70
    
 
$0.69
    
 
$1.40
    
 
$1.37
  


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

3

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands)


   
Three Months Ended June 30,
  
   
Matthews
    
Noncontrolling Interest
    
Total
  
   
2015
    
2014
    
2015
    
2014
    
2015
    
2014
  
                         
Net income (loss):
  
$
23,140
    
$
19,041
    
$
74
    
$
376
    
$
23,214
    
$
19,417
  
Other comprehensive income (loss), net of tax:
                                                
  Foreign currency translation adjustment
    
8,283
      
477
      
(9
)
    
120
      
8,274
      
597
  
  Pension plans and other postretirement
     benefits
    
876
      
565
      
-
      
-
      
876
      
565
  
  Unrecognized gain (loss) on derivatives:
                                                
     Net change from periodic revaluation
    
664
      
(1,965
)
    
-
      
-
      
664
      
(1,965
)
     Net amount reclassified to earnings
    
581
      
1,212
      
-
      
-
      
581
      
1,212
  
       Net change in unrecognized gain (loss) on
                                                
         derivatives
    
1,245
      
(753
)
    
-
      
-
      
1,245
      
(753
)
Other comprehensive income (loss), net of tax
    
10,404
      
289
      
(9
)
    
120
      
10,395
      
409
  
Comprehensive income (loss)
  
$
33,544
    
$
19,330
    
$
65
    
$
496
    
$
33,609
    
$
19,826
  


   
Nine Months Ended June 30,  
  
   
Matthews
    
Noncontrolling Interest
    
Total
  
   
2015
    
2014
    
2015
    
2014
    
2015
    
2014
  
                         
Net income (loss):
  
$
46,475
    
$
37,820
    
$
(189
)
  
$
286
    
$
46,286
    
$
38,106
  
Other comprehensive income (loss), net of tax:
                                                
  Foreign currency translation adjustment
    
(59,647
)
    
3,246
      
(80
)
    
66
      
(59,727
)
    
3,312
  
  Pension plans and other postretirement
     benefits
    
2,766
      
1,622
      
-
      
-
      
2,766
      
1,622
  
  Unrecognized gain (loss) on derivatives:
                                                
     Net change from periodic revaluation
    
(2,548
)
    
(2,437
)
    
-
      
-
      
(2,548
)
    
(2,437
)
     Net amount reclassified to earnings
    
1,846
      
2,511
      
-
      
-
      
1,846
      
2,511
  
       Net change in unrecognized gain (loss) on
                                                
         derivatives
    
(702
)
    
74
      
-
      
-
      
(702
)
    
74
  
Other comprehensive income (loss), net of tax
    
(57,583
)
    
4,942
      
(80
)
    
66
      
(57,663
)
    
5,008
  
Comprehensive income (loss)
  
$
(11,108
)
  
$
42,762
    
$
(269
)
  
$
352
    
$
(11,377
)
  
$
43,114
  


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



4

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the nine months ended June 30, 2015 and 2014 (Unaudited)
(Dollar amounts in thousands, except per share data)


   
Shareholders' Equity
  
               
Accumulated
              
       
Additional
        
Other
        
Non-
      
   
Common
    
Paid-in
    
Retained
    
Comprehensive
    
Treasury
    
controlling
      
   
Stock
    
Capital
    
Earnings
    
Income (Loss)
    
Stock
    
interests
    
Total
  
Balance,
   September 30, 2014
  
$
36,334
    
$
113,225
    
$
798,353
    
$
(66,817
)
  
$
(109,950
)
  
$
4,061
    
$
775,206
  
Net income
    
-
      
-
      
46,475
      
-
      
-
      
(189
)
    
46,286
  
Minimum pension liability
    
-
      
-
      
-
      
2,766
      
-
      
-
      
2,766
  
Translation adjustment
    
-
      
-
      
-
      
(59,647
)
    
-
      
(80
)
    
(59,727
)
Fair value of derivatives
    
-
      
-
      
-
      
(702
)
    
-
      
-
      
(702
)
Total comprehensive income
                                                    
(11,377
)
Stock-based compensation
    
-
      
6,838
      
-
      
-
      
-
      
-
      
6,838
  
Purchase of 212,783
     shares of treasury stock
    
-
      
-
      
-
      
-
      
(9,897
)
    
-
      
(9,897
)
Issuance of 332,183
    shares of treasury stock
    
-
      
(6,919
)
    
-
      
-
      
10,680
      
-
      
3,761
  
Cancellations of 34,789
    shares of treasury stock
    
-
      
1,284
      
-
      
-
      
(1,284
)
    
-
      
-
  
Dividends, $.39 per share
    
-
      
-
      
(12,914
)
    
-
      
-
      
-
      
(12,914
)
Distributions to
    noncontrolling interests
    
-
      
-
      
-
      
-
      
-
      
(95
)
    
(95
)
Balance, June 30, 2015
  
$
36,334
    
$
114,428
    
$
831,914
    
$
(124,400
)
  
$
(110,451
)
  
$
3,697
    
$
751,522
  


   
Shareholders' Equity
  
               
Accumulated
              
       
Additional
        
Other
        
Non-
      
   
Common
    
Paid-in
    
Retained
    
Comprehensive
    
Treasury
    
controlling
      
   
Stock
    
Capital
    
Earnings
    
Income (Loss)
    
Stock
    
interests
    
Total
  
Balance,
   September 30, 2013
  
$
36,334
    
$
47,315
    
$
769,124
    
$
(26,940
)
  
$
(283,006
)
  
$
3,465
    
$
546,292
  
Net income
    
-
      
-
      
37,820
      
-
      
-
      
286
      
38,106
  
Minimum pension liability
    
-
      
-
      
-
      
1,622
      
-
      
-
      
1,622
  
Translation adjustment
    
-
      
-
      
-
      
3,246
      
-
      
66
      
3,312
  
Fair value of derivatives
    
-
      
-
      
-
      
74
      
-
      
-
      
74
  
Total comprehensive income
                                                    
43,114
  
Stock-based compensation
    
-
      
4,906
      
-
      
-
      
-
      
-
      
4,906
  
Purchase of 112,863 shares
  of treasury stock
    
-
      
-
      
-
      
-
      
(4,639
)
    
-
      
(4,639
)
Issuance of 218,578 shares
    of treasury stock
    
-
      
(6,796
)
    
-
      
-
      
8,785
      
-
      
1,989
  
Cancellations of 77,597
    shares of treasury stock
    
-
      
3,156
      
-
      
-
      
(3,156
)
    
-
      
-
  
Dividends, $.33 per share
    
-
      
-
      
(9,118
)
    
-
      
-
      
-
      
(9,118
)
Distributions to
    noncontrolling interests
    
-
      
-
      
-
      
-
      
-
      
(165
)
    
(165
)
Balance, June 30, 2014
  
$
36,334
    
$
48,581
    
$
797,826
    
$
(21,998
)
  
$
(282,016
)
  
$
3,652
    
$
582,379
  


The accompanying notes are an integral part of these consolidated financial statements.
5

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)

   
Nine Months Ended
  
   
June 30,
  
   
2015
    
2014
  
         
         
Cash flows from operating activities:
        
Net income
  
$
46,286
    
$
38,106
  
Adjustments to reconcile net income to net cash
provided by operating activities:
                
Depreciation and amortization
    
47,071
      
28,020
  
Stock-based compensation expense
    
6,838
      
4,906
  
Change in deferred taxes
    
(12,528
)
    
(751
)
Gain on sale of assets
    
(153
)
    
(571
)
Unrealized gain on investments
    
(617
)
    
(1,283
)
Trade name write-offs
    
4,842
      
-
  
Changes in working capital items
    
22,242
      
(10,987
)
Decrease (increase) in other assets
    
2,792
      
(1,835
)
Decrease in other liabilities
    
(14,416
)
    
(1,125
)
Increase in pension and postretirement benefits
    
6,199
      
6,190
  
Other, net
    
(6,217
)
    
1,745
  
                 
Net cash provided by operating activities
    
102,339
      
62,415
  
                 
Cash flows from investing activities:
                
Capital expenditures
    
(34,665
)
    
(18,754
)
Acquisitions, net of cash acquired
    
(1,703
)
    
-
  
Proceeds from sale of assets
    
912
      
45
  
Proceeds from sale of subsidiary
    
10,418
      
-
  
Restricted cash
    
(12,925
)
    
-
  
                 
Net cash used in investing activities
    
(37,963
)
    
(18,709
)
                 
Cash flows from financing activities:
                
Proceeds from long-term debt
    
47,421
      
20,352
  
Payments on long-term debt
    
(82,325
)
    
(28,479
)
Payments on contingent consideration
    
-
      
(3,703
)
Proceeds from the sale of treasury stock
    
3,907
      
2,045
  
Purchases of treasury stock
    
(9,897
)
    
(4,639
)
Dividends
    
(12,914
)
    
(9,118
)
Distributions to noncontrolling interests
    
(95
)
    
(165
)
                 
Net cash used in financing activities
    
(53,903
)
    
(23,707
)
                 
Effect of exchange rate changes on cash
    
(3,688
)
    
526
  
                 
Net change in cash and cash equivalents
  
$
6,785
    
$
20,525
  
                 
Non-cash investing and financing activities:
                
Acquisition of equipment under capital lease
    
-
    
$
949
  

The accompanying notes are an integral part of these consolidated financial statements.
6

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2015
(Dollar amounts in thousands, except per share data)


Note 1.   Nature of Operations

Matthews International Corporation ("Matthews" or the "Company"), founded in 1850 and incorporated in Pennsylvania in 1902, is a provider principally of brand solutions, memorialization products and industrial products.   Brand solutions include brand development, deployment and delivery (consisting of brand management, printing plates and cylinders, pre-media services and imaging services for consumer packaged goods and retail customers, merchandising display systems, and marketing and design services).  Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment for the cemetery and funeral home industries.  Industrial products include marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.

The Company has production and marketing facilities in the United States, Central and South America, Canada, Europe, Australia and Asia.


Note 2.   Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information for commercial and industrial companies and the instructions to Form 10‑Q and Rule 10‑01 of Regulation S‑X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10‑K for the year ended September 30, 2014.  The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.  All intercompany accounts and transactions have been eliminated.

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. Actual results could differ from those estimates.

Reclassifications and Revisions:

The Company identified a theft of funds by an employee that had occurred over a multi-year period through May 2015 which was not previously reflected in the Company's results of operations.  The cumulative amount of the loss has been determined to be approximately $14,771.  The corresponding pre-tax earnings amounts applicable to fiscal years 2015, 2014 and 2013 were approximately $2,170, $1,720, and $1,257, respectively.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 2.   Basis of Presentation (continued)

Pursuant to the guidance of Staff Accounting Bulletin ("SAB") No. 99, "Materiality", the Company evaluated the materiality of these amounts quantitatively and qualitatively, and has concluded that the amounts described above were not material to any of its annual or quarterly prior period financial statements or trends of financial results. However, because of the significance of the cumulative out-of-period correction to the fiscal 2015 third quarter, the prior period financial statements have been revised, in accordance with SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements".

The following table reconciles the effect of the adjustments to the previously reported Consolidated Statements of Income for the three and nine month periods ended June 30, 2014:

   
Three months ended
June 30, 2014
    
Nine months ended
June 30, 2014
  
   
Previously Reported
    
Adjustment
    
As Adjusted
    
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Income
                        
Other income (deductions), net
  
$
(897
)
  
$
(2
)*
  
$
(899
)
  
$
(2,669
)
  
$
(104
)*
  
$
(2,773
)
Income before income taxes
    
28,966
      
(364
)
    
28,602
      
58,854
      
(1,132
)
    
57,722
  
Income taxes
    
(9,327
)
    
142
      
(9,185
)
    
(20,058
)
    
442
      
(19,616
)
Net income
    
19,639
      
(222
)
    
19,417
      
38,796
      
(690
)
    
38,106
  
Net income attributable to Matthews shareholders
    
19,263
      
(222
)
    
19,041
      
38,510
      
(690
)
    
37,820
  
Comprehensive income 20,048 (222 ) 19,826 43,804 (690 ) 43,114
Earnings per share:
                                                
   Basic
    
0.70
      
-
 
    
0.70
      
1.41
      
(0.03
)
    
1.38
  
   Diluted
    
0.70
      
(0.01
)
    
0.69
      
1.40
      
(0.03
)
    
1.37
  

*Certain other reclassification adjustments between other income (deductions), net and selling and administrative expenses totaling $362 and $1,028 for the three and nine months ended June 30, 2014, respectively, are also reflected in the adjustment amounts in order to conform to the current period's presentation, which began in the first quarter of fiscal 2015. These reclassification adjustments are not material to the prior year presentation.

The following table reconciles the effect of the adjustments to the previously reported Consolidated Statement of Cash Flows for the nine month period ended June 30, 2014:

   
Nine months ended
June 30, 2014   
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Cash Flows
            
Net income
  
$
38,796
    
$
(690
)
    
38,106
  
Changes in deferred taxes
    
(309
)
    
(442
)
    
(751
)
Net cash provided by operating activities
    
63,547
      
(1,132
)
    
62,415
  
Net change in cash and cash equivalents
    
21,657
      
(1,132
)
    
20,525
  

There was no impact to the Consolidated Statements of Comprehensive Income or the Consolidated Statements of Shareholders' Equity for any of the respective periods other than the impact on Net Income. The retained earnings balance as of September 30, 2014 and 2013 was adjusted by $(7,687) and $(6,638), respectively, as a result of this matter.  In addition, the immaterial corrections did not affect the Company's compliance with debt covenants.
8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 3.   Fair Value Measurements

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

Level 1:                            Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2:                            Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
                            either directly or indirectly.

Level 3:                            Unobservable inputs for the asset or liability.

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

   
June 30, 2015
    
September 30, 2014
  
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets:
                                
Derivatives (1)
    
-
    
$
622
      
-
    
$
622
      
-
    
$
2,457
      
-
    
$
2,457
  
Trading
   securities
  
$
19,438
      
-
      
-
      
19,438
    
$
19,038
      
-
      
-
    
$
19,038
  
Total assets at
   fair value
  
$
19,438
    
$
622
      
-
    
$
20,060
    
$
19,038
    
$
2,457
      
-
    
$
21,495
  
                                                                 
Liabilities:
                                                                
Derivatives (1)
    
-
    
$
1,444
      
-
    
$
1,444
      
-
    
$
2,127
      
-
    
$
2,127
  
Total liabilities
   at fair value
    
-
    
$
1,444
      
-
    
$
1,444
      
-
    
$
2,127
      
-
    
$
2,127
  
                                                                 
(1) Interest rate swaps are valued based on observable market swap rates.
  


Note 4.   Inventories

Inventories consisted of the following:

   
June 30, 2015
    
September 30, 2014
  
         
Raw materials
  
$
44,836
    
$
46,152
  
Work in process
    
34,006
      
38,631
  
Finished goods
    
64,069
      
68,059
  
   
$
142,911
    
$
152,842
  

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.   Debt

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions.  In connection with the acquisition of Schawk, Inc. ("Schawk") in July 2014, the Company entered into amendments to the Revolving Credit Facility to amend certain terms of the Revolving Credit Facility and increase the maximum amount of borrowings available under the facility from $500,000 to $900,000.  Borrowings under the amended facility bear interest at LIBOR plus a factor ranging from .75% to 2.00% (1.75% at June 30, 2015) 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 $30,000) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at June 30, 2015 and September 30, 2014 were $655,425 and $680,000, respectively.  The weighted-average interest rate on outstanding borrowings at June 30, 2015 and 2014 was 2.51% and 2.55%, respectively.

The Company has entered into the following interest rate swaps:

Effective Date
Amount
Fixed Interest Rate
Interest Rate Spread at June 30, 2015
 
Maturity Date
October 2011
  $25,000
1.67%
1.75%
October 2015
June 2012
  $40,000
1.88%
1.75%
June 2022
August 2012
  $35,000
1.74%
1.75%
June 2022
September 2012
  $25,000
3.03%
1.75%
December 2015
September 2012
  $25,000
1.24%
1.75%
March 2017
November 2012
  $25,000
1.33%
1.75%
November 2015
May 2014
  $25,000
1.35%
1.75%
May 2018
November 2014
  $25,000
1.26%
1.75%
June 2018
March 2015
  $25,000
1.49%
1.75%
March 2019

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

The fair value of the interest rate swaps reflected an unrealized loss of $822 ($501 after tax) at June 30, 2015 and an unrealized gain, net of unrealized losses, of $330 ($201 after tax) at September 30, 2014. The net unrealized gain and loss are included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").  Assuming market rates remain constant with the rates at June 30, 2015, a loss (net of tax) of approximately $527 included in AOCI is expected to be recognized in earnings over the next twelve months.
10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.  Debt (continued)

At June 30, 2015 and September 30, 2014, the interest rate swap contracts were reflected in the consolidated balance sheets as follows:
     
Derivatives
  
June 30, 2015
    
September 30, 2014
  
Current assets:
        
Other current assets
  
$
89
    
$
324
  
Long-term assets:
                
 Other assets
    
534
      
2,133
  
Current liabilities:
                
Other current liabilities
    
(953
)
    
(1,808
)
Long-term liabilities:
                
Other liabilities
    
(492
)
    
(319
)
Total derivatives
  
$
(822
)
  
$
330
  
                 

The loss recognized on derivatives was as follows:

 
        
Derivatives in
Location of Loss
  
Amount of
    
Amount of
  
Cash Flow
Recognized in
  
Loss Recognized
    
Loss Recognized
  
Hedging
Income on
  
in Income
    
in Income
  
Relationships
Derivative
  
on Derivatives
    
on Derivatives
  
      
Three Months ended June 30,
    
Nine Months ended June 30,
  
     
2015
    
2014
    
2015
    
2014
  
                   
Interest rate swaps
Interest expense
  
 
$(953)
 
  
 
$(1,987)
 
  
 
$(3,026)
 
  
 
$(4,117)
 
                                   

The Company recognized the following gains or losses in AOCI:

           
     
Location of
    
     
Gain or
    
     
  (Loss)
  
Amount of Loss
  
     
Reclassified
  
Reclassified from
  
   
Amount of (Loss)
  
From
  
AOCI into
  
Derivatives in
  
Recognized in
  
AOCI into
  
Income
  
Cash Flow
  
AOCI on Derivatives
  
Income
  
(Effective Portion*)
  
Hedging Relationships
  
June 30, 2015
    
June 30, 2014
  
(Effective Portion*)
  
June 30, 2015
    
June 30, 2014
  
                   
Interest rate swaps
  
 
$(2,548)
 
  
 
$(2,437)
 
Interest expense
  
 
$(1,846)
 
  
 
$(2,511)
 
                                   
*There is no ineffective portion or amount excluded from effectiveness testing.
  

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 5.  Debt (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 35.0 million Euros ($38,994).  Outstanding borrowings under the credit facility totaled 11.3 million Euros ($12,586) and 17.5 million Euros ($22,055) at June 30, 2015 and September 30, 2014, respectively.  The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2015 and 2014 was 1.50% and 1.35%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG ("Saueressig"), has several loans with various European banks.  Outstanding borrowings under these loans totaled 1.6 million Euros ($1,790) and 1.2 million Euros ($1,576) at June 30, 2015 and September 30, 2014, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2015 and 2014 was 3.85% and 4.04%, respectively.

The Company, through its German subsidiary, Wetzel GmbH ("Wetzel"), has several loans with various European banks.  Outstanding borrowings under these loans totaled 2.4 million Euros ($2,650) and 2.9 million Euros ($3,624) at June 30, 2015 and September 30, 2014, respectively.  The weighted-average interest rate on outstanding borrowings of Wetzel at June 30, 2015 and 2014 was 5.82% and 7.62%, 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 4.6 million Euros ($5,094) and 5.5 million Euros ($6,922) at June 30, 2015 and September 30, 2014, respectively.  Matthews International S.p.A. also has three lines of credit totaling 11.3 million Euros ($12,623) with the same Italian banks.  Outstanding borrowings on these lines were 3.6 million Euros ($4,020) and 4.8 million Euros ($6,063) at June 30, 2015 and September 30, 2014, respectively.  The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at June 30, 2015 and 2014 was 3.21% and 3.13%, respectively.

In September 2014, a claim seeking to draw upon a letter of credit issued by the Company of $12,925 was filed with respect to a project for a customer.  In January 2015, the Company made payment on the draw to the financial institution for the letter of credit.  Pursuant to an action initiated by the Company, a court order has been issued requiring these funds to ultimately be remitted to the court pending resolution of the dispute between the parties.  While it is possible the resolution of this matter could be unfavorable to the Company, management has assessed the customer's 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.  As of June 30, 2015, the Company has presented the funded letter of credit within other current assets on the Condensed Consolidated Balance Sheet.

As of June 30, 2015 and September 30, 2014 the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Condensed Consolidated Balance Sheet.

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments

The Company maintains an equity incentive plan (the "2012 Equity Incentive Plan") that provides for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards.  The Company also maintains an equity incentive plan (the "2007 Equity Incentive Plan") and a stock incentive plan (the "1992 Incentive Stock Plan") that previously provided for grants of stock options, restricted shares and certain other types of stock-based awards.  Under the 2012 Equity Incentive Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,500,000.  There will be no further grants under the 2007 Equity Incentive Plan or the 1992 Incentive Stock Plan.  At June 30, 2015, there were 1,476,798 shares reserved for future issuance under the 2012 Equity Incentive Plan. All plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option granted under any of the plans may not be less than the fair market value of the Company's Class A Common Stock on the date of grant.  Outstanding stock options are generally exercisable in one-third increments upon the attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.  In addition, options generally vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the market value thresholds).  The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company generally settles employee stock option exercises with treasury shares.

With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant date, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.  For grants made in and after fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock.  Additionally, restricted shares cannot vest until the first anniversary of the grant date.  Unvested restricted shares generally expire on the earlier of five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company issues restricted shares from treasury shares.

For the three-month periods ended June 30, 2015 and 2014, total stock-based compensation cost totaled $2,274 and $1,667, respectively.  For the nine-month periods ended June 30, 2015 and 2014, total stock-based compensation cost totaled $6,838 and $4,906, respectively.  The associated future income tax benefit recognized was $887 and $650 for the three-month periods ended June 30, 2015 and 2014, respectively, and $2,667 and $1,913 for the nine-month periods ended June 30, 2015 and 2014, respectively.

For the three-month periods ended June 30, 2015 and 2014, the amount of cash received from the exercise of stock options was $129 and $217, respectively.  For the nine-month periods ended June 30, 2015 and 2014, the amount of cash received from the exercise of stock options was $3,907 and $2,045, respectively. In connection with these exercises, the tax benefits realized by the Company were $16 and $1 for the three-month period ended June 30, 2015 and 2014, respectively, and $337 and $186 for the nine-month periods ended June 30, 2015 and 2014, respectively.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

The transactions for restricted stock for the nine months ended June 30, 2015 were as follows:

       
Weighted-
  
       
average
  
       
grant-date
  
   
Shares
    
fair value
  
Non-vested at September 30, 2014
    
575,150
    
$
33.83
  
Granted
    
215,370
      
40.07
  
Vested
    
(158,992
)
    
34.42
  
Expired or forfeited
    
(36,294
)
    
28.53
  
Non-vested at June 30, 2015
    
595,234
      
36.26
  

As of June 30, 2015, the total unrecognized compensation cost related to unvested restricted stock was $9,774 and is expected to be recognized over a weighted average period of 1.7 years.

The transactions for shares under options for the nine months ended June 30, 2015 were as follows:

           
Weighted-
      
       
Weighted-
    
average
    
Aggregate
  
       
average
    
remaining
    
intrinsic
  
   
Shares
    
exercise price
    
contractual term
    
value
  
Outstanding, September 30, 2014
    
512,322
    
 
$38.62
          
Exercised
    
(102,544
)
    
38.10
          
Expired or forfeited
    
(69,173
)
    
36.53
          
Outstanding, June 30, 2015
    
340,605
      
39.20
      
1.0
    
 
$4,747
  
Exercisable, June 30, 2015
    
97,000
      
38.78
      
0.8
      
1,392
  

No options vested during the three-month and nine-month periods ended June 30, 2015 and 2014, respectively.  The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the nine-month periods ended June 30, 2015 and 2014 was $897 and $510, respectively.

The transactions for non-vested options for the nine months ended June 30, 2015 were as follows:

       
Weighted-average
  
       
grant-date
  
   
Shares
    
fair value
  
Non-vested at September 30, 2014
    
312,442
    
 
$11.21
  
Expired or forfeited
    
(68,837
)
    
11.70
  
Non-vested at June 30, 2015
    
243,605
      
11.07
  

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

The fair value of each restricted stock grant is estimated on the date of grant using a binomial lattice valuation model.  The following table indicates the assumptions used in estimating fair value of restricted stock for the nine months ended June 30, 2015 and 2014.

   
Nine Months Ended June 30,
  
   
2015
    
2014
  
Expected volatility
    
22.2
%
    
26.6
%
Dividend yield
    
1.0
%
    
1.1
%
Average risk-free interest rate
    
1.7
%
    
1.4
%
Average expected term (years)
    
1.8
      
2.0
  

The risk-free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date.  Expected volatilities are based on the historical volatility of the Company's stock price.  The expected term for grants in the years ended September 30, 2014, 2013 and 2012 represents an estimate of the average period of time for restricted shares to vest.  The option characteristics for each grant are considered separately for valuation purposes.

The Company maintains the 1994 Director Fee Plan and the 2014 Director Fee Plan (collectively, the "Director Fee Plans").  Since adoption of the 2014 Director Fee Plan, there have been no further fees or share-based awards granted under the 1994 Director Fee Plan.  Under the 2014 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2015, either cash or shares of the Company's Class A Common Stock with a value equal to $75.  The annual retainer fee for fiscal 2015 paid to a non-employee Chairman of the Board is $175.  Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board.  The value of deferred shares is recorded in other liabilities.  A total of 17,005 shares had been deferred under the Director Fee Plans at June 30, 2015.  Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $110 for fiscal 2015.  A total of 22,300 stock options have been granted under the Director Fee Plans.  At June 30, 2015, there were no options outstanding. Additionally, 136,568 shares of restricted stock have been granted under the Director Fee Plans, 33,418 of which were unvested at June 30, 2015.  A total of 150,000 shares have been authorized under the 2014 Director Fee Plan.




15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 7.   Earnings Per Share Attributable to Matthews' Shareholders

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

   
Three Months Ended
    
Nine Months Ended
  
   
June 30,
    
June 30,
  
   
2015
    
2014
    
2015
    
2014
  
Net income attributable to Matthews shareholders
  
$
23,140
    
$
19,041
    
$
46,475
    
$
37,820
  
Less: dividends and undistributed earnings
 allocated to participating securities
    
2
      
35
      
8
      
128
  
Net income available to Matthews shareholders
  
$
23,138
    
$
19,006
    
$
46,467
    
$
37,692
  
                                 
Weighted-average shares outstanding (in thousands):
                                
Basic shares
    
32,962
      
27,294
      
32,947
      
27,223
  
Effect of dilutive securities
    
234
      
197
      
258
      
227
  
Diluted shares
    
33,196
      
27,491
      
33,205
      
27,450
  
                                 

There were no anti-dilutive securities for the three and nine months ended June 30, 2015 or 2014.


Note 8.   Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:

   
Three months ended June 30,
  
   
Pension
    
Other Postretirement
  
   
2015
    
2014
    
2015
    
2014
  
                 
Service cost
  
$
1,655
    
$
1,582
    
$
114
    
$
109
  
Interest cost
    
2,145
      
2,213
      
221
      
230
  
Expected return on plan assets
    
(2,470
)
    
(2,396
)
    
-
      
-
  
Amortization:
                                
   Prior service cost
    
(45
)
    
(52
)
    
(49
)
    
(23
)
   Net actuarial loss (gain)
    
1,564
      
991
      
-
      
(49
)
                                 
Net benefit cost
  
$
2,849
    
$
2,338
    
$
286
    
$
267
  

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 8.   Pension and Other Postretirement Benefit Plans (continued)
   
Nine months ended June 30,
  
   
Pension
    
Other Postretirement
  
   
2015
    
2014
    
2015
    
2014
  
                 
Service cost
  
$
4,965
    
$
4,746
    
$
342
    
$
327
  
Interest cost
    
6,435
      
6,639
      
663
      
690
  
Expected return on plan assets
    
(7,410
)
    
(7,188
)
    
-
      
-
  
Amortization:
                                
   Prior service cost
    
(135
)
    
(156
)
    
(147
)
    
(66
)
   Net actuarial loss (gain)
    
4,692
      
2,973
      
-
      
(147
)
                                 
 Net benefit cost
  
$
8,547
    
$
7,014
    
$
858
    
$
804
  

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company's operating funds.  Under IRS regulations, the Company is not required to make any significant contributions to its principal retirement plan in fiscal year 2015.

Contributions made and anticipated for fiscal year 2015 are as follows:

Contributions
  
Pension
    
Other Postretirement
  
         
Contributions during the nine months ended June 30, 2015:
        
   Supplemental retirement plan
  
$
543
    
$
-
  
   Other postretirement plan
    
-
      
1,019
  
                 
Additional contributions expected in fiscal 2015:
                
   Supplemental retirement plan
    
190
      
-
  
   Other postretirement plan
    
-
      
250
  

Prior to its acquisition by Matthews, Schawk participated in a multi-employer pension fund pursuant to certain collective bargaining agreements.  In 2012, Schawk bargained to withdraw from the fund, and recorded a withdrawal liability at the conclusion of the negotiations, based on the present value of installment payments expected to be paid through 2034.  During the third quarter of fiscal 2015, the Company finalized an agreement to settle this installment payment obligation in exchange for a lump-sum payment of $18,157.  This settlement liability is recorded within other current liabilities on the Condensed Consolidated Balance Sheet at June 30, 2015, since full payment is expected to be made during the fourth quarter of fiscal 2015.  This settlement also resulted in an $11,522 gain recognized in other income (deductions), net during the third quarter of fiscal 2015.
17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income

The changes in AOCI by component, net of tax, for the three month periods ended June 30, 2015 and 2014 were as follows:
 
      
Post-retirement benefit plans
    
Currency translation adjustment
    
Derivatives
    
Total
  
Attributable to Matthews:
                  
Balance, March 31, 2015    $ (37,761 )   $ (95,297 )   $ (1,746 )   $ (134,804 )
OCI before reclassification
      
-
      
8,283
      
664
      
8,947
  
Amounts reclassified from AOCI
 
  (a)  
876
      
-
    (b)  
581
      
1,457
  
Net current-period OCI
      
876
      
8,283
      
1,245
      
10,404
  
Balance, June 30, 2015
    
$
(36,885
)
  
$
(87,014
)
  
$
(501
)
  
$
(124,400
)
Attributable to noncontrolling
interest:
                                  
Balance, March 31, 2015
      
-
    
$
445
      
-
    
$
445
  
OCI before reclassification
      
-
      
(9
)
    
-
      
(9
)
Net current-period OCI
      
-
      
(9
)
    
-
      
(9
)
Balance, June 30, 2015
      
-
    
$
436
      
-
    
$
436
  

      
Post-retirement benefit plans
    
Currency translation adjustment
    
Derivatives
    
Total
  
Attributable to Matthews:
                  
Balance, March 31, 2014   $ (29,043 )   $ 6,483     $ 273     $ (22,287 )
OCI before reclassification
      
-
      
477
      
(1,965
)
    
(1,488
)
Amounts reclassified from AOCI
 
  (a)  
565
      
-
    (b)  
1,212
      
1,777
  
Net current-period OCI
      
565
      
477
      
(753
)
    
289
  
Balance, June 30, 2014
    
$
(28,478
)
  
$
6,960
    
$
(480
)
  
$
(21,998
)
Attributable to noncontrolling interest:
                                  
Balance, March 31, 2014
      
-
    
$
347
      
-
    
$
347
  
OCI before reclassification
      
-
      
120
      
-
      
120
  
Net current-period OCI
      
-
      
120
      
-
      
120
  
Balance, June 30, 2014
      
-
    
$
467
      
-
    
$
467
  

(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see note 8).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see note 5).

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income (continued)

The changes in AOCI by component, net of tax, for the nine month periods ended June 30, 2015 and 2014 were as follows:
 
      
Post-retirement benefit plans
    
Currency translation adjustment
    
Derivatives
    
Total
  
Attributable to Matthews:
                  
Balance, September 30, 2014    $ (39,651 )   $ (27,367 )   $ 201     $ (66,817 )
OCI before reclassification
      
-
      
(59,647
)
    
(2,548
)
    
(62,195
)
Amounts reclassified from AOCI
 
  (a)  
2,766
      
-
    (b)  
1,846
      
4,612
  
Net current-period OCI
      
2,766
      
(59,647
)
    
(702
)
    
(57,583
)
Balance, June 30, 2015
    
$
(36,885
)
  
$
(87,014
)
  
$
(501
)
  
$
(124,400
)
Attributable to noncontrolling interest:
                                  
Balance, September 30, 2014
      
-
    
$
516
      
-
    
$
516
  
OCI before reclassification
      
-
      
(80
)
    
-
      
(80
)
Net current-period OCI
      
-
      
(80
)
    
-
      
(80
)
Balance, June 30, 2015
      
-
    
$
436
      
-
    
$
436
  

      
Post-retirement benefit plans
    
Currency translation adjustment
    
Derivatives
    
Total
  
Attributable to Matthews:
                  
Balance, September 30, 2013   $ (30,100 )   $ 3,714     $ (554 )   $ (26,940 )
OCI before reclassification
      
-
      
3,246
      
(2,437
)
    
809
  
Amounts reclassified from AOCI
 
  (a)  
1,622
      
-
    (b)  
2,511
      
4,133
  
Net current-period OCI
      
1,622
      
3,246
      
74
      
4,942
  
Balance, June 30, 2014
    
$
(28,478
)
  
$
6,960
    
$
(480
)
  
$
(21,998
)
Attributable to noncontrolling interest:
                                  
Balance, September 30, 2013
      
-
    
$
401
      
-
    
$
401
  
OCI before reclassification
      
-
      
66
      
-
      
66
  
Net current-period OCI
      
-
      
66
      
-
      
66
  
Balance, June 30, 2014
      
-
    
$
467
      
-
    
$
467
  

(a) Amounts were included in net periodic benefit cost for pension and other postretirement benefit plans (see note 8).
(b) Amounts were included in interest expense in the periods the hedged item affected earnings (see note 5).



19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 9.   Accumulated Other Comprehensive Income (continued)

Reclassifications out of AOCI for the three and nine month periods ended June 30, 2015 were as follows:

   
Amount reclassified from AOCI
 
Details about AOCI Components
  
Three months ended June 30, 2015
    
Nine months ended June 30, 2015
  
Affected line item in the Statement of income
               
Postretirement benefit plans
             
     Prior service (cost) credit
  
$
94
    (a)
$
282
    
     Actuarial losses
    
(1,564
)
  (a)  
(4,692
)
  
     
(1,470
)
  (b)  
(4,410
)
Total before tax
     
(594
)
    
(1,644
)
Tax provision (benefit)
   
$
(876
)
  
$
(2,766
)
Net of tax
Derivatives
                     
     Interest rate swap contracts
  
$
(953
)
  
$
(3,026
)
Interest expense
     
(953
)
  (b)  
(3,026
)
Total before tax
     
(372
)
    
(1,180
)
Tax provision (benefit)
   
$
(581
)
  
$
(1,846
)
Net of tax

Reclassifications out of AOCI for the three and nine month periods ended June 30, 2014 were as follows:

   
Amount reclassified from AOCI
 
Details about AOCI Components
  
Three months ended June 30, 2014
    
Nine months ended June 30, 2014
  
Affected line item in the Statement of income
               
Postretirement benefit plans
             
     Prior service (cost) credit
  
$
75
    (a)
$
222
    
     Actuarial losses
    
(942
)
  (a)  
(2,826
)
  
     
(867
)
  (b)  
(2,604
)
Total before tax
     
(302
)
    
(982
)
Tax provision (benefit)
   
$
(565
)
  
$
(1,622
)
Net of tax
Derivatives
                     
     Interest rate swap contracts
  
$
(1,987
)
  
$
(4,117
)
Interest expense
     
(1,987
)
  (b)  
(4,117
)
Total before tax
     
(775
)
    
(1,606
)
Tax provision (benefit)
   
$
(1,212
)
  
$
(2,511
)
Net of tax

(a) Amounts are included in the computation of pension and other postretirement benefit expense, which is reported in both cost of goods sold and selling and administrative expenses.  For additional information, see Note 8.
(b) For pre-tax items, positive amounts represent income and negative amounts represent expense.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)


Note 10.   Income Taxes

Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's effective tax rate for the nine months ended June 30, 2015 was 28.3%, compared to 34.0% for the nine months ended June 30, 2014.  The decrease in the effective tax rate for the first nine months of fiscal 2015 primarily reflected the benefit of the utilization of certain tax attributes as a result of legal structure reorganization in foreign jurisdictions.  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.

The Company had unrecognized tax benefits (excluding penalties and interest) of $4,337 and $4,311 on June 30, 2015 and September 30, 2014, respectively, all of which, if recorded, would impact the 2015 annual effective tax rate.