Matthews International Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Sep. 30, 2013

12.	INCOME TAXES:

The provision for income taxes consisted of the following:

	2013		2012		2011
Current:
Federal	$	15,703	$	14,060	$	15,306
State		3,423		2,483		3,004
Foreign		4,804		6,437		10,689
		23,930		22,980		28,999
Deferred		2,734		5,737		9,557
Total	$	26,664	$	28,717	$	38,556

The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:

	2013			2012			2011
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
Effect of state income taxes, net of federal deduction		2.7			2.1			2.5
Foreign taxes less than federal statutory rate		(3.1	)		(0.6	)		(1.3	)
Other		(1.9	)		(2.3	)		(1.8	)
Effective tax rate		32.7	%		34.2	%		34.4	%

The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2013, 2012 and 2011 of approximately $23,662, $24,654 and $36,870, respectively. At September 30, 2013, undistributed earnings of foreign subsidiaries for which deferred U.S. income taxes have not been provided approximated $225,084. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable.

The components of deferred tax assets and liabilities at September 30, 2013 and 2012 are as follows:

	2013			2012
Deferred tax assets:
Postretirement benefits	$	7,365		$	11,244
Environmental reserve		1,903			2,217
Pension costs		19,415			30,145
Deferred compensation		66			281
Stock options		10,690			9,653
Other		24,261			24,370
		63,700			77,910
Deferred tax liabilities:
Depreciation		(3,693	)		(4,220	)
Goodwill		(67,012	)		(57,767	)
Other		(1,630	)		(206	)
		(72,335	)		(62,193	)

Net deferred tax asset	$	(8,635	)	$	15,717

Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows:

	2013			2012			2011
Balance, beginning of year	$	4,501		$	4,721		$	5,215
Increases for tax positions of prior years		-			742			-
Decreases for tax positions of prior years		(124	)		(74	)		(96	)
Increases based on tax positions related to the current year		708			137			202
Decreases due to settlements with taxing authorities		(250	)		(602	)		(38	)
Decreases due to lapse of statute of limitation		(319	)		(423	)		(562	)
Balance, end of year	$	4,516		$	4,501		$	4,721

The Company had unrecognized tax benefits of $4,516 and $4,501 at September 30, 2013 and 2012, respectively, all of which, if recorded, would impact the annual effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits could change by approximately $72 in the next 12 months primarily due to expiration of statutes related to specific tax positions.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. For fiscal 2013, the Company included a net increase of $95 in interest and penalties as a component of the provision for income taxes. Total penalties and interest accrued were $2,401 and $2,306 at September 30, 2013 and 2012, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions. As of September 30, 2013, the tax years that remain subject to examination by major jurisdiction generally are:

United States - Federal	2010 and forward
United States - State	2009 and forward
Canada	2008 and forward
Europe	2005 and forward
United Kingdom	2010 and forward
Australia	2009 and forward
Asia	2008 and forward

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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