Annual report pursuant to Section 13 and 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

v3.2.0.727
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Sep. 30, 2014
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:

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.

Use of Estimates:

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 the 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.

Foreign Currency:

The functional currency of the Company's foreign subsidiaries is the local currency.  Balance sheet accounts for foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date.  Gains or losses that result from this process are recorded in accumulated other comprehensive income (loss).  The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Gains and losses from foreign currency transactions are recorded in other income (deductions), net.
 
Cash and Cash Equivalents:

For purposes of the consolidated statements of cash flows, the Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents.  The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments.

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.

Inventories:

Inventories are stated at the lower of cost or market with cost generally determined under the average cost method.

Property, Plant and Equipment:

Property, plant and equipment are carried at cost.  Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment.  Gains or losses from the disposition of assets are reflected in operating profit.  The cost of maintenance and repairs is charged against income as incurred.  Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized.  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 and Other Intangible Assets:

Goodwill and intangible assets with indefinite lives are not amortized but are subject to annual review for impairment.  Other intangible assets are amortized over their estimated useful lives, ranging from 2 to 20 years. 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.  A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets.  For purposes of testing indefinite–lived intangible assets, the Company uses a relief from royalty method.

Environmental:

Costs that mitigate or prevent future environmental issues or extend the life or improve equipment utilized in current operations are capitalized and depreciated on a straight-line basis over the estimated useful lives of the related assets.  Costs that relate to current operations or an existing condition caused by past operations are expensed.  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.
 
Treasury Stock:

Treasury stock is carried at cost.  The cost of treasury shares sold is determined under the average cost method.

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.

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 that have vesting conditions based on market targets.
 
Derivatives and Hedging:

Derivatives are held as part of a formal documented hedging program.  All derivatives are straight forward and held for purposes other than trading.  Matthews measures effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or future cash flows of the hedged item.  If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains and losses on the derivative will be recorded in other income (deductions) at that time.

Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss), net of tax, and are reclassified to earnings in a manner consistent with the underlying hedged item.  The cash flows from derivative activities are recognized in the statement of cash flows in a manner consistent with the underlying hedged item.

Research and Development Expenses:

Research and development costs are expensed as incurred and were approximately $7,814, $11,449 and $9,274 for the years ended September 30, 2014, 2013 and 2012, respectively.

Earnings Per Share:

Basic earnings per share is computed by dividing net income by the average number of common shares outstanding.  Diluted earnings per share is computed using the treasury stock method, which assumes the issuance of common stock for all dilutive securities.

Reclassifications and Revision:

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 2014, 2013 and 2012 were approximately $1,720, $1,257 and $929, respectively.

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 financial statements for years prior to fiscal 2015 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 table below reconciles the effects of the adjustments to the previously reported Consolidated Balance Sheets at September 30, 2014 and September 30, 2013 (including related tax effect):
 
   
September 30, 2014
    
September 30, 2013
  
   
Previously Reported
    
Adjustment
    
As Adjusted
    
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Balance Sheet
                        
Cash and cash equivalents
  
$
75,604
    
$
(12,601
)
  
$
63,003
    
$
58,959
    
$
(10,881
)
  
$
48,078
  
Deferred income taxes
    
13,283
      
4,914
      
18,197
      
9,826
      
4,243
      
14,069
  
Total current assets
    
573,915
      
(7,687
)
    
566,228
      
406,955
      
(6,638
)
    
400,317
  
Total assets
    
2,031,735
      
(7,687
)
    
2,024,048
      
1,215,900
      
(6,638
)
    
1,209,262
  
Retained earnings
    
806,040
      
(7,687
)
    
798,353
      
775,762
      
(6,638
)
    
769,124
  
Total shareholders' equity-Matthews
    
778,832
      
(7,687
)
    
771,145
      
549,465
      
(6,638
)
    
542,827
  
Total shareholders' equity
    
782,893
      
(7,687
)
    
775,206
      
552,930
      
(6,638
)
    
546,292
  
Total liabilities and shareholders' equity
    
2,031,735
      
(7,687
)
    
2,024,048
      
1,215,900
      
(6,638
)
    
1,209,262
  

The following tables reconcile the effects of the adjustments to the previously reported Consolidated Statements of Income for the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012:
 
     
  September 30, 2014   
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Income
            
Other income (deductions), net
  
$
(3,161
 
)*
  
$
(1,720
)
  
$
(4,881
)
Income before income taxes
    
67,796
      
(1,720
)
    
66,076
  
Income taxes
    
(23,476
)
    
671
      
(22,805
)
Net income
    
44,320
      
(1,049
)
    
43,271
  
Net income attributable to Matthews shareholders
    
43,674
      
(1,049
)
    
42,625
  
Comprehensive income 4,558 (1,049 ) 3,509
Earnings per share attributable to Matthews shareholders:
                        
  Basic
    
1.54
      
(0.03
)
    
1.51
  
  Diluted
    
1.53
      
(0.04
)
    
1.49
  
 
      
September 30, 2013 
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Income
            
Other income (deductions), net
  
$
(2,538
 
)*
  
$
(1,257
)
  
$
(3,795
)
Income before income taxes
    
81,436
      
(1,257
)
    
80,179
  
Income taxes
    
(26,664
)
    
490
      
(26,174
)
Net income
    
54,772
      
(767
)
    
54,005
  
Net income attributable to Matthews shareholders
    
54,888
      
(767
)
    
54,121
  
Comprehensive income 92,997 (767 ) 92,230
Earnings per share attributable to Matthews shareholders:
                        
  Basic
    
1.99
      
(0.03
)
    
1.96
  
  Diluted
    
1.98
      
(0.03
)
    
1.95
  
 
     
         September 30, 2012  
  
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Income
            
Other income (deductions), net
  
$
(1,079
 
)*
  
$
(929
)
  
$
(2,008
)
Income before income taxes
    
83,921
      
(929
)
    
82,992
  
Income taxes
    
(28,717
)
    
362
      
(28,355
)
Net income
    
55,204
      
(567
)
    
54,637
  
Net income attributable to Matthews shareholders
    
55,843
      
(567
)
    
55,276
  
Comprehensive income 48,750 (567 ) 48,183
Earnings per share attributable to Matthews shareholders:
                        
  Basic
    
1.98
      
(0.02
)
    
1.96
  
  Diluted
    
1.98
      
(0.03
)
    
1.95
  
 
(*) Certain other reclassification adjustments are also reflected in the previously reported amounts to conform to the current presentation. These reclassification adjustments are not material to the prior years presentation
 
The following tables reconcile the effect of the adjustments to the previously reported Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012:

   
September 30, 2014
  
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Cash Flows
            
Net income
  
$
44,320
    
$
(1,049
)
  
$
43,271
  
Increase in deferred taxes
    
5,893
      
(671
)
    
5,222
  
Net cash provided by operating activities
    
92,399
      
(1,720
)
    
90,679
  
Net change in cash and cash equivalents
    
16,645
      
(1,720
)
    
14,925
  
Cash and cash equivalents at beginning of year
    
58,959
      
(10,881
)
    
48,078
  
Cash and cash equivalents at end of year
    
75,604
      
(12,601
)
    
63,003
  

   
September 30, 2013
  
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Cash Flows
            
Net income
  
$
54,772
    
$
(767
)
  
$
54,005
  
Increase in deferred taxes
    
3,812
      
(490
)
    
3,322
  
Net cash provided by operating activities
    
109,326
      
(1,257
)
    
108,069
  
Net change in cash and cash equivalents
    
700
      
(1,257
)
    
(557
)
Cash and cash equivalents at beginning of year
    
58,259
      
(9,624
)
    
48,635
  
Cash and cash equivalents at end of year
    
58,959
      
(10,881
)
    
48,078
  

   
September 30, 2012
  
   
Previously Reported
    
Adjustment
    
As Adjusted
  
Consolidated Statements of Cash Flows
            
Net income
  
$
55,204
    
$
(567
)
  
$
54,637
  
Increase in deferred taxes
    
6,050
      
(362
)
    
5,688
  
Net cash provided by operating activities
    
83,326
      
(929
)
    
82,397
  
Net change in cash and cash equivalents
    
(3,403
)
    
(929
)
    
(4,332
)
Cash and cash equivalents at beginning of year
    
61,662
      
(8,695
)
    
52,967
  
Cash and cash equivalents at end of year
    
58,259
      
(9,624
)
    
48,635
  

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, 2011 was adjusted by $(5,304) as a result of this matter.  In addition, the immaterial corrections did not affect the Company's compliance with debt covenants.
 
Certain other amounts in the fiscal 2013 and 2012 financial statements were revised to conform to the fiscal 2014 presentation. Specifically, costs in excess of billings related to the Company's percentage-of-completion arrangements are presented in Other Current Assets for all periods. Additionally, billings in excess of costs and customer prepayments related to the Company's percentage-of-completion arrangements are presented in Other Current Liabilities for all periods. The revision resulted in an $11,739 increase to Other Current Assets with a corresponding decrease to Accounts Receivable and Inventory at September 30, 2013. It also resulted in a $2,805 increase to Other Current Liabilities with a decrease to Other Liabilities at September 30, 2013. In addition, certain reclassifications have been made to adjust for bank overdrafts in the Consolidated Statement of Cash Flows for the year ended September 30, 2013 and 2012 and on the Consolidated Balance Sheet for the fiscal year ended September 30, 2013. These revisions were not material to any of the prior years presented.