The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation 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.

The following table sets forth certain income statement data of the Company expressed as a percentage of net sales for the periods indicated and the percentage change in such income statement data from year to year.

                                Years Ended
                               September 30,                      Percentage Change

                       2008        2007        2006        2008 - 2007         2007 - 2006
Sales                   100.0 %     100.0 %     100.0 %             9.2 %               4.7 %
Gross profit             39.5        37.4        38.0              15.2                 3.1
Operating profit         16.2        14.9        15.9              18.9                (1.8 )
Income before taxes      14.9        13.8        14.7              17.2                (1.6 )
Net income                9.7         8.6         9.3              22.8                (2.6 )

Comparison of Fiscal 2008 and Fiscal 2007:

Sales for the year ended September 30, 2008 were $818.6 million, compared to $749.4 million for the year ended September 30, 2007. The increase principally reflected the acquisition of a 78% interest in Saueressig GmbH & Co. KG ("Saueressig"), a manufacturer of gravure printing cylinders, in May 2008, higher sales in the Company's Memorialization businesses, and the effect of higher foreign currency values against the U.S. dollar. The increases were partially offset by the absence of a large one-time Merchandising Solutions project completed in the second quarter of fiscal 2007 (which exceeded $10.0 million in revenue) and the sale of the segment's marketing consultancy business in August 2007. For the year ended September 30, 2008, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $18.0 million on the Company's consolidated sales compared to the year ended September 30, 2007.

In the Memorialization businesses, Bronze segment sales for fiscal 2008 were $243.1 million compared to $229.8 million for fiscal 2007. The increase primarily reflected higher selling prices and increases in the value of foreign currencies against the U.S. dollar, partially offset by a decline in the volume of memorial products. Sales for the Casket segment were $219.8 million for fiscal 2008 compared to $210.7 million for the same period in fiscal 2007. The increase mainly resulted from higher average selling prices which was partly attributable to the transition to Company-owned distribution in certain territories. Sales for the Cremation segment were $26.7 million for fiscal 2008 compared to $25.2 million a year ago. The increase primarily reflected higher cremation equipment, services and repair revenues. In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2008 were $203.7 million, compared to $146.0 million a year ago. The increase was mainly due to the Saueressig acquisition, an increase in the value of foreign currencies against the U.S. dollar and higher sales in the German markets. The increases were partially offset by lower sales in the U.K. market. Marking Products segment sales for the year ended September 30, 2008 were $60.0 million, compared to $57.5 million for fiscal 2007. The increase primarily reflected the acquisition of a 60% interest in Beijing Kenuohua Electronic Technology Co., Ltd. ("Kenuohua"), a Chinese ink-jet equipment manufacturer, in June 2007 and an increase in the value of foreign currencies against the U.S. dollar. These increases were partially offset by lower product demand in the domestic market, reflecting a slowdown in the U.S. economy. Sales for the Merchandising Solutions segment were $65.4 million for fiscal 2008, compared to $80.2 million a year ago. The decrease is attributable to a significant one-time project for one of the segment's customers in the second quarter of fiscal 2007, which exceeded $10.0 million in revenue and did not repeat in fiscal 2008, and the sale of the segment's marketing consultancy business in August 2007.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, continued

Gross profit for the year ended September 30, 2008 was $323.0 million, compared to $280.5 million for fiscal 2007. The increase in consolidated gross profit primarily reflected the impact of higher sales, the expansion to direct distribution by the Casket segment, the acquisition of Saueressig and the effects of cost structure initiatives implemented in fiscal 2007 in several of the Company's businesses. These gains were partially offset by the impact of lower sales in the U.K. graphics market, the domestic Marking Products business and the Merchandising Solutions segment. Additionally, fiscal 2007 gross profit was impacted by special charges incurred in several of the Company's segments. Consolidated gross profit as a percent of sales increased from 37.4% for fiscal 2007 to 39.5% for fiscal 2008.

Selling and administrative expenses for the year ended September 30, 2008 were $190.0 million, compared to $168.6 million for fiscal 2007. Consolidated selling and administrative expenses as a percent of sales were 23.2% for the year ended September 30, 2008, compared to 22.5% last year. The increases in costs and percentage of sales primarily resulted from the continued expansion of the Casket segment's distribution capabilities and the acquisition of Saueressig. Fiscal 2007 included special charges incurred in several of the Company's segments, the most significant of which was the acceleration of earn-out payments in the resolution of employment agreements from the fiscal 2005 acquisition of Milso Industries ("Milso"). These special charges were partially offset by litigation settlements in the Casket segment.

Operating profit for fiscal 2008 was $133.0 million, compared to $111.8 million for fiscal 2007. Fiscal 2007 operating profit included unusual items which had a net unfavorable impact of $8.8 million. The most significant portion of these items (special charges of approximately $9.4 million) related to the acceleration of earn-out payments in the resolution of employment agreements from the Milso acquisition.

The increase in consolidated operating profit in fiscal 2008 reflected the favorable impact of higher sales, increases in the values of foreign currencies against the U.S. dollar and cost improvements in several of the Company's segments. Bronze segment operating profit for fiscal 2008 was $71.6 million, compared to $66.3 million for fiscal 2007. The increase reflected the impact of higher sales and an increase in the value of foreign currencies against the U.S. dollar. Operating profit for the Casket segment for fiscal 2008 was $23.3 million, compared to $11.8 million for fiscal 2007. Casket segment operating profit for fiscal 2007 reflected special charges of approximately $10.0 million, including costs related to the resolution of employment agreements from the Milso acquisition and charges related to cost reduction initiatives. These charges were partially offset by favorable litigation settlements ($2.8 million net of legal costs incurred) in the fiscal 2007 fourth quarter. Excluding these special charges from a year ago, the Casket segment's fiscal 2008 operating profit improved compared to fiscal 2007, reflecting higher sales and the favorable impact of fiscal 2007 cost structure initiatives. Cremation segment operating profit for the year ended September 30, 2008 was $5.5 million, compared to $3.6 million a year ago. The increase was mainly attributable to the impact of higher cremation equipment, services and repair volume, improved price realization, and cost control efforts. The Graphics Imaging segment operating profit for fiscal 2008 was $18.6 million, compared to $14.4 million for 2007. Graphics Imaging segment operating profit for fiscal 2007 reflected special charges (mainly severance costs) of approximately $2.2 million related to cost reduction initiatives in the segment's U.S. and U.K. operations. Excluding these special charges from a year ago, the Graphics Imaging segment fiscal 2008 operating profit improved compared to fiscal 2007, reflecting higher sales in the German markets, an increase in foreign currency values against the U.S. dollar and the favorable impact of the fiscal 2007 cost structure initiatives. Operating profit for the Marking Products segment for fiscal 2008 was $9.1 million, compared to $9.9 million a year ago. The decrease resulted principally from lower domestic sales, offset partially by the acquisition of Kenuohua. The Merchandising Solutions segment operating profit was $4.8 million for fiscal 2008, compared to $5.7 million for fiscal 2007. Fiscal 2007 operating profit included a $1.3 million gain on the sale of the segment's marketing consultancy business and the benefit of a significant one-time sales project completed in the second quarter of fiscal 2007. Excluding the gain on the sale of the consulting business in fiscal 2007, the segment's fiscal 2008 operating profit improved

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, continued

compared to fiscal 2007, reflecting the benefit of recent cost structure initiatives. For the year ended September 30, 2008, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $3.4 million on the Company's consolidated operating profit compared to the year ended September 30, 2007.

Investment income for the year ended September 30, 2008 was $1.8 million, compared to $2.4 million for the year ended September 30, 2007. The decrease reflected lower average levels of invested funds and a decline in investment performance. Interest expense for fiscal 2008 was $10.4 million, compared to $8.1 million last year. The increase in interest expense primarily reflected higher average debt levels and higher average interest rates during fiscal 2008 compared to fiscal 2007. The higher debt level resulted from borrowings related to the Saueressig acquisition in May 2008.

Other income, net, for year ended September 30, 2008 was $510,000, compared to $354,000 last year. Minority interest deduction was $3.3 million for fiscal 2008, compared to $2.7 million in fiscal 2007. The increase in minority interest deduction reflected the Company's acquisition of Kenuohua in June 2007.

The Company's effective tax rate for fiscal 2008 was 34.6%, compared to 37.6% for fiscal 2007. Fiscal 2008 included the favorable impact of a $1.9 million reduction in net deferred tax liabilities to reflect the enactment of lower statutory income tax rates in certain European countries. Excluding the one-time adjustment to deferred taxes, the Company's effective tax rate was 36.2%. The decrease in the effective tax rate in fiscal 2008 primarily reflected lower statutory tax rates in Europe, the impact of the U.S. Federal manufacturing credit and the closure of several open domestic and foreign tax years. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state and foreign income taxes.

Comparison of Fiscal 2007 and Fiscal 2006:

Sales for the year ended September 30, 2007 were $749.4 million, compared to $715.9 million for the year ended September 30, 2006. The increase reflected higher sales in five of the Company's six segments, and included the effect of higher foreign currency values against the U.S. dollar. For the year ended September 30, 2007, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $13.6 million on the Company's consolidated sales compared to fiscal 2006.

In the Memorialization businesses, Bronze segment sales for fiscal 2007 were $229.8 million compared to $218.0 million for fiscal 2006. The increase primarily reflected higher selling prices and increases in the value of foreign currencies against the U.S. dollar. The higher selling prices were generally related to increases in the cost of bronze ingot. Sales for the Casket segment were $210.7 million for fiscal 2007 compared to $201.0 million in fiscal 2006. The increase mainly resulted from the segment's transition to Company-owned distribution in certain territories. Unit sales through Company-owned distribution are generally at higher price levels than sales to independent distributors. Sales for the Cremation segment were $25.2 million for fiscal 2007 compared to $26.0 million in fiscal 2006. The decrease primarily reflected lower sales volume of cremation equipment units, which was partially due to the timing of delivery of several units at the end of fiscal 2007. In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2007 were $146.0 million, compared to $140.9 million in fiscal 2006. The increase was mainly due to an increase in the value of foreign currencies against the U.S. dollar and higher sales in the German markets, partially offset by lower sales in the U.S. and U.K. markets. Marking Products segment sales for the year ended September 30, 2007 were $57.5 million, compared to $52.3 million for fiscal 2006. The increase primarily reflected higher domestic and international sales volume, the acquisition of an interest in a Chinese ink-jet equipment manufacturer in June 2007 and an increase in the value of foreign currencies against the U.S. dollar. Sales for the Merchandising Solutions segment were $80.2 million for fiscal 2007, compared to $77.8 million in fiscal 2006. The increase is attributable to a significant project completed in the second quarter for one of the segment's customers. Excluding this project, sales declined from fiscal 2006, reflecting lower demand.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, continued

Gross profit for the year ended September 30, 2007 was $280.5 million, compared to $271.9 million for fiscal 2006. The increase in consolidated gross profit primarily reflected the impact of higher sales, higher foreign currency values against the U.S. dollar, productivity improvements in the Casket segment's manufacturing facility in Mexico, and other manufacturing and cost reduction initiatives. These gains were partially offset by the impact of lower sales in the U.S. and U.K. graphics markets, the higher cost of bronze ingot in fiscal 2007 compared to fiscal 2006 and the impact of special charges incurred by several of the Company's segments. Consolidated gross profit as a percent of sales decreased from 38.0% for fiscal 2006 to 37.4% for fiscal 2007.

Selling and administrative expenses for the year ended September 30, 2007 were $168.6 million, compared to $158.0 million for fiscal 2006. Consolidated selling and administrative expenses as a percent of sales were 22.5% for the year ended September 30, 2007, compared to 22.1% last year. The increases in costs and percentage of sales primarily resulted from the expansion of the Casket segment's distribution capabilities and special charges incurred in several of the Company's segments, the most significant of which was a Casket segment charge related to the acceleration of earn-out payments in the resolution of employment agreements from the Milso acquisition. These increases were partially offset by settlements of several Casket segment legal claims during fiscal 2007.

Operating profit for fiscal 2007 was $111.8 million, compared to $113.9 million for fiscal 2006. Fiscal 2007 operating profit included unusual items which had a net unfavorable impact of $8.8 million. The most significant portion of these represented special charges of $9.4 million in the resolution of employment agreements from the Milso acquisition. Fiscal 2006 operating profit included unusual items which had a net favorable impact of $1.0 million.

Fiscal 2007 operating profit reflected the favorable impact of higher sales, increases in the values of foreign currencies against the U.S. dollar, and productivity improvements and cost reduction initiatives in several of the Company's segments. Bronze segment operating profit for fiscal 2007 was $66.3 million, compared to $65.0 million for fiscal 2006. The increase reflected the impact of higher sales and an increase in the value of foreign currencies against the U.S. dollar, partially offset by the higher cost of bronze ingot in fiscal 2007. Operating profit for the Casket segment for fiscal 2007 was $11.8 million, compared to $17.0 million for fiscal 2006. Casket segment operating profit reflected special charges of approximately $10.0 million, including costs related to the resolution of employment agreements from the Milso acquisition and cost reduction initiatives in certain operations. These charges were partially offset by favorable litigation settlements ($2.8 million net of legal costs incurred) in the fiscal 2007 fourth quarter. In addition, the segment's results reflected additional selling and administrative costs related to the expansion of the segment's distribution capabilities in certain territories. Cremation segment operating profit for the year ended September 30, 2007 was $3.6 million, compared to $3.4 million in fiscal 2006. The increase was mainly attributable to the impact of improved price realization and cost reduction initiatives. The Graphics Imaging segment operating profit for fiscal 2007 was $14.4 million, compared to $16.6 million for 2006. The decrease primarily reflected the impact of lower sales in the U.S. and U.K. markets and special charges (mainly severance costs) of approximately $2.2 million related to cost reduction initiatives in the segment's U.S. and U.K. operations, partially offset by higher sales in the German markets and an increase in foreign currency values against the U.S. dollar. Operating profit for the Marking Products segment for fiscal 2007 was $9.9 million, compared to $9.1 million in fiscal 2006. The increase resulted principally from higher sales and the acquisition made in June 2007, partially offset by higher overhead costs during fiscal 2007. The Merchandising Solutions segment operating profit was $5.7 million for fiscal 2007, compared to $2.9 million for fiscal 2006. The increase primarily reflected the impact of higher sales attributable to a significant project completed in the second quarter for one of the segment's customers, a net gain of $1.3 million recognized on the sale of the segment's marketing consultancy business in the fourth quarter of fiscal 2007 and the favorable effects of the segment's facilities consolidation program. For the year ended September 30, 2007, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $2.4 million on the Company's consolidated operating profit compared to fiscal 2006.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, continued

Investment income for the year ended September 30, 2007 was $2.4 million, compared to $1.4 million for fiscal 2006. The increase reflected higher average levels of invested funds and higher rates of return. Interest expense for fiscal 2007 was $8.1 million, compared to $7.0 million in fiscal 2006. The increase in interest expense primarily reflected a higher average level of debt and higher average interest rates during fiscal 2007 compared to fiscal 2006.

Other income, net, for year ended September 30, 2007 was $354,000, compared to $70,000 in fiscal 2006. Minority interest deduction was $2.7 million for fiscal 2007, compared to $3.0 million in fiscal 2006. The reduction in minority interest deduction reflected the Company's purchase of the remaining ownership interest in one of its less than wholly-owned German subsidiaries in September 2006.

The Company's effective tax rate for fiscal 2007 was 37.6%, compared to 37.0% for fiscal 2006. The fiscal 2006 effective tax rate reflected the favorable tax impact from the sale of property in the fourth quarter. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state and foreign income taxes.

LIQUIDITY AND CAPITAL RESOURCES:

Net cash provided by operating activities was $104.5 million for the year ended September 30, 2008, compared to $74.6 million and $66.3 million for fiscal 2007 and 2006, respectively. Operating cash flow for fiscal 2008 primarily reflected net income adjusted for depreciation and amortization, stock-based compensation expense, an increase in minority interest and an increase in deferred taxes, partially offset by cash contributions of $15.2 million to the Company's principal pension plan. Operating cash flow for fiscal 2007 primarily reflected net income adjusted for depreciation and amortization, stock-based compensation expense, an increase in minority interest and an increase in deferred taxes, partially offset by an increase in working capital. The lower level of cash provided by operating activities in fiscal 2006 was attributable to an increase in working capital primarily resulting from higher levels of accounts receivable and inventories with the Casket segment's expansion of its distribution capabilities.

Cash used in investing activities was $108.7 million for the year ended September 30, 2008, compared to $38.7 million and $48.8 million for fiscal years 2007 and 2006, respectively. Investing activities for fiscal 2008 primarily reflected payments (net of cash acquired) of $98.1 million for acquisitions (primarily Saueressig), capital expenditures of $12.1 million, net proceeds from the sale of investments of $419,000 and proceeds from the sale of assets of $1.0 million. Investing activities for fiscal 2007 primarily reflected payments (net of cash acquired) of $23.8 million for acquisitions, capital expenditures of $20.6 million, net purchases of investments of $1.1 million and proceeds of $6.9 million from the sale of assets. Investing activities for fiscal 2006 primarily reflected payments (net of cash acquired) of $32.3 million for acquisitions, capital expenditures of $19.4 million, and proceeds of $3.1 million from the sale of assets. See "Acquisitions" for further discussion of the Company's acquisitions.

Capital expenditures were $12.1 million for the year ended September 30, 2008, compared to $20.6 million and $19.4 million for fiscal 2007 and 2006, respectively. Capital expenditures in each of the last three fiscal years reflected reinvestment 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 $17.4 million for the last three fiscal years. The capital budget for fiscal 2009 is $26.7 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, continued

Cash provided by financing activities for the year ended September 30, 2008 was $13.1 million, reflecting proceeds, net of repayments, from long-term debt of $43.1 million, proceeds from the sale of treasury stock (stock option exercises) of $19.2 million, a tax benefit of $3.1 million from exercised stock options, purchases of treasury stock of $43.3 million, payment of dividends to the Company's shareholders of $7.4 million ($0.245 per share) and distributions of $1.6 million to minority interests. Cash used in financing activities for the year ended September 30, 2007 was $27.1 million, reflecting treasury stock purchases of $56.5 million, net proceeds of long-term debt of $17.7 million, proceeds of $16.5 million from the sale of treasury stock (stock option exercises), a tax benefit of $3.8 million from exercised stock options, dividends of $7.1 million ($0.225 per share) to the Company's shareholders and distributions of $1.6 million to minority interests. Cash used in financing activities for the year ended September 30, 2006 was $29.0 million, reflecting treasury stock purchases of $17.5 million, net repayments of long-term debt of $2.1 million, proceeds of $2.0 million from the sale of treasury stock (stock option exercises), a tax benefit of $637,000 from exercised stock options, dividends of $6.6 million ($0.205 per share) to the Company's shareholders and distributions of $5.5 million to minority interests.

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions. The maximum amount of borrowings available under the facility is $225.0 million and the facility's maturity is September 2012. Borrowings under the facility bear interest at LIBOR plus a factor ranging from .40% to .80% 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 $10.0 million) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at September 30, 2008 and 2007 were $172.5 million and $147.8 million, respectively. The weighted-average interest rate on outstanding borrowings at September 30, 2008 and 2007 was 4.35% and 5.08%, respectively.

The Company has entered into the following interest rate swaps:

                                                      Interest Rate
                                        Fixed           Spread at
                                       Interest        September 30,      Equal Quarterly
      Date         Initial Amount        Rate              2008               Payments         Maturity Date
April 2004          $50 million              2.66 %              .40 %      $2.5 million         April 2009
September 2005       50 million              4.14                .40         3.3 million         April 2009
August 2007          15 million              5.07                .40                      -      April 2009
August 2007          10 million              5.07                .40                      -      April 2009
September 2007       25 million              4.77                .40                      -    September 2012
May 2008             40 million              3.72                .40                      -    September 2012

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 of $1.3 million ($818,000 after tax) at September 30, 2008 that is included in equity as part of accumulated other comprehensive income. Assuming market rates remain constant with the rates at September 30, 2008, approximately $345,000 of the $818,000 loss included in accumulated other comprehensive income is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.

. . .