Cautionary Statement:

The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation ("Matthews" or the "Company") and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended September 30, 2008. Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company's products, changes in death rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of domestic or international competitive pressures, unknown risks in connection with the Company's acquisitions, and technological factors beyond the Company's control. In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company's products or the potential loss of one or more of the Company's larger customers are also considered risk factors.

Results of Operations:

The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods indicated.



                                    Three months ended            Years ended
                                       December 31,              September 30,
                                     2008          2007        2008        2007
            Sales                      100.0 %      100.0 %     100.0 %     100.0 %
            Gross profit                35.5 %       39.5 %      39.5 %      37.4 %
            Operating profit            10.5 %       14.7 %      16.2 %      14.9 %
            Income before taxes          8.5 %       13.6 %      14.9 %      13.8 %
            Net income                   5.9 %        9.6 %       9.7 %       8.6 %

Sales for the quarter ended December 31, 2008 were $191.3 million, compared to $182.3 million for the three months ended December 31, 2007. The increase reflected the acquisition of a 78% interest in Saueressig GmbH & Co. KG ("Saueressig") in May 2008, offset by lower sales in the Company's other operations, which was principally due to the recent downturn in global economies. Additionally, for the first quarter of fiscal 2009, changes in foreign currency values against the U.S. dollar had an unfavorable impact of approximately $5.2 million on the Company's consolidated sales compared to the quarter ended December 31, 2007.

In the Company's Memorialization business, Bronze segment sales for the fiscal 2009 first quarter were $49.7 million, compared to $54.2 million for the fiscal 2008 first quarter. The decrease primarily resulted from a reduction in the volume of memorial product sales and a decrease in the value of foreign currencies against the U.S. dollar. Sales for the Casket segment were $52.6 million for the quarter ended December 31, 2008, compared to fiscal 2008 first quarter sales of $56.0 million. The decrease resulted principally from lower unit volume and a decline in product mix. Sales for the Cremation segment were $6.3 million for the first quarter of fiscal 2009, compared to $6.4 million for the same period a year ago. The decrease principally reflected slightly lower volume, partially offset by higher selling prices. In the Brand Solutions business, sales for the Graphics Imaging segment in the first quarter of fiscal 2009 were $57.2 million, compared to $35.0 million for the same period a year ago. The sales increase resulted from the Saueressig acquisition.

The increase was offset partially by lower sales in the U.S. market as a result of weak economic conditions, and decreases in the value of foreign currencies against the U.S. dollar. Marking Products segment sales for the quarter ended December 31, 2008 were $11.6 million, compared to $14.7 million for the fiscal 2008 first quarter. The decrease was principally due to lower product demand in the U.S. and foreign markets, reflecting the weakened global economies, and a decrease in the value of foreign currencies against the U.S. dollar. Sales for the Merchandising Solutions segment were $13.9 million for the first quarter of fiscal 2008, compared to $16.3 million for the same period a year ago. The decrease principally reflected a decline in volume also resulting from the downturn in the U.S. economy.

Gross profit for the quarter ended December 31, 2008 was $67.9 million, compared to $72.0 million for the same period a year ago. Consolidated gross profit as a percent of sales decreased from 39.5% for the first quarter of fiscal 2008 to 35.5% for the fiscal 2009 first quarter. The decrease in consolidated gross profit primarily reflected the impact of lower sales (excluding the Saueressig acquisition), a decrease in the value of foreign currencies against the U.S. dollar, and special charges in several of the Company's segments totaling approximately $3.7 million. The special charges included severance and other expenses related to the consolidation of certain Bronze segment production facilities, and severance charges in several of the Company's other segments.

Selling and administrative expenses for the three months ended December 31, 2008 were $47.8 million, compared to $45.2 million for the first quarter of fiscal 2008. Consolidated selling and administrative expenses as a percent of sales were 25.0% for the quarter ended December 31, 2008, compared to 24.8% for the same period last year. The increase in selling and administrative expenses primarily resulted from the Saueressig acquisition, an increase in bad debt expense, and severance expenses related to cost structure initiatives, partially offset by the benefit of cost reduction activities in several of the Company's segments.

Operating profit for the quarter ended December 31, 2008 was $20.1 million, compared to $26.8 million for the three months ended December 31, 2007. First quarter fiscal 2009 operating profit included special charges of approximately $5.8 million, and the unfavorable impact of changes in foreign currency values against the U.S. dollar of approximately $586,000. Bronze segment operating profit for the fiscal 2009 first quarter was $9.3 million, compared to $13.0 million for the first quarter of fiscal 2008. The decrease primarily reflected lower sales, charges of $3.1 million related to facility consolidations, and decreases in the value of foreign currencies against the U.S. dollar. Operating profit for the Casket segment for the first quarter of fiscal 2009 was $6.4 million, compared to $7.0 million for the first quarter of fiscal 2008. The decrease resulted from lower sales and an increase in bad debt expense. Cremation segment operating profit for the quarter ended December 31, 2008 was $813,000, compared to $1.0 million for the same period a year ago. The decrease principally reflected slightly lower sales and higher material costs. The Graphics Imaging segment operating profit for the quarter ended December 31, 2008 was $2.6 million, compared to $2.7 million for the three months ended December 31, 2007. The decrease resulted primarily from lower sales in the U.S. market, the unfavorable effect of exchange rate changes, the impact of severance and Saueressig acquisition integration expenses. The decrease was partially offset by a decline in administrative expenses and a slight operating profit reported by Saueressig. Operating profit for the Marking Products segment for the fiscal 2009 first quarter was $671,000, compared to $1.4 million for the same period a year ago. The decrease primarily resulted from lower sales and the impact of severance costs, partially offset by lower selling and administrative expenses. Merchandising Solutions segment operating profit was $299,000 for the first quarter of fiscal 2009, compared to $1.6 million for the same period in fiscal 2008. The decrease primarily reflected lower sales and a charge for severance costs in connection with cost structure initiatives.

Investments yielded a net loss of $388,000 for the three months ended December 31, 2008, compared to investment income of $512,000 for the quarter ended December 31, 2007. The fiscal 2009 first quarter investment loss reflects a mark-to-market adjustment of approximately $775,000, representing unrealized losses in the value of investments held in long-term trusts for certain employee benefit plans. Interest expense for the fiscal 2009 first quarter was $3.3 million, compared to $2.1 million for the same period last year. The increase in interest expense primarily reflected higher average levels of debt during the quarter ended December 31, 2008 compared to the same quarter a year ago, resulting from the acquisition of Saueressig in May 2008.

Other income (deductions), net, for the quarter ended December 31, 2008 represented a decrease in pre-tax income of $110,000, compared to an increase in pre-tax income of $245,000 for the same quarter last year. Minority interest for the fiscal 2009 first quarter represented an increase to pre-tax income of $13,000, compared to a deduction of $552,000 for the first quarter of fiscal 2008. The change in minority interest principally reflected the Company's purchase of the remaining interest in one of its less than wholly-owned German subsidiaries in September 2008.

The Company's effective tax rate for the three months ended December 31, 2008 was 30.9%, compared to 29.8% for the first quarter of fiscal 2008. The first quarter fiscal 2009 tax rate included the impact of a $936,000 reduction in income tax expense to reflect the Company's ability to utilize a tax loss carryover in Europe. The fiscal 2008 first quarter tax rate reflected the 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 adjustments to deferred taxes in fiscal 2009 and 2008, the Company's effective tax rate was 36.6% for fiscal 2009 first quarter, compared to 37.4% for the first quarter of fiscal 2008 and 36.2% for the full fiscal 2008 year. The decline in the fiscal 2009 first quarter effective tax rate compared to the fiscal 2008 first quarter was primarily due to an increase in the U.S. manufacturing tax credit and lower foreign taxes. 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 $19.6 million for the first quarter of fiscal 2009, compared to $31.5 million for the first quarter of fiscal 2008. Operating cash flow for both periods reflected net income adjusted for non-cash charges (depreciation, amortization, stock-based compensation expense and minority interest). In the fiscal 2008 first quarter, working capital changes included decreases in accounts receivable and inventory resulting from working capital management initiatives in several segments; offset partially by the payment of year-end compensation accruals.

Cash used in investing activities was $5.5 million for the three months ended December 31, 2008, compared to $3.5 million for the three months ended December 31, 2007. Investing activities for the first quarter of fiscal 2009 primarily reflected capital expenditures of $3.1 million and net purchases of investments of $2.5 million. Investing activities for the first quarter of fiscal 2008 consisted of capital expenditures of $2.1 million and net purchases of investments of $1.7 million.

Capital expenditures 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.

Cash used in financing activities for the quarter ended December 31, 2008 was $7.4 million, primarily reflecting long-term debt proceeds, net of repayments, of $16.0 million, treasury stock purchases of $19.3 million, proceeds of $255,000 from the sale of treasury stock (stock option exercises), dividends of $2.1 million to the Company's shareholders and distributions of $2.3 million to minority interests. Cash used in financing activities for the quarter ended December 31, 2007 was $12.7 million, primarily reflecting net repayments of long-term debt of $6.3 million, purchases of treasury stock of $4.3 million, proceeds of $713,000 from the sale of treasury stock (stock option exercises), dividends of $1.9 million to the Company's shareholders and distributions of $1.0 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 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 $20 million) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at December 31, 2008 and September 30, 2008 were $196.7 million and $172.5 million, respectively. The weighted-average interest rate on outstanding borrowings at December 31, 2008 and 2007 was 3.87% and 4.98%, respectively.

The Company has entered into the following interest rate swaps:

                                          Interest Rate
                                  Fixed     Spread at      Equal
                                 Interest  December 31,  Quarterly
        Date      Initial Amount   Rate        2008       Payments  Maturity Date
   April 2004      $50 million     2.66%        .60%      $2,500      April 2009
   September 2005   50 million     4.14        .60          3,333     April 2009
   August 2007      15 million     5.07        .60           -        April 2009
   August 2007      10 million     5.07        .60           -        April 2009
   September 2007   25 million     4.77        .60           -      September 2012
   May 2008         40 million     3.72        .60           -      September 2012
   October 2008     20 million     3.21        .60           -       October 2010
   October 2008     20 million     3.46        .60           -       October 2011

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 $7.4 million ($4.5 million after tax) at December 31, 2008 that is included in shareholders' equity as part of accumulated other comprehensive income. Assuming market rates remain constant with the rates at December 31, 2008, approximately $1.6 million of the $4.5 million loss included in accumulated other comprehensive income is expected to be recognized in earnings as interest expense over the next twelve months.

The Company, through certain of its German subsidiaries, has a credit facility with a European bank for borrowings up to 25.0 million Euros ($34.9 million). Outstanding borrowings under the credit facility totaled 21.5 million Euros ($30.0 million) at December 31, 2008 and 22.5 million Euros ($31.7 million) at September 30, 2008. The weighted-average interest rate on outstanding borrowings under the facility at December 31, 2008 and 2007 was 5.14% and 5.06%, respectively.

The Company, through its German subsidiary, Saueressig, has several loans with various European banks. Outstanding borrowings under these loans totaled 11.5 million Euros ($16.0 million) at December 31, 2008 and 11.6 million Euros ($16.3 million) at September 30, 2008. The weighted average interest rate on outstanding borrowings of Saueressig at December 31, 2008 was 5.78%.

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 14.5 million Euros ($20.3 million) at December 31, 2008 and 15.3 million Euros ($21.6 million) at September 30, 2008. Matthews International S.p.A. also has three lines of credit totaling 8.4 million Euros ($11.7 million) with the same Italian banks. Outstanding borrowings on these lines were 2.5 million Euros ($3.5 million) at December 31, 2008 and 2.3 million Euros ($3.3 million) at September 30, 2008. The weighted-average interest rate on outstanding borrowings of Matthews International S.p.A. at December 31, 2008 and 2007 was 3.87% and 3.26%, respectively.

The Company has a stock repurchase program. Under the program, the Company's Board of Directors has authorized the repurchase of a total of 12,500,000 shares of Matthews common stock, of which 11,863,272 shares have been repurchased as of December 31, 2008. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company's Articles of Incorporation.

Consolidated working capital of the Company was $155.8 million at December 31, 2008, compared to $141.4 million at September 30, 2008. Cash and cash equivalents were $53.2 million at December 31, 2008, compared to $50.7 million at September 30, 2008. The Company's current ratio was 2.2 at December 31, 2008, compared to 1.9 at September 30, 2008.

ENVIRONMENTAL MATTERS:

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

The Company is party to various environmental matters. These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at these sites, as appropriate. In addition, prior to its acquisition, The York Group, Inc. ("York"), a wholly-owned subsidiary of the Company, was identified, along with others, by the Environmental Protection Agency as a potentially responsible party for remediation of a landfill site in York, Pennsylvania. At this time, the Company has not been joined in any lawsuit or administrative order related to the site or its clean-up.

At December 31, 2008, an accrual of approximately $7.9 million had been recorded for environmental remediation (of which $844,000 was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations. The accrual, which reflects previously established reserves assumed with the acquisition of York and additional reserves recorded as a purchase accounting adjustment, does not consider the effects of inflation and anticipated expenditures are not discounted to their present value. Changes in the accrued environmental remediation obligation from the prior fiscal year reflect payments charged against the accrual. While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.

Acquisitions

In September 2008, the Company acquired the remaining 20% interest in S+T Gesellschaft fur Reprotechnik GmbH ("S+T GmbH"). The Company had acquired a 50% interest in S+T GmbH in 1998 and a 30% interest in 2005.

In May 2008, the Company acquired a 78% interest in Saueressig. The transaction was structured as an asset purchase with a preliminary purchase price of approximately 58.4 million Euros ($91.2 million). In addition, the Company entered into an option agreement related to the remaining 22% interest in Saueressig. The acquisition was designed to expand Matthews' products and services in the global graphics imaging market.

Forward-Looking Information:

The Company's long-term objective with respect to operating performance is to increase earnings per share on average in the range of 12% to 15% annually. For the past ten fiscal years, the Company has achieved an average annual increase in earnings per share of 14.7%.

Matthews has a three-pronged strategy to attain the annual growth rate objective, which has remained unchanged from the prior year. This strategy consists of the following: internal growth (which includes productivity improvements, new product development and the expansion into new markets with existing products), acquisitions and share repurchases under the Company's stock repurchase program.

The most significant factor impacting fiscal 2009 is the severity of the slowdown in the U.S. and global economies, which unfavorably affected sales and profits in both the Memorialization and Brand Solutions businesses in the fiscal 2009 first quarter. Additionally, the strengthening of the U.S. dollar unfavorably impacted fiscal 2009 reported results for the Company's overseas operations, when compared to fiscal 2008.

The challenges in the current market environment are expected to continue to impact operating results, especially in the near term. However, trends in sales for the Company's Memorialization businesses were closer to normal in December, compared to earlier in the quarter. While encouraging, we still remain cautious in the near term. The Company also expects to benefit from lower commodity costs toward the end of the second quarter and into the second half of the fiscal year. Additionally, Saueressig profitability is expected to continue to improve as the year progresses. Finally, all of our businesses are continuing their efforts to adjust cost structures to better align with current revenue run rates to mitigate some of the economy's impact. For this reason, and as the Bronze production consolidation continues, we expect further special charges in the coming quarters.

Based upon the results for the fiscal 2009 first quarter and current projections for the remainder of the fiscal year, the Company is maintaining its estimate of earnings per share growth for fiscal 2009 in the range of 5% to 10% (excluding unusual items from both periods), which represents fiscal 2009 full year earnings per share of at least $2.62. Finally, assuming market conditions improve, the Company continues to target its long-term average growth rate in the range of 12% to 15%.

Critical Accounting Policies:

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

A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2008. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the company's operating results and financial condition.

LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at December
31, 2008, and the effect such obligations are expected to have on its liquidity
and cash flows in future periods.

                                                               Payments due in fiscal year:
                                                    Remainder of                                              After
                                       Total            2009           2010 to 2011       2012 to 2013        2013
Contractual Cash Obligations:                                 (Dollar amounts in thousands)
Revolving credit facilities          $ 226,700     $       11,667     $            -     $      215,033     $       -
Notes payable to banks                  36,269              5,118             11,895             15,268         3,988
Short-term borrowings                    3,531              3,531                  -                  -             -
Capital lease obligations                4,333              1,191              2,756                386             -
Non-cancelable operating leases         28,672              7,600             13,340              6,256         1,476
Other                                    1,316              1,316                  -                  -             -

Total contractual cash obligations   $ 300,821     $       30,423     $       27,991     $      236,943     $   5,464

. . .