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.


                                     Six months ended            Years ended
                                         March 31,              September 30,
                                        2009        2008        2008        2007
             Sales                     100.0 %     100.0 %     100.0 %     100.0 %
             Gross profit               36.3 %      40.0 %      39.5 %      37.4 %
             Operating profit           11.2 %      16.1 %      16.2 %      14.9 %
             Income before taxes         9.4 %      15.1 %      14.9 %      13.8 %
             Net income                  6.2 %       9.9 %       9.7 %       8.6 %

Sales for the six months ended March 31, 2009 were $388.6 million, compared to $380.2 million for the six months ended March 31, 2008. The increase resulted principally from the acquisition of a 78% interest in Saueressig GmbH & Co. KG ("Saueressig") in May 2008. Saueressig reported sales of $50.2 million for the current period. Excluding this acquisition, consolidated sales were lower than a year ago reflecting declines in most of the Company's other operations, which were principally due to the downturn in global economies. Additionally, for the six months ended March 31, 2009, changes in foreign currency values against the U.S. dollar had an unfavorable impact of approximately $8.9 million on the Company's consolidated sales compared to the six months ended March 31, 2008.

In the Memorialization businesses, Bronze segment sales for the first six months of fiscal 2009 were $102.4 million compared to $115.1 million for the first six months of fiscal 2008. The decrease primarily reflected a decline in the volume of memorial product sales and decreases in the value of foreign currencies against the U.S. dollar. Sales for the Casket segment were $107.6 million for the first six months of fiscal 2009 compared to $117.2 million for the same period in fiscal 2008. The decrease resulted principally from lower unit volume and a decline in product mix. Sales for the Cremation segment were $14.3 million for the first half of fiscal 2009 compared to $12.8 million for the same period a year ago. The increase primarily reflected the acquisition of a small cremation equipment manufacturer in Europe. In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in the first half of fiscal 2009 were

$112.8 million, compared to $73.5 million for the same period a year ago. The increase resulted from the Saueressig acquisition. Excluding this acquisition, sales were lower in most of the segment's other operations 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 six months ended March 31, 2009 were $21.1 million, compared to $29.6 million for the first six months of fiscal 2008. The decrease was principally due to lower product demand in the U.S. and foreign markets, reflecting a decline in industrial capital spending and lower sales of consumables. In addition, Marking Products sales were unfavorably affected by a decrease in the value of foreign currencies against the U.S. dollar. Sales for the Merchandising Solutions segment were $30.4 million for the first half of fiscal 2009, compared to $32.0 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 six months ended March 31, 2009 was $141.0 million, compared to $152.2 million for the six months ended March 31, 2008. Consolidated gross profit as a percent of sales decreased from 40.0% for the first half of fiscal 2008 to 36.3% for the first six months of fiscal 2009. The decrease in consolidated gross profit primarily reflected the impact of lower sales (excluding sales from acquired companies), a decrease in the value of foreign currency values against the U.S. dollar, and unusual charges in several of the Company's segments totaling approximately $5.8 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 six months ended March 31, 2009 were $97.5 million, compared to $91.1 million for the first half of fiscal 2008. Consolidated selling and administrative expenses as a percent of sales were 25.1% for the six months ended March 31, 2009, compared to 23.9% for the same period last year. The increases in costs and percentage of sales 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. Unusual changes included in selling and administrative expenses totaled $4.9 million of the first six months of fiscal 2009.

Operating profit for the six months ended March 31, 2009 was $43.5 million, compared to $61.2 million for the six months ended March 31, 2008. Operating profit for the first six months of fiscal 2009 included unusual charges of approximately $10.7 million and the unfavorable impact of foreign currencies against the U.S. dollar of approximately $1.9 million. Bronze segment operating profit for the first half of fiscal 2009 was $21.5 million, compared to $29.9 million for the same period in fiscal 2008. The decrease principally reflected the impact of lower sales and decreases in the value of foreign currencies against the U.S. dollar. Additionally, Bronze segment operating profit included unusual charges of $5.5 million, principally related to facilities consolidations. Operating profit for the Casket segment for the first six months of fiscal 2009 was $11.8 million, compared to $14.8 million for the first half of fiscal 2008. The decrease resulted from lower sales and unusual charges of $2.4 million which were principally related to an increase in bad debt expense and severance expenses. Cremation segment operating profit for the six months ended March 31, 2009 was $2.1 million, compared to $2.4 million for the same period a year ago. The decrease primarily reflected higher material costs and unusual charges of $183,000, partially offset by the acquisition of a small cremation equipment manufacturer. The Graphics Imaging segment operating profit for the six months ended March 31, 2009 was $5.7 million, compared to $7.5 million for the six months ended March 31, 2008. The decrease resulted primarily from lower sales, the unfavorable effect of exchange rate changes, and unusual charges totaling $1.8 million that related primarily to the impact of severance expenses and Saueressig acquisition integration expenses. Operating profit for the Marking Products segment for the first six months of fiscal 2009 was $1.0 million, compared to $3.7 million for the same period a year ago. The decrease primarily reflected lower sales and unusual charges of $467,000. The Merchandising Solutions segment operating profit was $1.3 million for the six months ended March 31, 2009, compared to $3.0 million for the same period in fiscal 2008. The decrease primarily reflected lower sales and unusual charges of $297,000.

Investments yielded a net loss of $695,000 for the six months ended March 31, 2009, compared to investment income of $1.0 million for the six months ended March 31, 2008. The fiscal 2009 investment loss reflects lower investment performance, and includes unusual charges of approximately $1.2 million, representing unrealized losses in the value of investments held in long-term trusts for certain employee benefit plans. Interest expense for the first half of fiscal 2009 was $6.3 million, compared to $4.0 million for the same period last year. The increase in interest expense primarily reflected higher debt levels during the first half of fiscal 2009 compared to the same period a year ago, resulting from the acquisition of Saueressig in May 2008.

Other income, net, for the six months ended March 31, 2009 was $3,000, compared to $368,000 for the same period last year. Minority interest deduction was $98,000 for the first half of fiscal 2009, compared to $1.3 million for the same period in 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 six months ended March 31, 2009 was 34.0%, compared to 34.1% for the same period last year. The tax rate for the six-month period in fiscal 2009 included the impact of a $923,000 reduction in income tax expense to reflect the Company's ability to utilize a tax loss carryover in Europe. The tax rate for the first half of fiscal 2008 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 income taxes in fiscal 2009 and 2008, the Company's effective tax rate was 36.6% for the first six months of fiscal 2009, compared to 36.2% for the full fiscal 2008 year. 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.

Goodwill:

Goodwill related to business combinations is not amortized, but is subject to annual review for impairment. 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. The Company performed its annual impairment review in the second quarter of fiscal 2009 and determined that no additional adjustments to the carrying values of goodwill were necessary at March 31, 2009.

Liquidity and Capital Resources:

Net cash provided by operating activities was $44.7 million for the six months ended March 31, 2009, compared to $55.8 million for the first six months of fiscal 2008. Operating cash flow for both periods primarily reflected net income adjusted for non-cash charges (depreciation, amortization, stock-based compensation expense and an increase in minority interest), and changes in working capital.

Cash used in investing activities was $9.9 million for the six months ended March 31, 2009, compared to $9.8 million for the six months ended March 31, 2008. Investing activities for the first six months of fiscal 2009 primarily included capital expenditures of $6.6 million and purchases of investments of $2.6 million. Investing activities for the first six months of fiscal 2008 primarily included capital expenditures of $4.5 million and purchases of investments of $4.2 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. Although the approved capital budget for fiscal 2009 is $26.7 million, the Company expects capital expenditures to be less than $20 million in fiscal 2009. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cash used in financing activities for the six months ended March 31, 2009 was $28.9 million, primarily reflecting treasury stock purchases of $23.1 million, proceeds of $1.1 million from the sale of treasury stock (stock option exercises), payment of dividends of $4.1 million to the Company's shareholders and distributions of $2.3 million to minority interests. Cash used in financing activities for the six months ended March 31, 2008 was $27.9 million, primarily reflecting net repayments of long-term debt of $20.1 million, treasury stock purchases of $9.1 million, proceeds of $5.4 million from the sale of treasury stock (stock option exercises), a tax benefit of $911,000 from exercised stock options, payment of dividends of $3.7 million to the Company's shareholders and distributions of $1.2 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 $20 million) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at March 31, 2009 and September 30, 2008 were $188.3 million and $172.5 million, respectively. The weighted-average interest rate on outstanding borrowings at March 31, 2009 and 2008 was 3.92% and 4.60%, respectively.

The Company has entered into the following interest rate swaps:

                                          Interest
                                Fixed   Rate Spread    Equal
                              Interest  at March 31, Quarterly
     Date      Initial Amount   Rate        2008      Payments  Maturity Date
April 2004      $50 million      2.66%       .60%       $2.5      April 2009
                                                      million
September 2005   50 million     4.14        .60          3.3      April 2009
                                                      million
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 $7.3 million ($4.4 million after tax) at March 31, 2009 that is included in shareholders' equity as part of accumulated other comprehensive income. Assuming market rates remain constant with the rates at March 31, 2009, approximately $1.6 million of the $4.4 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 its wholly-owned subsidiary, Matthews International GmbH ("MIGmbH"), has a credit facility with a bank for borrowings up to 25.0 million Euros ($33.2 million). At March 31, 2009, outstanding borrowings under the credit facility totaled 18.0 million Euros ($23.9 million). The weighted-average interest rate on outstanding MIGmbH related borrowings at March 31, 2009 and 2008 was 2.93% and 5.11%, respectively.

The Company, through its German subsidiary, Saueressig, has several loans with various European banks. Outstanding borrowings under these loans totaled 10.9 million Euros ($14.5 million) at March 31, 2009 and 11.6 million Euros ($16.3 million) at September 30, 2008. The weighted-average interest rate on outstanding borrowings of Saueressig at March 31, 2009 was 5.82%.

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 13.8 million Euros ($18.3 million) at March 31, 2009 and 15.3 million Euros ($21.6 million) at September 30, 2008. Matthews International S.p.A. also has three lines of credit totaling approximately 8.4 million Euros ($11.2 million) with the same Italian banks. Outstanding borrowings on these lines were 2.4 million Euros ($3.2 million) at March 31, 2009 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 March 31, 2009 and 2008 was 3.82% and 3.26%, respectively.

The Company has a stock repurchase program, which was initiated in 1996. Under the program, the Company's Board of Directors had authorized the repurchase of a total of 12,500,000 shares (adjusted for stock splits) of Matthews common stock, of which 12,098,272 shares have been repurchased as of March 31, 2009. 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 $151.6 million at March 31, 2009, compared to $141.4 million at September 30, 2008. Cash and cash equivalents were $49.6 million at March 31, 2009, compared to $50.7 million at September 30, 2008. The Company's current ratio was 2.1 at March 31, 2009, 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 March 31, 2009, an accrual of approximately $7.7 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 annual earnings per share 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 approximately 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 first half of fiscal 2009. 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 decline in global economies is expected to continue to impact the Company's operating results, especially in the near term. Buying patterns of customers in both the Memorialization and Brand Solutions businesses have been affected by the current recession, impacting unit volume, net pricing and product mix in all of the Company's operating segments. All of our businesses are continuing their efforts to adjust cost structures, to the degree practical, to better align with current revenue run rates to mitigate some of the economy's impact. For this reason, we expect further unusual charges in the coming quarters.

In March 2009, the company issued an update to its earnings guidance for fiscal 2009, projecting only a modest decline (less than 8%) in earnings per share from fiscal 2008, excluding unusual items from both periods. Based upon the results for the first six months of fiscal 2009 and current projections for the remainder of the fiscal year, the Company is maintaining its updated guidance at this time. Finally, assuming market conditions improve, the Company continues to target its long-term 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 March
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:
                                                      2009                                                 After
                                       Total        Remainder       2010 to 2011       2012 to 2013        2013
Contractual Cash Obligations:                                (Dollar amounts in thousands)
Revolving credit facilities          $ 212,248     $     5,833     $            -     $      206,415     $       -
Notes payable to banks                  34,643           3,070             13,142             13,758         4,673
Short-term borrowings                    3,174           3,174                  -                  -             -
. . .