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 commodity prices and the related 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.

                        Nine Months Ended            Years Ended
                             June 30,               September 30,
                         2009         2008        2008        2007
Sales                      100.0 %     100.0 %     100.0 %     100.0 %
Gross profit                37.3 %      39.9 %      39.5 %      37.4 %
Operating profit            12.6 %      16.3 %      16.2 %      14.9 %
Income before taxes         11.0 %      15.2 %      14.9 %      13.8 %
Net income                   7.3 %       9.9 %       9.7 %       8.6 %

Sales for the nine months ended June 30, 2009 were $580.7 million, compared to $599.4 million for the nine months ended June 30, 2008. The decrease principally reflected lower sales in the Company's Bronze, Casket, Marking Products and Merchandising Solutions segments. The impact of the global recession, a lower estimated domestic death rate compared to a year ago and changes in foreign currency values against the U.S. dollar were the principal factors in the reduction in the Company's consolidated sales. The declines were partially offset by the acquisitions of Saueressig GmbH & Co. KG ("Saueressig") in May 2008 and the acquisition of a small European cremation equipment manufacturer in December 2008. For the nine months ended June 30, 2009, changes in foreign currency values against the U.S. dollar had an unfavorable impact of approximately $28.4 million on the Company's consolidated sales compared to the nine months ended June 30, 2008.

In the Memorialization businesses, Bronze segment sales for the first nine months of fiscal 2009 were $159.1 million compared to $182.1 million for the first nine months of fiscal 2008. The decrease primarily reflected a decline in unit volume and decreases in the value of foreign currencies against the U.S. dollar. Sales for the Casket segment were $155.7 million for the first nine months of fiscal 2009 compared to $170.9 million for the same period in fiscal 2008. The decrease resulted principally from lower unit volume and an unfavorable change in product mix. The decline in sales for both the Bronze and Casket segments reflected the impact of the current recession on consumer spending, and a decline in the estimated number of casketed deaths compared to the prior year. Sales for the Cremation segment

were $22.0 million for the nine months ended June 30, 2009, compared to $19.6 million for the same period a year ago. The increase reflected the acquisition of a small European cremation equipment manufacturer, partially offset by lower sales of cremation caskets. In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in the first nine months of fiscal 2009 were $170.6 million, compared to $131.8 million for the same period a year ago. The increase resulted from the inclusion of Saueressig in fiscal 2009, compared to two months through June 30, 2008 (acquired in May 2008). Excluding this acquisition, sales were lower in this segment as a result of weak economic conditions and a decrease in the value of foreign currencies against the U.S. dollar. Marking Products segment sales for the nine months ended June 30, 2009 were $31.0 million, compared to $45.3 million for the first nine 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 $42.3 million for the first nine months of fiscal 2009, compared to $49.8 million for the same period a year ago. The decrease is attributable to a decline in volume due to project delays or cancellations by customers, also resulting from the downturn in the U.S. economy.

Gross profit for the nine months ended June 30, 2009 was $216.4 million, compared to $239.1 million for the nine months ended June 30, 2008. Consolidated gross profit as a percent of sales decreased from 39.9% for the first nine months of fiscal 2008 to 37.3% for the first nine months of fiscal 2009. The decrease in consolidated gross profit primarily reflected the impact of lower sales, decreases in the values of foreign currency values against the U.S. dollar, and unusual charges in several of the Company's segments totaling approximately $7.1 million. The unusual charges included severance and other expenses related to the consolidation of certain Bronze segment production facilities, and costs related to operational and systems improvements in several of the Company's other segments.

Selling and administrative expenses for the nine months ended June 30, 2009 were $143.1 million, compared to $141.2 million for the first nine months of fiscal 2008. Consolidated selling and administrative expenses as a percent of sales were 24.6% for the nine months ended June 30, 2009, compared to 23.6% for the same period last year. The increases in costs and percentage of sales primarily resulted from the Saueressig acquisition and unusual charges. Unusual charges included in selling and administrative expenses totaled $5.7 million for the nine months ended June 30, 2009, and consisted principally of Saueressig integration costs, bad debt expense, termination related expenses and costs related to operational and system improvements.

Operating profit for the nine months ended June 30, 2009 was $73.3 million, compared to $97.9 million for the nine months ended June 30, 2008. Operating profit for the nine months ended June 30, 2009 included unusual charges of approximately $12.8 million, and changes in the values of foreign currencies against the U.S. dollar had an unfavorable impact of approximately $3.6 million on consolidated operating profit for the current period, compared to a year ago. In addition, incentive compensation costs for the nine months ended June 30, 2009 were significantly less than in the prior year as a result of lower profitability in the current year. Bronze segment operating profit for the first nine months of fiscal 2009 was $40.1 million, compared to $50.6 million for the same period in fiscal 2008. The decrease primarily reflected the impact of lower sales and decreases in the value of changes in foreign currencies against the U.S. dollar. Additionally, Bronze segment operating profit included unusual charges of approximately $6.7 million, principally related to facilities consolidations. Operating profit for the Casket segment for the first nine months of fiscal 2009 was $15.7 million, compared to $20.3 million for the first nine months of fiscal 2008. The decrease resulted mainly from lower sales and unusual charges of approximately $2.6 million, which were principally related to bad debt expense and severance and other employment termination-related expenses. Cremation segment operating profit was $3.6 million for the nine months ended June 30, 2009, which was relatively unchanged from a year ago. Fiscal 2009 operating profit reflected a favorable change in product mix and the impact of the acquisition of a small European cremation equipment manufacturer, offset by lower domestic sales volume and unusual charges of approximately $235,000. Graphics Imaging segment operating profit for the nine months ended June 30, 2009 was $11.1 million, compared to $12.9 million for the nine months ended June 30, 2008. The decrease primarily resulted from lower sales (excluding the Saueressig acquisition) and unusual charges of approximately $2.3 million, which principally reflected severance charges and Saueressig integration costs. These declines were partially offset by an operating profit reported by Saueressig. Operating profit for the Marking Products segment for the first nine months of fiscal 2009 was $1.5 million, compared to $6.0 million for the same period a year ago. The decrease primarily reflected the impact of lower sales, decreases in the value of foreign currencies against the U.S. dollar, and unusual charges of approximately $665,000. The Merchandising Solutions segment operating profit was $1.5 million for the nine months ended June 30, 2009, compared to $4.5 million for the same period in fiscal 2008. The decrease principally reflected lower sales and unusual charges of approximately $297,000.

Investment income for the nine months ended June 30, 2009 was $629,000, compared to $1.4 million for the nine months ended June 30, 2008. The decrease reflected lower investment performance, and included unusual charges of approximately $405,000, representing unrealized losses in the value of investments held in long-term trusts for certain employee benefit plans. Interest expense for the first nine months of fiscal 2009 was $9.1 million, compared to $6.7 million for the same period last year. The increase in interest expense primarily reflected higher average debt levels during fiscal 2009 compared to the same period a year ago, resulting from the acquisition of Saueressig in May 2008.

Other income, net, for the nine months ended June 30, 2009 was $83,000, compared to $246,000 for the same period last year. Minority interest deduction was $1.0 million for the first nine months of fiscal 2009, compared to $2.1 million for the same period in fiscal 2008. The decrease in the minority interest deduction primarily reflected the Company's purchase of the remaining interest in one of its less than wholly-owned German subsidiaries in September 2008, partially offset by improved profitability at Saueressig.

The Company's effective tax rate for the first nine months of fiscal 2009 was 34.2%, compared to 34.9% for the same period last year. The nine-month period ended June 30, 2009 included the favorable impact of adjustments totaling $1.2 million in income tax expense related to the Company's ability to utilize a tax loss carryover in Europe and changes in the estimated tax accruals for open tax periods. The tax rate for the first nine months of fiscal 2008 reflected the favorable impact of a $1.9 million reduction in net deferred tax liabilities to reflect the enactment of the lower statutory income tax rates in Europe. Excluding these adjustments in fiscal 2009 and 2008, the effective tax rate for the first nine months of fiscal 2009 was 36.1%, compared to 36.2% for the fiscal year ended September 30, 2008. 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.

Liquidity and Capital Resources:

Net cash provided by operating activities was $69.5 million for the nine months ended June 30, 2009, compared to $78.5 million for the first nine 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). Cash flow from operating activities for the nine months ended June 30, 2008 includes a $5.0 million contribution to the Company's principal retirement plan.

Cash used in investing activities was $18.7 million for the nine months ended June 30, 2009, compared to $96.6 million for the nine months ended June 30, 2008. Investing activities for the first nine months of fiscal 2009 primarily included capital expenditures of $11.6 million, acquisition-related payments of $4.8 million, purchases of investment of $2.6 million and proceeds from the disposal of assets of $311,000. Investing activities for the first nine months of fiscal 2008 primarily included acquisitions (principally Saueressig) of $90.9 million, capital expenditures of $7.9 million, purchases of investments of $4.2 million and proceeds from the sale of investments of $5.5 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 nine months ended June 30, 2009 was $45.6 million, reflecting net repayments of long-term debt of $11.2 million, purchases of treasury stock of $27.3 million, proceeds of $1.1 million from the sale of treasury stock (stock option exercises), payment of dividends of $6.1 million to the Company's shareholders and distributions of $2.3 million to minority interests. Cash provided by financing activities for the nine months ended June 30, 2008 was $20.7 million, reflecting proceeds, net of repayments, from long-term debt of $45.9 million, purchases of treasury stock of $25.9 million, proceeds of $6.6 million from the sale of treasury stock (stock option exercises), a tax benefit of $992,000 from exercised stock options, payment of dividends of $5.6 million to the Company's shareholders and distributions of $1.3 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 June 30, 2009 and September 30, 2008 were $177.5 million and $172.5 million, respectively. The weighted-average interest rate on outstanding borrowings at June 30, 2009 and 2008 was 3.95% and 4.38%, respectively.

The Company has entered into the following interest rate swaps:

                                   Interest
                         Fixed   Rate Spread
               Initial  Interest at June 30,
Date            Amount    Rate       2009     Maturity Date
September 2007   $25                          September 2012
               million    4.77%      .60
May 2008         $40                          September 2012
               million    3.72       .60
October 2008     $20                          October 2010
               million    3.21       .60
October 2008     $20                          October 2011
               million    3.46       .60

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 $5.5 million ($3.4 million after tax) at June 30, 2009 that is included in shareholders' equity as part of accumulated other comprehensive income. Assuming market rates remain constant with the rates at June 30, 2009, approximately $1.3 million of the $3.4 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 certain of its German subsidiaries, has a credit facility with a European bank for borrowings up to 25.0 million Euros ($35.1 million). Outstanding borrowings under the credit facility at June 30, 2009 and September 30, 2008 totaled 19.7 million Euros ($27.6 million) and 22.5 million Euros ($31.7 million), respectively. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2009 and 2008 was 2.74% and 5.88%, respectively.

The Company, through its German subsidiary, Saueressig, has several loans with various European banks. Outstanding borrowings under these loans at June 30, 2009 and September 30, 2008 totaled 10.6 million Euros ($14.9 million) and 11.6 million Euros ($16.3 million), respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2009 and 2008 was 5.84% and 5.76%, respectively.

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 13.0 million Euros ($18.3 million) at June 30, 2009. Matthews International S.p.A. also has three lines of credit totaling approximately 8.4 million Euros ($11.8 million) with the same Italian banks. Outstanding borrowings on these lines at June 30, 2009 and September 30, 2008 were 2.3 million Euros ($3.3 million) and 2.3 million Euros ($3.3 million), respectively. The weighted-average interest

rate on outstanding borrowings of Matthews International S.p.A. at June 30, 2009 and 2008 was 3.80% and 3.92%, 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 12,240,102 shares have been repurchased as of June 30, 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 $164.5 million at June 30, 2009, compared to $141.4 million at September 30, 2008. Cash and cash equivalents were $52.0 million at June 30, 2009, compared to $50.7 million at September 30, 2008. The Company's current ratio was 2.2 at June 30, 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 June 30, 2009, an accrual of approximately $7.4 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 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 factors impacting fiscal 2009 are the severity of the slowdown in the U.S. and global economies, and an estimated decline in the casketed death rate compared to fiscal 2008. 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. As a result, the predictability of results in the near-term is difficult and, as such, the Company remains very cautious.

All of the Company's businesses are continuing 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, further unusual charges are expected in the coming quarters. Although the unusual charges associated with these actions have adversely impacted profitability in the short term, these steps are designed to provide long-term benefits to the Company when the economy recovers.

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 June 30,
2009, and the effect such obligations are expected to have on its liquidity and
cash flows in future periods.
. . .