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, 2011. 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 sales and operating profit for the Company's
Memorialization and Brand Solutions businesses for the periods indicated.

                      Three Months Ended           Nine Months Ended
                           June 30,                    June 30,
                      2012          2011          2012          2011
Sales:
Memorialization     $ 126,880     $ 132,226     $ 366,475     $ 381,179
Brand Solutions       100,598        99,285       303,761       277,827
                    $ 227,478     $ 231,511     $ 670,236     $ 659,006

Operating Profit:
Memorialization     $  20,841     $  26,087     $  51,345     $  63,986
Brand Solutions         6,672         8,994        20,380        21,546
                    $  27,513     $  35,081     $  71,725     $  85,532

Effective October 1, 2011, the Company changed the name of its Bronze and Casket segments to the Cemetery Products segment and the Funeral Home Products segment, respectively. Also effective October 1, 2011, the Company's cremation casket operations, previously included in the Cremation segment, are included in the Funeral Home Products segment. Prior period financial information has been reclassified to reflect the current presentation.

Sales for the nine months ended June 30, 2012 were $670.2 million, compared to $659.0 million for the nine months ended June 30, 2011. Higher sales were reported in each of the Company's Brand Solutions businesses and the Cremation segment. These increases were partially offset by lower sales in the Cemetery Products and Funeral Home Products segments, which were unfavorably impacted by a decline in the estimated number of casketed and in-ground burial (non-cremation) deaths. Consolidated sales were also affected by an unfavorable impact of approximately $11.1 million from changes in foreign currency values against the U.S. dollar.

In the Memorialization businesses, Cemetery Products segment sales for the first nine months of fiscal 2012 were $157.1 million, compared to $166.1 million for the first nine months of fiscal 2011. The decrease resulted primarily from a decline in sales volume of bronze memorials and lower mausoleum sales. The decline in sales of bronze memorials principally reflected the impact of lower estimated U.S. in-ground burial deaths in fiscal 2012 compared to the prior year. Sales for the Funeral Home Products segment were $176.5 million for the first nine months of fiscal 2012 compared to $188.8 million for the same period in fiscal 2011. The decrease resulted principally from the impact of lower year-over-year casketed deaths in the U.S. and a decline in sales to independent distributors. Sales for the Cremation segment were $32.9 million for the first nine months of fiscal 2012 compared to $26.3 million for the same period a year ago. The increase principally reflected higher sales of cremation equipment in the U.S., U.K. and Europe.

In the Company's Brand Solutions businesses, sales for the Graphics Imaging segment in the first nine months of fiscal 2012 were $197.7 million, compared to $193.3 million for the same period a year ago. The increase resulted principally from higher year-to-date sales volume and the acquisition of Kroma Pre-Press Preparation Systems Industry & Trade, Inc. ("Kroma") in July 2011, partially offset by an unfavorable impact of approximately $8.5 million from changes in the value of foreign currencies against the U.S. dollar. Graphics Imaging segment sales for the fiscal 2012 third quarter were lower than a year ago, primarily resulting from a decrease in sales in Europe. Marking Products segment sales for the nine months ended June 30, 2012 were $53.4 million, compared to $43.2 million for the first nine months of fiscal 2011. The increase resulted principally from an increase in print equipment and material handling components and acquisitions completed in fiscal 2011. Sales for the Merchandising Solutions segment were $52.6 million for the first nine months of fiscal 2012, compared to $41.3 million for the same period a year ago. The increase principally reflected higher volume for several global customers.

Gross profit for the nine months ended June 30, 2012 was $250.4 million, compared to $259.8 million for the nine months ended June 30, 2011. Consolidated gross profit as a percent of sales for the first nine months of fiscal 2012 decreased to 37.4% from 39.4% for the first nine months of fiscal 2011. The decrease in consolidated gross profit and gross profit percentage primarily reflected the impact of lower sales in the Cemetery Products and Funeral Home Products segments and higher commodity costs, partially offset by the impact of higher sales in the Brand Solutions businesses and Cremation segment.

Selling and administrative expenses for the nine months ended June 30, 2012 were $178.7 million, compared to $174.3 million for the first nine months of fiscal 2011. Consolidated selling and administrative expenses as a percent of sales were 26.7% for the nine months ended June 30, 2012, compared to 26.4% for the same period last year. The increase in selling and administrative expenses was primarily attributable to higher sales in the Graphics Imaging and Cremation segments and recent acquisitions in the Marking Products segment. These increases were partially offset by the benefit of selling and casket distribution cost structure initiatives in the Funeral Home Products segment, which favorably impacted selling and administrative expense as a percent of sales.

Operating profit for the nine months ended June 30, 2012 was $71.7 million, compared to $85.5 million for the nine months ended June 30, 2011. Cemetery Products segment operating profit for the nine months ended June 30, 2012 was $27.3 million, compared to $38.9 million a year ago. The decrease primarily reflected lower sales, higher bronze ingot costs, ERP system implementation costs and severance costs. These declines were partially offset by a favorable settlement on a claim related to the Company's granite business. Funeral Home Products segment operating profit was $20.8 million for the first nine months of fiscal 2012, compared to $22.9 million for the same period in fiscal 2011. The decline primarily reflected the impact of lower sales and higher transportation costs (primarily fuel). These declines were partially offset by the benefit of manufacturing and distribution cost structure initiatives. Cremation segment operating profit for the first nine months of fiscal 2012 was $3.3 million, compared to $2.2 million for the same period in the prior year, principally reflecting sales improvement. Graphics Imaging segment operating profit for the nine months ended June 30, 2012 was $11.3 million, compared to $15.7 million for the same period in fiscal 2011. The decrease resulted mainly from the net unfavorable impact of unusual items. These items primarily included charges related to acquisition related activities and severance costs. In addition, the segment's operating profit for the current period reflected the impact of lower third quarter sales in Europe and an unfavorable impact of

approximately $1.1 million from changes in foreign currency values against the U.S. dollar. These decreases were offset partially by the impact of the Kroma acquisition. Operating profit for the Marking Products segment for the first nine months of fiscal 2012 was $6.3 million, compared to $4.7 million for the same period a year ago. The increase primarily resulted from higher sales and the impact of acquisitions. Merchandising Solutions segment operating profit was $2.8 million for the first nine months of fiscal 2012, compared to $1.1 million for the same period in fiscal 2011. The increase primarily reflected higher sales in fiscal 2012.

Investment income was $3.0 million for the nine months ended June 30, 2012, compared to $2.2 million for the nine months ended June 30, 2011. The increase primarily resulted from higher appreciation in the values of invested securities during the current year. Interest expense was approximately $8.2 million for the first nine months of fiscal 2012, compared to $6.0 million for the same period a year ago. The increase primarily reflected higher debt levels compared to a year ago.

Other income (deductions), net for the nine months ended June 30, 2012 was a reduction of income of $1.8 million, compared to a reduction of income of $1.5 million for the same period last year. Other income and deductions generally include banking-related fees and the impact of currency gains or losses on intercompany debt.

The Company's effective tax rate for the nine months ended June 30, 2012 was 33.7%, compared to 34.2% for the first nine months of fiscal 2011 and 34.4% for the fiscal 2011 full year. The effective tax rate for first nine months of fiscal 2012 reflects the favorable impact of adjustments totaling $528,000 in income tax expense related to changes in estimated tax accruals and the closure of open tax periods. The fiscal 2011 first nine months and full year effective tax rates included the favorable impact of adjustments totaling $606,000 in income tax expense primarily related to changes in the estimated tax accruals for open tax periods. Excluding those adjustments, the Company's effective tax rates for the first nine months of fiscal 2012 and 2011 and fiscal 2011 full year were 34.5%, 34.9% and 35.0%, respectively. The decrease in the effective tax rate from the fiscal 2011 first nine months and full year, excluding adjustments, primarily reflected the impact of the Company's European operating structure initiatives. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.

Net income attributable to noncontrolling interests in the first nine months of fiscal 2012 was $129,000, compared to $1.1 million in the first nine months of fiscal 2011. The decrease related principally to the Company's acquisition of the remaining 22% interest in Saueressig in April 2011.

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 discounted cash flow technique. The Company performed its annual impairment review in the second quarter of fiscal 2012 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 $56.3 million for the nine months ended June 30, 2012, compared to $62.0 million for the first nine months of fiscal 2011. Operating cash flow for both periods reflected net income adjusted for depreciation, amortization, stock-based compensation expense and pension expense, partially offset by decreases in deferred taxes. The decline in operating cash flows primarily reflected lower net income, partially offset by a reduction of cash used to fund working capital items.

Cash used in investing activities was $36.9 million for the nine months ended June 30, 2012, compared to $47.8 million for the nine months ended June 30, 2011. Investing activities for the first nine months of fiscal 2012 primarily reflected capital expenditures of $24.6 million and payments (net of cash acquired) of $12.5 million for acquisitions. Investing activities for the first nine months of fiscal 2011 reflected capital expenditures of $15.9 million and payments (net of cash acquired) of $31.5 million for acquisitions.

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. The increase in capital expenditures for fiscal 2012 primarily resulted from several projects in the Graphics Imaging segment. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $21.1 million for the last three fiscal years. Capital spending for fiscal 2012 is expected to approximate $30.0 million. 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, 2012 was $24.5 million, primarily reflecting long-term debt proceeds, net of repayments, of $1.9 million, treasury stock purchases of $18.9 million and dividends of $7.6 million to the Company's shareholders. Cash used in financing activities for the first nine months of 2011 was $28.5 million, reflecting long-term debt proceeds, net of repayments, of $25.5 million, proceeds of $1.6 million from the sale of treasury stock (stock option exercises), treasury stock purchases of $14.3 million, dividends of $7.1 million to the Company's shareholders and distributions to noncontrolling interests of $34.2 million.

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions. In March 2012, the maximum amount of borrowings available under the facility was increased from $300.0 million to $400.0 million and the facility's maturity was extended to March 2017. Borrowings under the amended facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% 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 .20% to .30% (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 $25.0 million) is available for the issuance of commercial and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility were $250.0 million as of June 30, 2012 and September 30, 2011. The weighted-average interest rate on outstanding borrowings under the credit facilities was 3.15% and 2.98% at June 30, 2012 and 2011, respectively.

The Company has entered into the following interest rate swaps:

                            Fixed   Interest Rate
                           Interest Spread at June
Effective Date   Amount      Rate      30, 2011    Maturity Date
September 2007 $25 million  4.770%      1.25%      September 2012
May 2008        20 million  3.720%      1.25%      September 2012
May 2011        25 million  1.370%      1.25%      May 2014
October 2011    25 million  1.670%      1.25%      October 2015
November 2011   25 million  2.130%      1.25%      November 2014
March 2012      25 million  2.440%      1.25%      March 2015
June 2012       40 million  1.875%      1.25%      June 2022
September 2012  25 million  3.030%      1.25%      December 2015
September 2012  25 million  1.240%      1.25%      March 2017
November 2012   25 million  1.330%      1.25%      November 2015

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 $8.2 million ($5.0 million after tax) at June 30, 2012 that is included in shareholders' equity as part of accumulated other comprehensive loss. Assuming market rates remain constant with the rates at June 30, 2012, approximately $1.7 million of the $5.0 million loss included in

accumulated other comprehensive loss 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. The maximum amount of borrowings available under this facility was 25.0 million Euros ($31.7 million). Outstanding borrowings under the credit facility totaled 23.6 million Euros ($29.9 million) and 23.6 million Euros ($31.6 million) at June 30, 2012 and September 30, 2011, respectively. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2012 and 2011 was 2.45% and 2.27%, respectively.

The Company, through its German subsidiary, Saueressig, has several loans with various European banks. Outstanding borrowings under these loans totaled 8.1 million Euros ($10.2 million) and 8.3 million Euros ($11.2 million) at June 30, 2012 and September 30, 2011, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2012 and 2011 was 6.11% and 6.02%, 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 6.7 million Euros ($8.4 million) and 8.7 million Euros ($11.6 million) at June 30, 2012 and September 30, 2011, respectively. Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($14.4 million) with the same Italian banks. Outstanding borrowings on these lines totaled 2.5 million Euros ($3.1 million) and 493,000 Euros ($661,000) at June 30, 2012 and September 30, 2011, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at June 30, 2012 and 2011 was 3.09%.

The Company has a stock repurchase program. 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 Restated Articles of Incorporation. As of June 30, 2012, the Company had a total available repurchase authorization of 2,222,496 shares.

Consolidated working capital of the Company was $208.8 million at June 30, 2012, compared to $208.1 million at September 30, 2011. Cash and cash equivalents were $54.7 million at June 30, 2012, compared to $61.7 million at September 30, 2011. The Company's current ratio was 2.2 at June 30, 2012, compared to 2.3 at September 30, 2011.

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, 2012, an accrual of approximately $5.8 million had been recorded for environmental remediation (of which $788,000 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 May 2012, the Company announced that it had acquired Everlasting Granite Memorial Co., Inc., a supplier of granite memorials, columbariums and private mausoleum estates. The transaction is intended to expand the Company's presence and product breadth in the granite memorial business.

Forward-Looking Information:

Matthews has a three-pronged strategy to attain annual growth in earnings per share. This strategy, which has remained unchanged from prior years, consists of the following: internal growth (which includes organic growth, 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 (see "Liquidity and Capital Resources"). For the past ten fiscal years, the Company has achieved an average annual increase in earnings per share of 10.9%.

In assessing the outlook for the fourth fiscal quarter, the Company continues to focus on the three significant factors that have affected year-to-date earnings:

· The impact of the decline in U.S. deaths on bronze memorial and casket products;

· A slow-down of the European economy (including a recent further decline in the value of the Euro); and

· The ERP implementation in the Cemetery Products segment.

In the near-term, these challenges are expected to continue. In response, the Company is planning more aggressive cost reduction programs and plans to accelerate initiatives to resolve the remaining ERP implementation issues. As a result, based on the fiscal 2012 year-to-date operating results and current forecasts, the Company is projecting (non-GAAP) earnings per share for the fiscal 2012 fourth quarter to be lower than the same quarter a year ago.

With respect to the long-term outlook, the Company expects to return to its traditional levels of consolidated performance as it comes through these short-term challenges.

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, 2011. 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,
2012, and the effect such obligations are expected to have on its liquidity and
cash flows in future periods.

                                                             Payments due in fiscal year:
                                                    Remainder                                             After
                                       Total          2012          2013 to 2014      2015 to 2016        2016
                                                            (Dollar amounts in thousands)
Contractual Cash Obligations:
Revolving credit facilities          $ 279,880     $         -     $            -     $           -     $ 279,880
Notes payable to banks                  29,987          15,606              9,838             1,118         3,425
Short-term borrowings                    3,115           3,115                  -                 -             -
Capital lease obligations                9,306             632              2,455             1,332         4,887
Non-cancelable operating leases         26,551           3,071             15,476             6,549         1,455

Total contractual cash obligations   $ 348,839     $    22,424     $       27,769     $       8,999     $ 289,647

A significant portion of the loans included in the table above bear interest at variable rates. At June 30, 2012, the weighted-average interest rate was 3.15% . . .