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, 2012. 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 the sales and operating profit for the Company's
Memorialization and Brand Solutions businesses for the quarters ended December
31, 2012 and 2011.

                      Three Months Ended
                         December 31,
                      2012          2011
Sales:
Memorialization     $ 124,683     $ 113,155
Brand Solutions       100,926       104,058
                    $ 225,609     $ 217,213

Operating Profit:
Memorialization     $  14,540     $  11,780
Brand Solutions         1,959         7,145
                    $  16,499     $  18,925

Sales for the quarter ended December 31, 2012 were $225.6 million, compared to $217.2 million for the three months ended December 31, 2011. Higher sales were reported in each of the Company's segments except the Graphics Imaging segment. In addition, recent acquisitions contributed to the sales increase.

In the Company's Memorialization business, Cemetery Products segment sales for the fiscal 2013 first quarter were $52.8 million, compared to $45.2 million for the fiscal 2012 first quarter. The increase primarily reflected higher unit volume of memorial products and the acquisition of Everlasting Granite in May 2012. Sales for the Funeral Home Products segment were $60.8 million for the quarter ended December 31, 2012, compared to $58.6 million a year ago. The increase resulted principally from higher unit volume and an improvement in sales mix. Sales for the Cremation segment were $11.1 million for the first quarter of fiscal 2013, compared to $9.4 million for the same period a year ago. The increase principally reflected higher sales of cremation equipment in the U.K. market and the benefit of a small acquisition completed in fiscal 2012.

In the Brand Solutions business, sales for the Graphics Imaging segment were $62.4 million in the first quarter of fiscal 2013, compared to $70.4 million for the same period a year ago. The decrease resulted principally from lower sales volume in all of the segment's principal markets, particularly Europe, and the unfavorable impact of changes in foreign currency values against the U.S. dollar. The weakened market conditions in Europe did not begin to affect the Company's sales until the second fiscal quarter of 2012. These declines were partially offset by the impact of the acquisition of Wetzel Holding AG and certain of its affiliates (collectively "Wetzel") in late November 2012. Marking and Fulfillment Systems segment sales were $17.9 million for the first quarter of fiscal 2013, compared to $16.4 million for the first quarter of fiscal 2012. The increase resulted principally from the acquisition of Pyramid Controls, Inc. ("Pyramid") in December 2012. Sales for the Merchandising Solutions segment were $20.6 million for the first quarter of fiscal 2013, compared to $17.2 million for the same period a year ago. The increase principally reflected higher sales to several national accounts.

Gross profit for the quarter ended December 31, 2012 was $80.0 million, compared to $78.0 million for the same period a year ago. Consolidated gross profit as a percent of sales for the first quarter of fiscal 2013 decreased to 35.4% from 35.9% for the first quarter of fiscal 2012. The increase in consolidated gross profit primarily reflected the impact of acquisitions, partially offset by lower sales in the Graphics Imaging segment. The decrease in gross profit as a percentage of sales primarily reflected lower sales in the Graphics Imaging segment.

Selling and administrative expenses for the three months ended December 31, 2012 were $63.5 million, compared to $59.1 million for the first quarter of fiscal 2012. Consolidated selling and administrative expenses as a percent of sales were 28.1% for the quarter ended December 31, 2012, compared to 27.2% for the same period last year. The increase in selling and administrative expenses was primarily attributable to higher sales and the impact of unusual charges in fiscal 2013, compared to fiscal 2012.

Operating profit for the quarter ended December 31, 2012 was $16.5 million, compared to $18.9 million for the three months ended December 31, 2011. Unusual charges were a significant factor in the decrease in fiscal 2013 operating profit compared to fiscal 2012. Cemetery Products segment operating profit for the fiscal 2013 first quarter was $6.4 million, compared to $4.5 million for the first quarter of fiscal 2012. The increase reflected higher sales, improvement in operating margins for the segment's granite operations and lower material costs. These increases were partially offset by unusual charges related to the segment's ERP implementation and other cost reduction initiatives. Operating profit for the Funeral Home Products segment approximated $7.7 million for the first quarter of fiscal 2013, compared to $6.5 million for the first quarter of fiscal 2012. The Funeral Home Products segment operating profit for the current quarter reflected the impact of higher sales and the benefit of improved production and distribution efficiencies. These increases were partially offset by charges in connection with cost reduction initiatives. Cremation segment operating profit for the first quarter of fiscal 2013 was $475,000, compared to $757,000 for the same period in fiscal 2012. The decrease principally reflected the impact of higher sales in the U.K., offset by lower margins on several European-based projects and charges in connection with cost reduction initiatives. Graphics Imaging segment operating profit for the quarter ended December 31, 2012 was $292,000, compared to $5.0 million for the three months ended December 31, 2011. The decrease was primarily attributable to lower sales and unusual charges of approximately $1.4 million. The unusual charges primarily included acquisition-related costs and charges related to cost reduction initiatives. Operating profit for the Marking and Fulfillment Systems segment for the fiscal 2013 first quarter was $376,000, compared to $1.4 million for the same period a year ago. The decrease primarily resulted from an unfavorable change in product mix and charges related to cost reduction initiatives. Merchandising Solutions segment operating profit was $1.3 million for the first quarter of fiscal 2013, compared to $796,000 for the same period in fiscal 2012, primarily reflecting higher sales.

Investment income was $233,000 for the three months ended December 31, 2012, compared to $1.6 million for the three months ended December 31, 2011. The decrease reflected lower rates of return on investments held in trust for certain of the Company's benefit plans. Interest expense for the fiscal 2013 first quarter was $3.2 million, compared to $2.6 million for the same period last year. The increase in interest expense primarily reflected higher average debt levels compared to a year ago. Other deductions, net, for the quarter ended December 31, 2012 represented a decrease in pre-tax income of $1.1 million, compared to a decrease in pre-tax income of $515,000 for the same quarter last year. Other income and deductions generally include banking related fees and the impact of currency gains and losses on certain intercompany debt.

The Company's effective tax rate for the three months ended December 31, 2012 was 35.4%, compared to 34.6% for the first quarter of fiscal 2012 and 34.2% for the fiscal 2012 full year. The fiscal 2012 full year effective tax rate included the favorable impact of adjustments totaling $528,000 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 rate for fiscal 2012 was 34.8%. The increase in the effective tax rate for the fiscal 2013 first quarter primarily reflected the impact of a higher level of earnings generated in the U.S. 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 earnings attributable to noncontrolling interests was a loss of $252,000 in the fiscal 2013 first quarter, compared to net income of $135,000 for the same period a year ago. The decrease related principally to a net loss recorded by the Company's Italian cremation and Turkish graphics businesses in fiscal 2013.

Liquidity and Capital Resources:

Net cash provided by operating activities was $7.2 million for the first quarter of fiscal 2013, compared to $7.1 million for the first quarter of fiscal 2012. Operating cash flow for both periods reflected net income adjusted for depreciation, amortization, stock-based compensation expense and non-cash pension expense, partially offset by decreases in deferred taxes.

Cash used in investing activities was $65.8 million for the three months ended December 31, 2012, compared to $5.7 million for the three months ended December 31, 2011. Investing activities for the first quarter of fiscal 2013 primarily reflected acquisitions, net of cash acquired, of $60.6 million and capital expenditures of $5.3 million. Investing activities for the first quarter of fiscal 2012 primarily reflected capital expenditures.

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 $25.7 million for the last three fiscal years. Capital spending for fiscal 2013 is currently expected to be approximately $30.0 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.

Cash provided by financing activities for the quarter ended December 31, 2012 was $52.8 million, primarily reflecting long-term debt proceeds, net of repayments, of $64.9 million, payment of contingent consideration of $5.3 million, treasury stock purchases of $4.5 million and dividends of $2.7 million to the Company's shareholders. Cash used in financing activities for the quarter ended December 31, 2011 was $8.1 million, primarily reflecting long-term debt proceeds, net of repayments, of $1.7 million, treasury stock purchases of $7.3 million and dividends of $2.5 million to the Company's shareholders.

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions. The maximum amount of borrowings available under the facility is $400.0 million and borrowings under the facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% based on the Company's leverage ratio. The facility's maturity is March 2017. 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 as of December 31, 2012 and September 30, 2012 were $358.8 million and $281.3 million, respectively. The weighted-average interest rate on outstanding borrowings under the credit facilities was 2.62% and 2.68% at December 31, 2012 and 2011, respectively.

The Company has entered into the following interest rate swaps:

                                  Interest Rate
                          Fixed     Spread at
                         Interest  December 31,
Effective Date  Amount     Rate        2012      Maturity Date
May 2011        $25,000   1.37%       1.25%      May 2014
October 2011     25,000   1.67%       1.25%      October 2015
November 2011    25,000   2.13%       1.25%      November 2014
March 2012       25,000   2.44%       1.25%      March 2015
June 2012        40,000   1.88%       1.25%      June 2022
August 2012      35,000   1.74%       1.25%      June 2022
September 2012   25,000   3.03%       1.25%      December 2015
September 2012   25,000   1.24%       1.25%      March 2017
November 2012    25,000   1.33%       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 $8.1 million ($4.9 million after tax) at December 31, 2012 that is included in shareholders' equity as part of accumulated other comprehensive income. Assuming market rates remain constant with the rates at December 31, 2012, approximately $1.7 million of the $4.9 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 German subsidiary, Saueressig GmbH & Co. KG ("Saueressig"), has several loans with various European banks. Outstanding borrowings under these loans totaled 3.1 million Euros ($4.1 million) and 8.2 million Euros ($10.5 million) at December 31, 2012 and September 30, 2012, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at December 31, 2012 and 2011 was 3.93% and 6.05%, respectively.

The Company, through its German subsidiary, Wetzel GmbH ("Wetzel"), acquired in November 2012, has several loans with various European banks. Outstanding borrowings under these loans totaled 9.0 million Euros ($11.9 million) at December 31, 2012. The weighted-average interest rate on outstanding borrowings of Wetzel at December 31, 2012 was 6.99%.

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 5.8 million Euros ($7.7 million) and 6.3 million Euros ($8.1 million) at December 31, 2012 and September 30, 2012, respectively. Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($15.0 million) with the same Italian banks. Outstanding borrowings on these lines were 4.4 million Euros ($5.8 million) and 3.4 million Euros ($4.3 million) at December 31, 2012 and September 30, 2012, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at December 31, 2012 and 2011 was 3.12% and 3.16%, respectively.

The Company has a stock repurchase program. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews' common stock under the program, of which 1,658,919 shares remain available for repurchase as of December 31, 2012. 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.

Consolidated working capital of the Company was $211.7 million at December 31, 2012, compared to $204.4 million at September 30, 2012. Cash and cash equivalents were $53.6 million at December 31, 2012, compared to $58.3 million at September 30, 2012. The Company's current ratio was 2.1 at December 31, 2012 and September 30, 2012.

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") 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, 2012, an accrual of approximately $5.7 million had been recorded for environmental remediation (of which $781,000 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 December 2012, the Company acquired Pyramid Controls, Inc. and its affiliate, Pyramid Control Systems (collectively, "Pyramid"). Pyramid is a provider of warehouse control systems and conveyor control solutions for distribution centers. The acquisition is designed to expand Matthews' fulfillment products and services in the warehouse management market. The initial purchase price for the transaction was approximately $24.5 million, plus potential additional consideration up to $3.7 million based on future operating results.

In November 2012, the Company completed the acquisition of Wetzel Holding AG, Wetzel GmbH and certain related affiliates (collectively "Wetzel"). Wetzel is a leading European provider of pre-press services and gravure printing forms, with manufacturing operations in Germany and Poland. Wetzel's products and services are sold primary within Europe, and the acquisition is designed to expand Matthews' products and services in the global graphics imaging market. The purchase price for Wetzel was approximately 42.3 million Euros ($54.3 million) on a cash-free, debt-free basis, plus potential additional consideration up to 2.2 million Euros ($2.8 million) based upon operating results.

Forward-Looking Information:

Matthews has a three-pronged strategy to attain annual growth in earnings per share. This strategy consists of the following: internal growth (which includes organic growth, cost structure and 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").

The Company's results for the first quarter of fiscal 2013 were impacted by several significant factors, including:
· the Cemetery Products and Funeral Home Products segments reported higher sales for the quarter due mainly to increased unit volume of memorial products and caskets, respectively;

· the Merchandising Solutions business continued to grow and generated improved operating margins;

· recent acquisitions contributed to the Company's growth for the quarter;

· market conditions in Europe continued to impact several of our businesses, particularly the Graphics Imaging segment;

· the accelerated initiative to resolve the remaining ERP implementation issues in our Cemetery Products segment; and

· aggressive cost reduction programs in all of our businesses (these initiatives are ongoing and will result in additional unusual charges); and

· several non-operating items (such as investment income and interest expense) affected the comparability of the Company's year-over-year earnings per share.

Based on our first quarter results and current forecasts, excluding unusual costs, the Company is projecting growth in fiscal 2013 earnings per share over fiscal 2012.

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

                                                             Payments due in fiscal year:
                                                      2013                                                 After
                                       Total        Remainder       2014 to 2015       2016 to 2017        2017
Contractual Cash Obligations:                                (Dollar amounts in thousands)
Revolving credit facilities          $ 358,823     $         -     $            -     $      358,823     $       -
Notes payable to banks                  28,689          13,377             10,683              3,996           633
Short-term borrowings                    5,772           5,772                  -                  -             -
Capital lease obligations                9,992           1,727              2,421              1,306         4,538
Non-cancelable operating leases         24,504           8,013             11,358              3,714         1,419

Total contractual cash obligations   $ 427,780     $    28,889     $       24,462     $      367,839     $   6,590

A significant portion of the loans included in the table above bear interest at variable rates. At December 31, 2012, the weighted-average interest rate was 2.62% on the Company's domestic Revolving Credit Facility, 3.93% on bank loans to its wholly-owned subsidiary, Saueressig, and 3.12% on bank loans to the Company's wholly-owned subsidiary, Matthews International S.p.A.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. The Company is not required to make any significant contributions to its principal retirement plan in fiscal 2013. During the three months ended December 31, 2012, contributions of $181,000 and $215,000 were made under the supplemental retirement plan and postretirement plan, respectively. The Company currently anticipates contributing an additional $539,000 and $891,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2013.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of December 31, 2012, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.1 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.