SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

For The Quarterly Period Ended June 30,December 31, 2008

Commission File No. 0-9115

MATTHEWS INTERNATIONAL CORPORATION

(Exact Name of registrant as specified in its charter)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.  Check one:

PART I - FINANCIAL INFORMATION

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollar amounts in thousands, except per share data)

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands, except per share data)

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30,December 31, 2008

(Dollar amounts in thousands, except per share data)

Note 1.   Nature of Operations

Matthews International Corporation ("Matthews" or the “Company”), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of memorialization products and brand solutions.  Memorialization products consist primarily of bronze memorials and other memorialization products, caskets and cremation equipment for the cemetery and funeral home industries.  Brand solutions include graphics imaging products and services, marking products and merchandising solutions. The Company's products and operations are comprised of six business segments:  Bronze, Casket, Cremation, Graphics Imaging, Marking Products and Merchandising Solutions.  The Bronze segment is a leading manufacturer of cast bronze memorials and other memorialization products, cast and etched architectural products and is a leading builder of mausoleums in the United States.  The Casket segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood and metal caskets.  The Cremation segment is a leading designer and manufacturer of cremation equipment and cremation caskets primarily in North America. The Graphics Imaging segment manufactures and provides brand management, printing plates, gravure cylinders, pre-press services and imaging services for the primary packaging and corrugated industries.  The Marking Products segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, and industrial automation products for identifying, tracking and conveying various consumer and industrial products, components and packaging containers.  The Merchandising Solutions segment designs and manufactures merchandising displays and systems and provides creative merchandising and marketing solutions services.

The Company has manufacturing and marketing facilities in the United States, Mexico, Canada, Europe, Australia and China.

Note 2.   Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and nine months ended June 30,December 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2008.2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2007.2008.  The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.  All intercompany accounts and transactions have been eliminated.

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. Actual results could differ from those estimates.

Inventories consistedCertain reclassifications have been made in the Consolidated Statements of Cash Flows for the following:prior period to conform to the current period presentation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 3.   Fair Value Measurements

Note 4.   Inventories

Note 5.   Debt

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 $10,000) is available for the issuance of trade and standby letters of credit.  Outstanding borrowings on the Revolving Credit Facility at June 30,December 31, 2008 were $175,833.$196,667.  The weighted-average interest rate on outstanding borrowings at June 30,December 31, 2008 and 2007 was 4.38%3.87% and 5.24%4.98%, respectively.

The Company has entered into the following interest rate swaps:

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 of 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 $1,289$7,444 ($7864,541 after tax) at June 30,December 31, 2008 that is included in shareholders’ equity as part of accumulated other comprehensive income.  Assuming market rates remain constant with the rates at June 30,December 31, 2008, approximately $463$1,624 of the $786$4,541 loss included in accumulated other comprehensive income is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.

The Company, through certain of its German holding companies,subsidiaries, has a credit facility with a European bank.  On May 2, 2008, theThe maximum amount of borrowings available under this facility was increased from 10.0 million Euros to 25.0 million Euros ($39,360)34,923).  At June 30, 2008, outstandingOutstanding borrowings under the credit facility totaled 17.521.5 million Euros ($27,552).30,033) at December 31, 2008.  The weighted-average interest rate on outstanding borrowings under this facility at June 30,December 31, 2008 and 2007 was 5.88%5.14% and 4.20%5.06%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks.  OutstandingAt December 31, 2008, outstanding borrowings onunder these loans totaled 12.111.5 million Euros ($18,986) at June 30, 2008.16,001).  The weighted-average interest rate on outstanding borrowings of Saueressig at June 30,December 31, 2008 was 5.76%5.78%.

The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks.  Outstanding borrowings on these loans totaled 16.114.5 million Euros ($25,304)20,294) at June 30,December 31, 2008.  Matthews International S.p.A. also has fourthree lines of credit totaling 8.4 million Euros ($13,178)11,692) with the same Italian banks.  Outstanding borrowings on these lines were 2.22.5 million Euros ($3,476)3,504) at June 30,December 31, 2008.  The weighted-average interest rate on outstanding borrowings of Matthews International S.p.A. borrowings at June 30,December 31, 2008 and 2007 was 3.92%3.87% and 3.26%, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 5.6.   Comprehensive Income

Comprehensive income consists of net income adjusted for changes, net of the related income tax effect, in cumulative foreign currency translation, the fair value of derivatives, unrealized investment gains and losses and pension and postretirement liabilities. For the three months ended June 30,December 31, 2008 and 2007, comprehensive income/loss was a loss of $3,053, compared to income was $23,318 and $14,685, respectively. Forof $17,286 for the ninethree months ended June 30, 2008December 31, 2007.  The fiscal 2009 first quarter comprehensive loss primarily reflected the increase in the unrealized loss on the derivative contracts and 2007, comprehensive income was $69,499 and $53,490, respectively.the change in cumulative translation adjustment.

Note 6.7.   Share-Based Payments

The Company maintains a stock incentive plan (the “1992 Incentive Stock Plan”) that provided for grants of stock options, restricted shares and certain other types of stock-based awards.  In February 2008, the Company’s shareholders approved the adoption of a new plan, the 2007 Equity Incentive Plan (the “2007 Plan”), that provides for the grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. Under the 2007 Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,200,000.  There will be no further grants under the 1992 Incentive Stock Plan.  At June 30,December 31, 2008, there were 2,200,0002,045,391 shares reserved for future issuance under the 2007 Plan. Both plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option granted under either plan may not be less than the fair market value of the Company's common stock on the date of grant.  Outstanding stock options are generally exercisable in one-third increments upon the attainment of 10%, 33% and 60% appreciation in the market value of the Company’s Class A Common Stock.  In addition, options generally vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the market value thresholds).  The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company generally settles employee stock option exercises with treasury shares.  With respect to outstanding restricted share grants, generally one-half of the shares vest on the third anniversary of the grant.  The remaining one-half of the shares vest in one-third increments upon attainment of 10%, 25% and 40% appreciation in the market value of the Company’s Class A Common Stock. Additionally, restricted shares granted in fiscal 2009 cannot vest until the first anniversary of the grant date.  Unvested restricted shares generally expire on the earlier of five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company issues restricted shares from treasury shares.

For the three-month periods ended June 30,December 31, 2008 and 2007, total stock-based compensation cost totaled $1,274$1,336 and $858, respectively.  For the nine-month periods ended June 30, 2008 and 2007, total stock-based compensation cost totaled $3,821 and $2,578,$1,115, respectively.  The associated future income tax benefit recognized was $497$521 and $335$435 for the three-month periods ended June 30, 2008 and 2007, respectively, and was $1,490 and $1,005 for the nine-month periods ended June 30,December 31, 2008 and 2007, respectively.

For the three-month periods ended June 30,December 31, 2008 and 2007, the amount of cash received from the exercise of stock options was $1,233$255 and $10,274, respectively.  For the nine-month periods ended June 30, 2008 and 2007, the amount of cash received from the exercise of stock options was $6,631 and $16,054,$713, respectively.  In connection with these exercises, the tax benefits realized by the Company for the three-month periods ended June 30,December 31, 2008 and 2007 were $123$99 and $3,660, respectively, and the tax benefits realized by the Company for the nine-month periods ended June 30, 2008 and 2007 were $1,792 and $5,892,$170, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 6.7.   Share-Based Payments (continued)

Changes to restricted stock for the ninethree months ended June 30,December 31, 2008 were as follows:

As of June 30,December 31, 2008, the total unrecognized compensation cost related to unvested restricted stock was $2,926$6,777 and is expected to be recognized over a weighted average period of 2.1 years.

The transactions for shares under options for the nine monthsquarter ended June 30,December 31, 2008 were as follows:

The weighted-average grant date fair value of options granted for the nine months ended June 30, 2007 was $12.29. The fair value of shares earned during the three-month periods ended June 30,December 31, 2008 and 2007 was $1,312$2,726 and $1,217, respectively, and $4,906 and $4,518 during the nine-month periods ended June 30, 2008 and 2007,$2,954, respectively.  The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the nine-monththree-month periods ended June 30,December 31, 2008 and 2007 was $4,895$265 and $15,127,$482, respectively.

The transactions for non-vested options for the nine monthsquarter ended June 30,December 31, 2008 were as follows:

As of June 30,December 31, 2008 the total unrecognized compensation cost related to non-vested stock options was approximately $3,563.$2,447. This cost is expected to be recognized over a weighted-average period of 2.92.5 years in accordance with the vesting periods of the options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 (Dollar(Dollar amounts in thousands, except per share data)

Note 6.7.   Share-Based Payments (continued)

The fair value of each option and restricted stock grant is estimated on the date of grant using a binomial lattice valuation model.  The following table indicates the assumptions used in estimating fair value of stock options (fiscal 2007) and restricted stock (fiscal 2008) for the nine monthsquarters ended June 30,December 31, 2008 and 2007.

The risk free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date.  Expected volatilities are based on the historical volatility of the Company’s stock price.  The expected term for the quarter ended June 30, 2007 represents an estimate of the period of time options are expected to remain outstanding.   The expected term for the quarter ended June 30, 2008 represents an estimate of the average period of time for restricted shares to vest.  Separate employee groups and option characteristics are considered separately for valuation purposes.

Under the Company’s Director Fee Plan, directors (except for the Chairman of the Board) who are not also officers of the Company each receive, as an annual retainer fee, either cash or shares of the Company's Class A Common Stock equivalent to $30.  The equivalent amount$60.  An additional annual retainer fee of $70 is paid to a non-employee Chairman of the Board is $100.Board. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board.  Directors may also elect to receive the common stock equivalent of meeting fees credited to a deferred stock account.  The value of deferred shares is recorded in other liabilities.  A total of 37,946 shares had been deferred under the Director Fee Plan at June 30,December 31, 2008.  Additionally, prior to fiscal 2009 directors who are not also officers of the Company each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $50. In fiscal 2009 the value of the stock-based grant is $70. A total of 22,300 stock options have been granted under the plan.  At June 30,December 31, 2008, 21,30017,800 options were outstanding and vested. Additionally, 21,600 shares of restricted stock have been granted under the plan, 15,400 of which were unvested at June 30,December 31, 2008.  A total of 300,000 shares have been authorized to be issued under the Director Fee Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 8.9.   Pension and Other Postretirement Benefit Plans

The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:

Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company’s operating funds.  Under IRS regulations, the Company is not required to make any significant contributions to its principal retirement plan in fiscal year 2008.  In June 2008, the Company made a $5,000 contribution to its principal retirement plan.2009.  As of June 30,December 31, 2008, contributions of $436$229 and $757$236 have been made under the supplemental retirement plan and postretirement plan, respectively.  The Company currently anticipates contributing an additional $438$678 and $320$734 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2008.2009.

Note 9.10.   Income Taxes

Income tax provisions for the Company’s interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's effective tax rate for the ninethree months ended June 30,December 31, 2008 was 34.9%30.9%, compared to 37.6%29.8% for the first nine monthsquarter of fiscal 2007.2008. The decrease primarily resulted fromfirst quarter of fiscal 2009 included a one-time reduction in income tax expense of $936 to reflect the impactCompany’s ability to utilize a European tax loss carryover.  The first quarter of fiscal 2008 included a $1.9 million reduction in net deferred tax liabilities in the first quarter of fiscal 2008$1,900 to reflect the enactment of lower statutory income tax rates in Europe.  Excluding the one-time adjustment to deferred taxes, the Company’s effective tax rate was 37.0%, compared to 37.6% for fiscal 2007, reflecting the impact of lower statutory income tax rates in Europe and the U. S. Federal manufacturing credit.certain European countries.  The difference between the Company's fiscal 2009 first quarter effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state and foreign income taxes.

On October 1, 2007,The Company had unrecognized tax benefits (excluding penalties and interest) of $4,320 and $4,370 on December 31, 2008 and September 30, 2008, respectively, all of which, if recorded, would impact the 2009 annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could change by approximately $880 in the next 12 months primarily due to tax examinations and the expiration of statutes related to specific tax positions.

The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accountingclassifies interest and penalties on tax uncertainties as a component of the provision for Uncertaintyincome taxes. The Company included $146 in Income Taxes” (“FIN 48”), which clarifiesinterest and penalties in the accountingprovision for uncertainty in income taxes recognizedfor the first quarter of fiscal 2009. Total penalties and interest accrued were $2,920 and $2,774 at December 31, 2008 and September 30, 2008, respectively.  These accruals may potentially be applicable in the event of an enterprise’s financial statements in accordance with Statementunfavorable outcome of Financial Accounting Standarduncertain tax positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 9.10.   Income Taxes (continued)

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions.  As of June 30,December 31, 2008, the tax years that remain subject to examination by major jurisdiction generally are:

Note 10.11.   Segment Information

The Company's products and operations consist of two principal businesses that are comprised of three operating segments each, as described under Nature of Operations (Note 1):  Memorialization Products (Bronze, Casket, Cremation) and Brand Solutions (Graphics Imaging, Marking Products, Merchandising Solutions).  Management evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and minority interest.

Information about the Company's segments follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 10.11.   Segment Information (continued):

Note 11.12.   Acquisitions

The following table summarizes the fair value of major assets and liabilities of Saueressig at the date of acquisition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 12.13.   Goodwill and Other Intangible Assets

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. Intangible assets are amortized over their estimated useful lives unless such lives are considered to be indefinite. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets.  The Company performedperforms its annual impairment review in the second quarter of fiscal 2008 and determined that no additional adjustments to the carrying values of goodwill were necessary.quarter.

Changes to goodwill, net of accumulated amortization, for the ninethree months ended June 30,December 31, 2008, were as follows: