UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

For The Quarterly Period Ended DecemberMarch 31, 20072008

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 (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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:

As of January 31,April 30, 2008, shares of common stock outstanding were:

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

DecemberMarch 31, 20072008

(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 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 solutions,management, printing plates, 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 six months ended DecemberMarch 31, 20072008 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2008. 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.  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.

Certain reclassifications have been made inInventories consisted of the Consolidated Statements of Cash Flows for prior periods to conform to the current period presentation.following:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 4.   Debt

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions.  The maximum amount of borrowings available under the facility is $225,000 and the facility’s maturity is September 10, 2012. Borrowings under the amended 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 $10,000) is available for the issuance of trade and standby letters of credit.  Outstanding borrowings on the Revolving Credit Facility at DecemberMarch 31, 20072008 were $142,500.$129,167.  The weighted-average interest rate on outstanding borrowings at DecemberMarch 31, 2008 and 2007 was 4.60% and 2006 was 4.98% and 5.10%5.14%, 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 $1,018$2,838 ($6211,731 after tax) at DecemberMarch 31, 20072008 that is included in shareholders’ equity as part of accumulated other comprehensive income.  Assuming market rates remain constant with the rates at DecemberMarch 31, 2007,2008, approximately $198$819 of the $621$1,731 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 its wholly-owned subsidiary, Matthews International GmbH (“MIGmbH”), has a credit facility with National Westminster Bank Plc for borrowings up to 10.0 million Euros ($14,598)15,787).  On May 2, 2008, the maximum amount of borrowings available under this facility was increased to 25.0 million Euros ($39,000). Outstanding borrowings under the credit facility totaled 8.0 million Euros ($11,678)12,630) at DecemberMarch 31, 2007.2008.  The weighted-average interest rate on outstanding borrowings of MIGmbH at DecemberMarch 31, 2008 and 2007 was 5.11% and 2006 was 5.06% and 3.93%4.0%, 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 4.94.7 million Euros ($7,189)7,496) at DecemberMarch 31, 2007.2008.  Matthews International S.p.A. also has three lines of credit totaling 8.4 million Euros ($12,219)13,214) with the same Italian banks.  Outstanding borrowings on these lines were 1.1 million Euros ($1,563)1,768) at DecemberMarch 31, 2007.2008.  The weighted-average interest rate on outstanding borrowings of Matthews International S.p.A. at DecemberMarch 31, 20072008 and 20062007 was 3.26% and 3.24%, respectively..

Note 5.   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 DecemberMarch 31, 20072008 and 2006,2007, comprehensive income was $17,286$28,894 and $18,714,$20,091, respectively. For the six months ended March 31, 2008 and 2007, comprehensive income was $46,181 and $38,805, respectively.

Note 6.   Share-Based Payments

The Company hasmaintains 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 incentive stock options, non-statutory stock optionsrestricted shares, stock-based performance units and restricted sharecertain 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 inis an aggregate number not to exceed 15% of 2,200,000.  There will be no further grants under the outstanding shares of the Company’s common stock (4,667,424 at December1992 Incentive Stock Plan.  At March 31, 2007). At December 31, 2007,2008, there were 2,499,9082,200,000 shares reserved for future issuance under the plan. The plan is2007 Plan. Both plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option that may be granted under the planeither 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.  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 DecemberMarch 31, 20072008 and 2006,2007, total stock-based compensation cost totaled $1,115$1,432 and $872,$848, respectively.  For the six-month periods ended March 31, 2008 and 2007, total stock-based compensation cost totaled $2,547 and $1,720, respectively.  The associated future income tax benefit recognized was $435$558 and $340$331 for the three-month periods ended DecemberMarch 31, 2008 and 2007, respectively, and 2006,was $993 and $671 for the six-month periods ended March 31, 2008 and 2007, respectively.

For the three-month periods ended DecemberMarch 31, 20072008 and 2006,2007, the amount of cash received from the exercise of stock options was $713$4,685 and $2,121,$3,659, respectively.  For the six-month periods ended March 31, 2008 and 2007, the amount of cash received from the exercise of stock options was $5,398 and $5,780, respectively.  In connection with these exercises, the tax benefits realized by the Company for the three-month periods ended DecemberMarch 31, 2008 and 2007 were $1,499 and 2006$1,335, respectively, and the tax benefits realized by the Company for the six-month periods ended March 31, 2008 and 2007 were $170$1,669 and $897,$2,332, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 6. Share-Based Payments (continued)

The transactions for shares under options for the quartersix months ended DecemberMarch 31, 20072008 were as follows:

The weighted-average grant date fair value of options granted for the three-month periodsix-months ended DecemberMarch 31, 20062007 was $12.23.$12.29. The fair value of shares earned during the three-month periods ended DecemberMarch 31, 2008 and 2007 was $640 and 2006 was $2,954$1,481, respectively, and $1,820,$3,594 and $3,301 during the six-month periods ended March 31, 2008 and 2007, 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 three-monthsix-month periods ended DecemberMarch 31, 2008 and 2007 was $4,347 and 2006 was $482 and $2,300,$5,742, respectively.

The transactions for non-vested options for the quartersix months ended DecemberMarch 31, 20072008 were as follows:

As of DecemberMarch 31, 20072008, the total unrecognized compensation cost related to non-vested stock options was approximately $4,760.$4,161. This cost is expected to be recognized over a weighted-average period of 3.32.9 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.   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 quarterssix months ended DecemberMarch 31, 20072008 and 2006.2007.

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 DecemberMarch 31, 20062007 represents an estimate of the period of time options are expected to remain outstanding.   The expected term for the quarter ended DecemberMarch 31, 20072008 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 paid to a non-employee Chairman of the Board is $100.  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 48,697 shares had been deferred under the Director Fee Plan at DecemberMarch 31, 2007.2008.  Additionally, 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.  A total of 22,300 stock options have been granted under the plan.  At DecemberMarch 31, 2007,2008, 21,300 options were outstanding of which 16,500 wereand vested. Additionally, 13,20021,600 shares of restricted stock have been granted under the plan, 12,00015,400 of which are unvested at DecemberMarch 31, 2007.2008.  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.   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.  As of DecemberMarch 31, 2007,2008, contributions of $145$291 and $301$536 have been made under the supplemental retirement plan and postretirement plan, respectively.  The Company currently anticipates contributing an additional $435$583 and $807$540 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2008.

Note 9.   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 threesix months ended DecemberMarch 31, 20072008 was 29.8%34.1%, compared to 37.6% for the first quartersix months of fiscal 2007.  The decrease primarily resulted from the impact of a $1.9 million reduction in net deferred tax liabilities 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 37.4%, compared to 37.6% for fiscal 2007.  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.

On October 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)("FASB") Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS No. 109”).  This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or

expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not have a material effect on the Company’s financial statements.

As of the date of adoption, the Company had $7,400 of unrecognized tax benefits, all of which, if recorded, would impact the 2008 annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could change by approximately $700 in the next 12 months primarily due to expiration of statutes related to specific tax positions.

Upon adoption of FIN 48, the Company included an estimate of $2,900 related to penalties and interest that may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.  Changes in this estimate are included as a component of the provision for income taxes in the Consolidated Statements of Income.

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 DecemberMarch 31, 2007,2008, the tax years that remain subject to examination by major jurisdiction generally are:

Note 10.   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.   Segment Information (continued):

Note 11.   Acquisitions

Note 12.   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 performsperformed its annual impairment review in the second quarter of fiscal quarter.2008 and determined that no additional adjustments to the carrying values of goodwill were necessary at March 31, 2008.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(Dollar amounts in thousands, except per share data)

Note 12.   Goodwill and Other Intangible Assets (continued)

Changes to goodwill, net of accumulated amortization, for the threesix months ended DecemberMarch 31, 2007,2008, were as follows:

The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of DecemberMarch 31, 20072008 and September 30, 2007, respectively.

The change in intangible assets during the quarter ended DecemberMarch 31, 20072008 was due to the impact of fluctuations in foreign currency exchange rates on intangible assets denominated in foreign currencies and additional amortization.

Amortization expense on intangible assets was $743$740 and $627$421 for the three-month periods ended DecemberMarch 31, 2008 and 2007, respectively. For the six-month periods ended March 31, 2008 and 2006,2007, amortization expense was $1,483 and    $1,048, respectively.  Amortization expense is estimated to be $2,067$1,378 in 2008, $2,614 in 2009, $1,757 in 2010, $1,725 in 2011 and $1,662 in 2012.

Note 13.   Accounting Pronouncements

In June 2006, the FASB issued FIN 48 which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Any resulting cumulative effect of applying the provisions of FIN 48 upon adoption will be reported as an adjustment to beginning retained earnings in the period of adoption. The Company adopted FIN 48 as of October 1, 2007 which did not have a material effect on the financial statements.  See Note 9 for additional disclosures related to the adoption of FIN 48.