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1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934


For The Quarterly Period Ended March 31, 2004

Commission File No. 0-9115



MATTHEWS INTERNATIONAL CORPORATION
(Exact Name of registrant as specified in its charter)



PENNSYLVANIA 25-0644320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)



TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851
(Address of principal executive offices) (Zip Code)



Registrant's telephone number, including area code (412) 442-8200



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.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]


As of April 30, 2004, shares of common stock outstanding were:

Class A Common Stock 32,192,289 shares



2
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollar amounts in thousands, except per share data)


March 31, 2004 September 30, 2003
-------------- ------------------

ASSETS
Current assets:
Cash and cash equivalents $82,146 $66,954
Short-term investments 4,601 4,588
Accounts receivable, net 65,794 62,883
Inventories: Materials and finished goods $26,939 $25,576
Labor and overhead in process 2,432 1,489
------- -------
29,371 27,065
Other current assets 3,915 4,564
------- -------
Total current assets 185,827 166,054
Investments 4,673 4,561
Property, plant and equipment: Cost 146,688 140,487
Less accumulated depreciation (81,471) (70,854)
------- -------
65,217 69,633
Deferred income taxes and other assets 28,962 32,182
Goodwill 157,458 154,690
Other intangible assets, net 12,888 13,062
------- -------
Total assets $455,025 $440,182
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities $ 30,969 $ 6,029
Accounts payable 18,741 19,805
Accrued compensation 23,367 24,745
Accrued income taxes 13,519 1,274
Customer prepayments 1,866 2,488
Other current liabilities 20,088 21,982
------ ------
Total current liabilities 108,550 76,323

Long-term debt 12,209 57,023
Estimated finishing costs 4,840 4,863
Postretirement benefits 17,700 17,644
Environmental reserve 11,028 11,154
Deferred income taxes 2,297 3,441
Other liabilities and deferred revenue 13,436 13,506

Shareholders' equity:
Common stock 36,334 36,334
Additional paid in capital 9,668 6,476
Retained earnings 280,165 257,559
Accumulated other comprehensive income 11,017 6,643
Treasury stock, at cost (52,219) (50,784)
------- -------
284,965 256,228
------- -------
Total liabilities and shareholders' equity $455,025 $440,182
======= =======



3
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)


Three Months Ended Six Months Ended
March 31, March 31,
--------------------- -----------------------
2004 2003 2004 2003
---- ---- ---- ----

Sales $124,987 $115,581 $241,889 $224,654

Cost of sales (77,355) (72,190) (151,634) (143,061)
------- ------- -------- --------
Gross profit 47,632 43,391 90,255 81,593

Selling and administrative expenses (23,466) (22,913) (46,236) (44,281)
------- ------- ------- -------
Operating profit 24,166 20,478 44,019 37,312

Investment income 311 356 662 631
Interest expense (429) (703) (880) (1,672)
Other income(deductions), net 1 (28) (85) (45)
Minority interest (1,499) (1,131) (2,566) (2,101)
------- ------- ------- -------
Income before income taxes 22,550 18,972 41,150 34,125

Income taxes (8,749) (7,360) (15,966) (13,240)
------- ------- ------- -------
Net income $13,801 $11,612 $25,184 $20,885
======= ======= ======= =======



Earnings per share:
Basic $ .43 $ .37 $ .78 $ .67
===== ===== ===== =====
Diluted $ .42 $ .36 $ .77 $ .65
===== ===== ===== =====

Dividends per share: $.04 $.0275 $.08 $.055
===== ===== ===== =====



4
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands, except per share data)


Six Months Ended
March 31,
--------------------------
2004 2003
---- ----

Cash flows from operating activities:
Net income $25,184 $20,885
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,508 7,323
Change in deferred taxes 172 188
Changes in working capital items 1,799 (11,791)
Decrease in other assets 3,653 1,001
Decrease in estimated finishing costs (23) (1,093)
Increase (decrease) in other liabilities (81) 2,062
Decrease in postretirement benefits (190) (225)
Tax benefit of exercised stock options 2,385 2,100
Net (gain) loss on sales of assets 1 (348)
------- -------
Net cash provided by operating activities 40,408 20,102
------- -------
Cash flows from investing activities:
Capital expenditures (3,156) (4,200)
Proceeds from sales of assets 133 1,256
Purchases of investment securities (143) (103)
Proceeds from disposition of investment securities 12 11
------ ------
Net cash used in investing activities (3,154) (3,036)
------ ------
Cash flows from financing activities:
Payments on long-term debt (20,825) (21,224)
Proceeds from the sale of treasury stock 5,623 3,612
Purchases of treasury stock (6,251) (2,110)
Dividends (2,578) (1,729)
------- -------
Net cash used in financing activities (24,031) (21,451)
------- -------
Effect of exchange rate changes on cash 1,969 2,555
------- -------

Net increase (decrease) in cash and cash equivalents $15,192 $(1,830)
====== ======




5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Dollar amounts in thousands, except per share data)

Note 1. Nature of Operations

Matthews International Corporation ("Matthews"), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of memorialization products, caskets and cremation equipment for
the cemetery and funeral home industries and custom-made products which are
used to identify people, places, products and events. The Company's products
and operations are comprised of five business segments: Bronze, York Casket,
Cremation, Graphics Imaging, and Marking Products. 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 York Casket segment is a leading casket
manufacturer in the United States 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 printing plates, pre-press
services and imaging services for the corrugated and flexible packaging
industries. The Marking Products segment designs, manufactures and
distributes a wide range of marking equipment and consumables for identifying
various consumer and industrial products, components and packaging containers.

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


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
months and six months ended March 31, 2004 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30,
2004. 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, 2003.

The consolidated financial statements include all majority-owned foreign and
domestic subsidiaries. The consolidated financial statements also include the
accounts of the Company's 50%-owned affiliate, S+T GmbH & Co. KG. All
intercompany accounts and transactions have been eliminated.





6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)


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 in the prior period financial
statements to conform to the current period presentation.


Note 3. Stock-Based Compensation

The Company has accounted for its stock-based compensation plans in accordance
with the intrinsic value provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, the Company did
not record any compensation expense in the consolidated financial statements
for its stock-based compensation plans. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", the following table illustrates the
effect on net income and earnings per share had compensation expense been
recognized consistent with the fair value provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."



Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Net income, as reported $13,801 $11,612 $25,184 $20,885
Net income, pro forma 13,359 11,242 24,420 20,256
Basic earnings per share, as reported .43 .37 .78 .67
Diluted earnings per share, as reported .42 .36 .77 .65
Basic earnings per share, pro forma .41 .36 .76 .65
Diluted earnings per share, pro forma .41 .35 .75 .64





Note 4. 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
difference between the estimated effective tax rate for fiscal 2004 of 38.8%
and the Federal statutory rate of 35% primarily reflects the impact of state
and foreign income taxes.











7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)


Note 5. Earnings Per Share


Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Net income $13,801 $11,612 $25,184 $20,885
========== ========== ========== ==========

Weighted-average common
shares outstanding 32,212,133 31,438,751 32,155,592 31,336,961

Dilutive securities,
primarily stock options 488,572 708,751 496,653 749,496
---------- ---------- ---------- ----------
Diluted weighted-average
common shares outstanding 32,700,705 32,147,502 32,652,245 32,086,457
========== ========== ========== ==========


Basic earnings per share $ .43 $ .37 $ .78 $ .67
==== ==== ==== ====

Diluted earnings per share $ .42 $ .36 $ .77 $ .65
==== ==== ==== ====



Note 6. Segment Information

The Company is organized into five business segments based on products and
services. The segments, which are Bronze, York Casket, Cremation, Graphics
Imaging and Marking Products, are described under Nature of Operations (Note
1). 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:


Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Sales to external customers:
Bronze $47,171 $44,820 $92,605 $87,721
York Casket 33,967 33,617 64,142 63,776
Cremation 5,527 5,499 11,389 10,677
Graphics Imaging 28,743 23,745 54,925 46,987
Marking Products 9,579 7,900 18,828 15,493
----------- ----------- ----------- -----------
$124,987 $115,581 $241,889 $224,654
=========== =========== =========== ===========



8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)



Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Operating profit:
Bronze $10,654 $11,810 $20,390 $21,183
York Casket 5,664 3,755 9,627 7,150
Cremation 511 255 957 712
Graphics Imaging 5,747 3,700 9,675 6,328
Marking Products 1,590 958 3,370 1,939
----------- ----------- ----------- -----------
$24,166 $20,478 $44,019 $37,312
=========== =========== =========== ===========



Note 7. Comprehensive Income

Comprehensive income consists of net income adjusted for changes, net of tax,
in cumulative foreign currency translation, unrealized investment gains and
losses and minimum pension liability. For the three months ended March 31,
2004 and 2003, comprehensive income was $11,489 and $16,834, respectively.
For the six months ended March 31, 2004 and 2003, comprehensive income was
$29,558 and $26,750, respectively.


Note 8. Goodwill and Other Intangible Assets

Under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," goodwill is no longer 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. The Company performs its annual
impairment review in its second fiscal quarter.

Changes to goodwill, net of accumulated amortization, for the six months ended
March 31, 2004, are as follows.



York Graphics Marking
Bronze Casket Cremation Imaging Products Consolidated
-------- -------- --------- -------- -------- -------------

Balance at September 30, 2003 $ 72,122 $ 40,706 $ 6,536 $ 35,161 $ 165 $154,690
Additions during period - - - - - -
Translation and
other adjustments 1,341 - - 1,427 - 2,768
------ ------ ------ ------ --- -------

Balance at March 31, 2004 $ 73,463 $ 40,706 $ 6,536 $ 36,588 $ 165 $157,458
====== ====== ====== ====== === =======


The following tables summarize the carrying amounts and related accumulated
amortization for intangible assets as of March 31, 2004 and September 30,
2003, respectively.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)

York Casket Segment Cremation Segment
-------------------- ------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------- ------------ -------- ------------
March 31, 2004:
- ------------------
Trade names $ 8,000 $ - * $ - $ -
Customer relationships 4,100 (563) - -
Copyrights/patents/other 1,300 (202) 300 (47)
------ ---- --- ---
$13,400 $(765) $ 300 $(47)
====== ==== === ===

September 30, 2003:
- ------------------
Trade names $ 8,000 $ - * $ - $ -
Customer relationships 4,100 (442) - -
Copyrights/patents/other 1,300 (159) 300 (37)
------ ---- --- ---
$13,400 $(601) $ 300 $(37)
====== ==== === ===
* Not subject to amortization

Intangible assets established for customer relationships and copyrights,
patents and other are amortized over their estimated useful lives of 17 years
and 15 years, respectively. For the three-month period ended March 31, 2004,
amortization expense on intangible assets was $82 for the York Casket segment
and $5 for the Cremation segment. For the six-month period ended March 31,
2004, amortization expense was $164 for the York Casket segment and $10 for
the Cremation segment. Amortization expense on intangible assets is expected
to approximate $350 each year between 2004 and 2008.

Note 9. Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement plans to
certain employees. The following represents the net periodic pension and other
postretirement benefit cost (income) for the plans in accordance with the
revised version of SFAS No. 132, "Employer's Disclosures about Pensions and
Other Postretirement Benefits," as described in Note 11:



Pension Other Postretirement
---------------- --------------------
Three months ended March 31, 2004 2003 2004 2003
------ ------ ------ ------

Service cost $906 $759 $99 $72
Interest cost 1,266 1,208 262 265
Expected return on
plan assets (1,484) (1,154) - -
Amortization:
Prior service cost 28 28 (322) (322)
Net actuarial loss 293 313 112 124
----- ----- ----- -----
Net benefit cost $1,009 $ 1,154 $151 $139
===== ===== ===== =====


10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)



Pension Other Postretirement
---------------- --------------------
Six months ended March 31, 2004 2003 2004 2003
------ ------ ------ ------

Service cost $ 1,813 $1,518 $198 $144
Interest cost 2,531 2,416 524 530
Expected return on
plan assets (2,968) (2,308) - -
Amortization:
Prior service cost 56 56 (644) (644)
Net actuarial loss 586 626 224 248
----- ----- ----- -----
Net benefit cost $ 2,018 $2,308 $302 $278
===== ===== ===== =====



Benefit payments under the Company's principal retirement plan are made from
plan assets, while benefit payments under the supplemental retirement plan,
postretirement benefit plan and 401(k) plan are made from the Company's
operating funds. Due to the full funding limitations, the Company is not
required to make any contributions to its principal retirement plan in fiscal
year 2004. As of March 31, 2004, contributions of $161 and $381 have been
made to the supplemental retirement plan and postretirement plans,
respectively. The Company currently anticipates contributing an additional
$193 and $545 to fund the supplemental retirement plan and postretirement
plan, respectively, for the remainder of fiscal 2004. Contributions to the
Company's 401(k) plan approximate $680 per year.

Note 10. Acquisitions
In August 2003, Matthews acquired Reproservice Eurodigital GmbH Munchen
("Reproservice Munich"), a German graphics and flexographic printing plate
manufacturer in Munich, Germany. The transaction was structured as a stock
purchase, at an acquisition price of 4.1 million Euros (U.S.$4,800). Products
and services of Reproservice Munich include pre-press packaging, digital and
analog flexographic printing plates, design, art work, lithography and color
separation. The combination of Matthews and Reproservice Munich is an
important part of the Matthews strategy to increase its European presence in
the graphics industry.

In May 1998, Matthews acquired a 50% interest in O.N.E. Color Communications
("O.N.E."), a digital graphics service company located in Oakland, California.
The purchase price consisted of $2,000 cash upon closing plus an additional
$2,750 in 2001, which was based upon the attainment of certain operating
performance levels of O.N.E. The purchase agreement also required Matthews to
acquire the remaining 50% interest no later than May 2004, with the purchase
price contingent on the attainment of certain operating performance levels of
O.N.E., but not less than $4,500. The accounts of O.N.E. have been included
in the consolidated financial statements of Matthews since May 1998 and a
liability was recorded for the future minimum payout. Effective July 31,
2003, Matthews completed the purchase of the remaining 50% interest in O.N.E.
for $5,700.




11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)

Note 11. Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation addresses
consolidation by business enterprises of variable interest entities with
certain characteristics. FIN 46 is effective immediately for all variable
interest entities created after January 31, 2003. In October 2003, the FASB
agreed to defer the effective date of FIN 46 for variable interest entities
held by public companies that were acquired before February 1, 2003. The
deferral will require that public companies adopt the provisions of FIN 46 for
periods ending after December 15, 2003. The adoption of FIN 46 did not have a
material impact on the Company's consolidated financial position and results
of operations.

In July 2003, the EITF issued Issue No. 00-21 "Revenue Arrangements with
Multiple Deliverables." Issue No. 00-21 addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue generating activities. The provisions of Issue No. 00-21 were
effective July 1, 2003, and have been applied prospectively by the Company to
the finishing and storage elements of its pre-need sales. Issue No. 00-21 did
not have a material impact on the Company's results of operations or financial
position.

In December 2003, the FASB issued a revised version of SFAS No. 132
"Employer's Disclosures about Pensions and Other Postretirement Benefits."
This statement requires additional disclosures about assets, obligations, cash
flows and net periodic benefit costs of defined benefit plans and other
defined benefit postretirement plans. The disclosure requirements are
effective for annual financial statements with fiscal years ending after
December 15, 2003 and for interim periods beginning after December 15, 2003.
The disclosure requirements of the revised version of SFAS No. 132 have been
adopted by the Company and are included in this quarterly report on Form 10-Q.

In January 2004, the FASB issued FASB Staff Position No. 106-1, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" ("FSP 106-1"). FSP 106-1 permits
the sponsor of a postretirement health care plan that provides prescription
drug benefits to make a one time election to defer accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
("the Act"). FSP 106-1 also requires certain other disclosures, whether the
deferral is elected or not. In accordance with FSP 106-1, the Company has
elected to defer accounting for the Act since the effects of the Act on the
Company's postretirement benefit plan have not been calculated. The FASB is
expected to issue specific guidance on the accounting for certain elements of
the Act which, when adopted by the Company, could require a change to
previously reported information regarding the Company's postretirement benefit
plan. However, FSP 106-1 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.

Note 12. Subsequent Event
On April 21, 2004, the Company signed an amendment to its Revolving Credit
Facility, extending its maturity to April 30, 2009 and modifying certain other
terms and covenants. Effective April 30, 2004, the Company increased its
outstanding borrowings under the facility to $50,000 and simultaneously
entered into an interest rate swap that fixed the interest rate on such
borrowings at 3.16% for a five-year period. The interest rate swap has been
designated as a cash flow hedge of the future variable interest payments under
the revolving credit facility.



12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Cautionary Statement:

The following discussion should be read in conjunction with the consolidated
financial statements of Matthews International Corporation 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, 2003. 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
raw material prices, 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
foreign competitive pressures, unknown risks in connection with the Company's
acquisitions, and technological factors beyond the Company's control.


Results Of Operations:

The following table sets forth certain income statement data of the Company
expressed as a percentage of sales for the periods indicated.

Six months ended Years ended
March 31, September 30,
------------------ --------------------
2004 2003 2003(1) 2002 2001(2)
---- ---- ------ ---- ------
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 37.3 36.3 37.1 37.5 42.2
Operating profit 18.2 16.6 17.5 15.9 18.8
Income before taxes (3) 17.0 15.2 16.0 14.6 18.2
Net income (3) 10.4 9.3 9.8 8.9 11.2

(1) The fourth quarter of fiscal 2003 included a net pre-tax charge of
approximately $1.0 million from special items which consisted of a pre-tax
gain of $2.6 million on the sale of a facility and a goodwill impairment
charge of $3.6 million.
(2) Fiscal 2001 included pre-tax income of $500,000 from special items, which
consisted of a pre-tax gain of $7.1 million on the sale of a subsidiary and
asset impairments, restructuring costs and other special pre-tax charges
totaling $6.6 million.
(3) Before cumulative effect of change in accounting. Fiscal 2002 reflected a
pre-tax charge of $5.3 million ($.10 per share after-tax) for transitional
goodwill impairment.


Sales for the six months ended March 31, 2004 were $241.9 million and were
$17.2 million, or 7.7%, higher than sales of $224.7 million for the six months
ended March 31, 2003. Bronze segment sales for the first six months of fiscal
13

Results of operations, continued:

2004 were $92.6 million compared to $87.7 million for the first six months of
fiscal 2003. The increase of 5.6% in Bronze sales reflected an increase in
the values of foreign currencies against the U.S. dollar and higher sales of
memorialization products. The increase was partially offset by a decline in
mausoleum sales during the first six months of fiscal 2004 compared to the
same period in fiscal 2003. Sales for the York Casket Segment were $64.2
million for the first six months of fiscal 2004 compared to $63.8 million for
the comparable period of fiscal 2003. The increase reflected higher casket
sales, partially offset by the impact of the segment's divestiture of a small
manufacturing facility and several distribution operations in fiscal 2003.
Sales for the Cremation segment were $11.4 million for the first half of
fiscal 2004 compared to $10.7 million for the same period a year ago. The
increase reflected higher sales of cremation equipment and cremation caskets
compared to the same period last year. Sales for the Graphics Imaging segment
in the first half of fiscal 2004 were $54.9 million, compared to $47.0 million
for the same period a year ago. The increase primarily reflected an increase
in the value of the Euro against the U.S. dollar, the acquisition of
Reproservice Eurodigital GmbH Munchen ("Reproservice Munich") in August 2003
and higher sales in the segment's other European operations. Marking Products
segment sales for the six months ended March 31, 2004 were $18.8 million,
compared to $15.5 million for the first six months of fiscal 2003. The
increase of $3.3 million, or 21.5%, was principally due to an increase in
demand for the segment's products, reflecting a continued improvement in the
U.S. economy and new product introductions. In addition, the segment's sales
were positively affected by an increase in the value of the Swedish Krona
against the U.S. dollar. For the first six months of fiscal 2004, higher
foreign currency values against the U.S. dollar had a favorable impact of
approximately $8.9 million on the Company's consolidated sales compared to the
first six months of fiscal 2003.

Gross profit for the six months ended March 31, 2004 was $90.3 million,
compared to $81.6 million for the six months ended March 31, 2003.
Consolidated gross profit as of percent of sales increased from 36.3% for the
first half of fiscal 2003 to 37.3% for the first six months of fiscal 2004.
The increase in consolidated gross profit and gross profit percentage
primarily resulted from higher sales and improved operating efficiencies in
the York Casket and Marking Products segments. The Bronze segment's gross
margin for the first six months of fiscal 2004 included a charge for the cost
of early retirement and other severance costs incurred during March 2004 and
the impact of higher raw ingot prices during fiscal 2004 compared to fiscal
2003. Gross profit for the Bronze segment for the first six months of fiscal
2003 included the benefit of a reduction in the segment's pre-need finishing
cost liability due to manufacturing efficiencies.

Selling and administrative expenses for the six months ended March 31, 2004
were $46.2 million, compared to $44.3 million for the first half of fiscal
2003. The increase of $1.9 million, or 4.4%, primarily resulted from higher
sales, the acquisition of Reproservice Munich in August 2003 and the impact of
the increase in values of foreign currencies against the U.S. dollar.
Consolidated selling and administrative expenses, as a percent of sales were
19.1% for the six months ended March 31, 2004, compared to 19.7% for the same
period last year.

Operating profit for the six months ended March 31, 2004 was $44.0 million,
representing an increase of $6.7 million, or 18.0%, over operating profit of
$37.3 million for the six months ended March 31, 2003. Bronze segment
operating profit for the first six months of fiscal 2004 was $20.4 million,
compared to $21.2 million for the first half of fiscal 2003. The decrease of

14
Results of operations, continued:

3.7% reflected the absence of a one-time favorable adjustment recorded in
fiscal 2003 related to the segment's pre-need memorial finishing cost
liability. In addition, current period results were negatively affected by
early retirement and severance costs as well as increased bronze ingot costs.
Operating profit for the York Casket segment for the first six months of
fiscal 2004 was $9.6 million, an increase of $2.5 million, or 34.6%, over the
same period a year ago. The increase reflected the favorable impact of the
divestiture of unprofitable manufacturing and distribution operations during
fiscal 2003, operating efficiencies realized in connection with productivity
and quality initiatives at several of the segment's manufacturing facilities
and a reduction in administrative expenses. Operating profit for the
Cremation segment for the first six months of fiscal 2004 was $957,000
compared to $712,000 for the same period in fiscal 2003. The 34.4% increase
reflected higher sales for the period and the benefit of operating and
administrative efficiencies realized during fiscal 2004. Graphics Imaging
operating profit for the six months ended March 31, 2004 was $9.7 million
compared to $6.3 million for the six months ended March 31, 2003. The
segment's operating profit was favorably impacted by the acquisition of
Reproservice Munich in August 2003, sales growth in the Company's other
European operations and an increase in the value of the Euro against the U.S.
dollar. Additionally, operating profit for the segment's domestic operations
increased as a result of the closure of unprofitable operations in fiscal 2003
and recent cost structure improvements. Operating profit for the Marking
Products segment for the first half of fiscal 2004 was $3.4 million,
representing an increase of $1.4 million over the same period a year ago. The
increase of 73.8% reflected the impact of higher sales and an increase in the
value of the Swedish Krona against the U.S. dollar. Higher foreign currency
values against the U.S. dollar had a favorable impact of approximately $2.0
million on the Company's consolidated operating profit for the six months
ended March 31, 2004 compared to the six months ended March 31, 2003.

Investment income for the six months ended March 31, 2004 was $662,000,
compared to $631,000 for the six months ended March 31, 2003. Interest
expense for the first half of fiscal 2004 was $880,000, compared to $1.7
million for the same period last year. The decline in interest expense
reflected a lower level of debt during the fiscal 2004 six-month period
combined with a reduction in the average borrowing rate.

Other income (deductions), net, for the six months ended March 31, 2004
represented a reduction in pre-tax income of $85,000, compared to a reduction
in pre-tax income of $45,000 for same period last year. Minority interest
deduction for the first half of fiscal 2004 was $2.6 million, compared to $2.1
million for the first half of fiscal 2003. The higher minority interest
deduction for fiscal 2004 resulted from operating income growth in the
Company's four European Graphics Imaging businesses that are not wholly owned.

The Company's effective tax rate for the six months ended March 31, 2004 was
38.8%, which remained unchanged from the effective rate of 38.8% for the
fiscal year ended September 30, 2003. The difference between the Company's
effective tax rate and the Federal statutory rate of 35% primarily reflected
the impact of state and foreign income taxes.


Goodwill:

Under Statement of Financial Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets", goodwill related to business combinations is no longer
amortized, but is subject to periodic 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,
15
Goodwill, continued:

the Company uses a combination of valuation techniques, including discounted
cash flows. The Company performed its annual impairment review in the second
quarter of fiscal 2004 and determined that no additional adjustments to the
carrying values of goodwill were necessary at this time.


Liquidity and Capital Resources:

Net cash provided by operating activities was $40.4 million for the six months
ended March 31, 2004, compared to $20.1 million for the first six months of
fiscal 2003. Operating cash flow for the first half of fiscal 2004 primarily
reflected net income adjusted for depreciation and amortization (non-cash
charges) and a tax benefit of $2.4 million from exercised stock options. For
the six months ended March 31, 2003, operating cash flow primarily reflected
net income adjusted for depreciation and amortization and payments to
customers in the second quarter of fiscal 2003 under the York Casket segment's
rebate programs. Operating cash flow for first six months of fiscal 2003 also
included a tax benefit of $2.1 million from exercised stock options.

Cash used in investing activities was $3.2 million for the six months ended
March 31, 2004, compared to $3.0 million for the six months ended March 31,
2003. Investing activities for the first six months of fiscal 2004 primarily
included capital expenditures of $3.2 million. Investing activities for the
first six months of fiscal 2003 primarily included capital expenditures of
$4.2 million, which was partially offset by proceeds of $1.4 million from the
sale of assets.

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 $8.9 million for the last three fiscal years.
The capital budget for fiscal 2004 is $13.9 million. The Company expects to
generate sufficient cash from operations to fund all anticipated capital
spending projects.

Cash used in financing activities for the six months ended March 31, 2004 was
$24.0 million, reflecting payments on long-term debt of $20.8 million,
purchases of treasury stock of $6.2 million, and dividends of $2.6 million to
the Company's shareholders, partially offset by proceeds of $5.6 million from
the sale of treasury stock (stock option exercises). Cash used in financing
activities for the six months ended March 31, 2003 was $21.4 million,
reflecting payments on long-term debt of $21.2 million, purchases of treasury
stock of $2.1 million, and dividends of $1.7 million to the Company's
shareholders, partially offset by proceeds of $3.6 million from the sale of
treasury stock (stock option exercises).

On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125.0 million with a syndicate of financial institutions. The facility was
scheduled to mature on November 30, 2004. On April 21, 2004, the Company
signed an amendment to the facility which extends its maturity to April 30,
2009. Borrowings under the amended facility bear interest at LIBOR plus a
factor ranging from .50% to 1.00% 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

16
Liquidity and Capital Resources, continued:

Revolving Credit Facility, as amended, requires the Company to maintain
certain leverage and interest coverage ratios. A portion of the facility (not
to exceed $10.0 million) is available for the issuance of trade and standby
letters of credit.

The Company borrowed $124.5 million under the original Revolving Credit
Facility on December 3, 2001 in connection with the acquisition of York
Casket, and for the repayment of all amounts outstanding under its previous
credit facility. The outstanding balance on the Revolving Credit Facility was
$24.5 million at March 31, 2004. The weighted-average interest rate on
outstanding borrowings under this facility at March 31, 2004 was 2.1%.

Effective April 30, 2004, the Company increased its outstanding borrowings
under the facility to $50.0 million and simultaneously entered into an
interest rate swap that fixed the interest rate on such borrowings at 3.16%
for a five-year period. The interest rate swap has been designated as a cash
flow hedge of the future variable interest payments under the revolving credit
facility.

Caggiati S.p.A. has four lines of credit totaling approximately U.S.$13.3
million with various Italian banks. Outstanding borrowings on these lines
approximated U.S.$4.2 million at March 31, 2004.

The Company has a stock repurchase program, which was initiated in 1996.
Under the program, the Company's Board of Directors authorized the repurchase
of a total of 8,000,000 shares (adjusted for stock splits) of Matthews common
stock, of which 7,563,311 shares have been repurchased as of March 31, 2004.
On April 23, 2004, the Company announced that its Board of Directors
authorized the continuance of the repurchase program and increased the total
authorization for stock repurchases to 10,000,000 shares. The repurchase
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 $77.3 million at March 31,
2004, compared to $89.7 million at September 30, 2003. Cash and cash
equivalents were $82.1 million at March 31, 2004, compared to $67.0 million at
September 30, 2003. The Company's current ratio was 1.7 at March 31, 2004 and
2.2 at September 30, 2003. A significant factor in the reductions in working
capital and current ratio is the classification of outstanding borrowings
under the Revolving Credit Facility as a current liability, since the maturity
of the facility (before the amendment on April 21, 2004) was November 30,
2004.


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 policies and procedures with respect to environmental,
safety and health, including the proper handling, storage and disposal of
hazardous materials.


17
Environmental Matters, continued:

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, York
Casket was identified, along with others, by the Environmental Protection
Agency as a potentially responsible party for remediation of a landfill site
in York, PA. At this time, the Company has not been joined in any lawsuit or
administrative order related to the site or its clean-up.

At March 31, 2004, an accrual of $11.6 million was recorded for environmental
remediation (of which $610,000 has been 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 Casket 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. 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 August 2003, Matthews acquired Reproservice Eurodigital GmbH Munchen
("Reproservice Munich"), a German graphics and flexographic printing plate
manufacturer in Munich, Germany. The transaction was structured as a stock
purchase, at an acquisition price of 4.1 million Euros (U.S.$4.8 million).
The combination of Matthews and Reproservice Munich is an important part of
the Matthews strategy to increase its European presence in the graphics
industry. Reproservice Munich, a family-owned business with annual sales of
approximately U.S.$6.0 million, was established in 1983. Products and
services of Reproservice Munich include pre-press packaging, digital and
analog flexographic printing plates, design, art work, lithography and color
separation.

In May 1998, Matthews acquired a 50% interest in O.N.E. Color Communications
("O.N.E."), a digital graphics service company located in Oakland, California.
The purchase price consisted of $2.0 million cash upon closing plus an
additional $2.75 million in 2001, which was based upon the attainment of
certain operating performance levels of O.N.E. The purchase agreement also
required Matthews to acquire the remaining 50% interest no later than May
2004, with the purchase price contingent on the attainment of certain
operating performance levels of O.N.E., but not less than $4.5 million. The
accounts of O.N.E. have been included in the consolidated financial statements
of Matthews since May 1998 and a liability was recorded for the future minimum
payout. Effective July 31, 2003, Matthews completed the purchase of the
remaining 50% interest in O.N.E. for $5.7 million.


Forward-Looking Information:

The Company's objective with respect to operating performance is to increase
annual earnings per share in the range of 12% to 15% annually. For the past
eight fiscal years, the Company has achieved an average annual increase in
earnings per share of 15.2%. Matthews has a three-pronged strategy to attain


18
Forward-Looking Information, continued:

the annual growth rate objective, which has remained unchanged from the prior
year. This strategy consists of the following: internal growth (which
includes productivity improvements, new product development and the expansion
into new markets with existing products), acquisitions and share repurchases
under the Company's stock repurchase program.

For the first six months of fiscal 2004, the Company's earnings of $0.77 per
share were in line with management's expectations and represented an increase
of 18.5% over earnings per share of $0.65 for the same period last year.
Based on the expected impact of the Company's recent acquisitions, anticipated
internal growth and also considering recent significant increases in bronze
ingot and steel costs, the Company expects diluted earnings per share to be in
the range of $1.55 to $1.58 for the fiscal year ended September 30, 2004.

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 included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2003. 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. The following accounting
policies involve significant estimates, which are considered critical to the
preparation of the Company's consolidated financial statements.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on an evaluation of specific
customer accounts in which available facts and circumstances indicate
collectibility may be a problem. In addition, the allowance includes a
general reserve for all customers based on historical collection experience.

Long-Lived Assets

Property, plant and equipment, goodwill and other intangible assets are
carried at cost. Depreciation on property, plant and equipment is computed
primarily on the straight-line method over the estimated useful lives of the
assets. Goodwill is no longer amortized, but is subject to periodic review
for impairment. 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.

Pension Costs

Pension assets and liabilities are determined on an actuarial basis and are
affected by the market value of plan assets, estimates of the expected return
on plan assets and the discount rate used to determine the present value of


19
Pension Costs, continued:

benefit obligations. Actual changes in the fair market value of plan assets
and differences between the actual return on plan assets, the expected return
on plan assets and changes in the selected discount rate will affect the
amount of pension cost.

Environmental Reserve

Environmental liabilities are recorded when the Company's obligation is
probable and reasonably estimable. Accruals for losses from environmental
remediation obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present value.

Revenue Recognition

Revenues are generally recognized when title and risk of loss pass to the
customer, which is typically at the time of product shipment. For pre-need
sales of memorials and vases, revenue is recognized when the memorial has been
manufactured to the customer's specifications (e.g., name and birth date),
title has been transferred to the customer and the memorial and vase are
placed in storage for future delivery. A liability has been recorded in
Estimated Finishing Costs for the estimated costs of finishing pre-need bronze
memorials and vases that have been manufactured and placed in storage prior to
July 1, 2003 for future delivery.

In July 2003, the Emerging Issues Task Force ("EITF") issued Issue No. 00-21
"Revenue Arrangements with Multiple Deliverables." Issue No. 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which it
will perform multiple revenue generating activities. The provisions of Issue
No. 00-21 were effective July 1, 2003 and have been applied prospectively by
the Company to the finishing and storage elements of its pre-need sales.
Beginning July 1, 2003, revenue is deferred by the Company on the portion of
pre-need sales attributable to the final finishing and storage of the pre-need
merchandise. Deferred revenue for final finishing is recognized at the time
the pre-need merchandise is finished and shipped to the customer. Deferred
revenue related to storage is recognized on a straight-line basis over the
estimated average time that pre-need merchandise is held in storage. Issue
No. 00-21 did not have a material impact on the Company's results of
operations or financial position.

At March 31, 2004, the Company held 359,832 memorials and 237,760 vases in its
storage facilities under the pre-need sales program.

Construction revenues are recognized under the percentage-of-completion method
of accounting. The Company offers rebates to certain customers participating
in volume purchase programs. Rebates are estimated and recorded as a
reduction in sales at the time the Company's products are sold.


LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company's contractual obligations at March
31, 2004, and the effect such obligations are expected to have on its
liquidity and cash flows in future periods.






20

Long-term Contractual Obligations and Commitments, continued:



Payments due in fiscal year:
------------------------------------------------
2004 After
Total (remainder) 2005 to 2006 2007 to 2008 2008
--------- ----------- ------------ ------------ ------

Contractual Cash Obligations: (Dollar amounts in thousands)
Revolving credit facility(1) $24,500 $ - $24,500 $ - $ -
Notes payable to banks 13,663 845 3,054 2,632 7,132
Short-term borrowings 4,214 4,214 - - -
Capital lease obligations 801 346 443 12 -
Non-cancelable operating leases 10,190 1,439 3,916 2,729 2,106
------- ------ ------ ----- ------

Total contractual cash obligations $53,368 $6,844 $31,913 $5,373 $9,238
======= ====== ====== ===== ======

(1) On April 21, 2004, the Company signed an amendment to its Revolving Credit Facility, extending
its maturity to April 30, 2009 and modifying certain other terms and covenants. Effective April
30, 2004, the Company increased its outstanding borrowings under the facility to $50,000 and
simultaneously entered into an interest rate swap that fixed the interest rate on such borrowings
at 3.16% for a five-year period. The interest rate swap has been designated as a cash flow hedge
of the future variable interest payments under the revolving credit facility.



Benefit payments under the Company's principal retirement plan are made from
plan assets, while benefit payments under the supplemental retirement plan,
postretirement benefit plan and 401(k) plan are made from the Company's
operating funds. Due to the full funding limitations, the Company is not
required to make any contributions to its principal retirement plan in fiscal
year 2004. As of March 31, 2004, contributions of $161,000 and $381,000 have
been made to the supplemental retirement plan and postretirement plans,
respectively. The Company currently anticipates contributing an additional
$193,000 and $545,000 to fund the supplemental retirement plan and
postretirement plan, respectively, for the remainder of fiscal 2004.
Contributions to the Company's 401(k) plan approximate $680,000 per year.
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.

Accounting Pronouncements:

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation addresses
consolidation by business enterprises of variable interest entities with
certain characteristics. FIN 46 is effective immediately for all variable
interest entities created after January 31, 2003. In October 2003, the FASB
agreed to defer the effective date of FIN 46 for variable interest entities
held by public companies that were acquired before February 1, 2003. The
deferral will require that public companies adopt the provisions of FIN 46 for
periods ending after December 15, 2003. The adoption of FIN 46 did not have a
material impact on the Company's consolidated financial position and results
of operations.

In December 2003, the FASB issued a revised version of SFAS No. 132
"Employer's Disclosures about Pensions and Other Postretirement Benefits."
This statement requires additional disclosures about assets, obligations, cash
flows and net periodic benefit costs of defined benefit plans and other
defined benefit postretirement plans. The disclosure requirements are


21
Accounting Pronouncements, continued:

effective for annual financial statements with fiscal years ending after
December 15, 2003 and for interim periods beginning after December 15, 2003.
The disclosure requirements of the revised version of SFAS No. 132 have been
adopted by the Company and are included in this quarterly report on Form 10-Q.

In January 2004, the FASB issued FASB Staff Position No. 106-1, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" ("FSP 106-1"). FSP 106-1 permits

the sponsor of a postretirement health care plan that provides prescription
drug benefits to make a one time election to defer accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
("the Act"). FSP 106-1 also requires certain other disclosures, whether the
deferral is elected or not. In accordance with FSP 106-1, the Company has
elected to defer accounting for the Act since the effects of the Act on the
Company's postretirement benefit plan have not been calculated. The FASB is
expected to issue specific guidance on the accounting for certain elements of
the Act which, when adopted by the Company, could require a change to
previously reported information regarding the Company's postretirement benefit
plan. However, FSP 106-1 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

The following discussion about the Company's market risk involves forward-
looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company has market risk
related to changes in interest rates, commodity prices and foreign currency
exchange rates. The Company does not generally use derivative financial
instruments in connection with these market risks. However, under the
Revolving Credit Facility, as amended, the Company entered into an interest
rate swap arrangement effective April 30, 2004 to fix the interest rate at
3.16% on its outstanding borrowings of $50.0 million.

The Company's most significant long-term debt instrument is the Revolving
Credit Facility, as amended, which bears interest at variable rates based on
LIBOR and the carrying amount of such debt approximates fair value. In the
normal course of business, the Company is exposed to commodity price
fluctuations related to the purchases of certain materials and supplies (such
as bronze ingot, steel and wood) used in its manufacturing operations. The
Company obtains competitive prices for materials and supplies when available.
The Company is subject to foreign currency exchange rate changes in the
conversion from local currencies to the U.S. dollar of the reported financial
position and operating results of its non-U.S. based subsidiaries.

Item 4. Controls and Procedures

Based on their evaluation at the end of the period covered by this Quarterly
Report on Form 10-Q, the Company's chief executive officer and chief financial
officer have concluded that the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")) provide reasonable assurance that information required to be
disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.

There have been no changes in the Company's internal controls over financial
reporting that occurred during the fiscal quarter ended March 31, 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.


22


PART II - OTHER INFORMATION


Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of
Equity Securities

Stock Repurchase Plan

The Company has a stock repurchase program, which was initiated in 1996.
Under the program, the Company's Board of Directors has authorized the
repurchase of a total of 8,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,563,311 shares have been repurchased as of
March 31, 2004. All purchases of the Company's common stock during the first
six months of fiscal 2004 were part of this repurchase program.

The following table shows the monthly fiscal 2004 stock repurchase activity:



Total number of
Average shares purchased Maximum number
Total number price as part of a of shares that yet
of shares paid per publicly announced may be purchased
Period purchased share plan under the plan (1)
- ------ ------------ -------- ------------------ -----------------

October 1, 2003 through
October 31, 2003 158,300 $27.63 158,300 509,768
November 1, 2003 through
November 30, 2003 60,700 28.62 60,700 449,068
December 1, 2003 through
December 31, 2003 79 28.70 79 448,989
January 1, 2004 through
January 31, 2004 - - - 448,989
February 1, 2004 through
February 29, 2004 - - - 448,989
March 1, 2004 through
March 31, 2004 12,300 32.03 12,300 436,689
------- ----- ------- =======
Total 231,379 28.12 231,379
======= ===== =======


(1) In April 2004 the Company's Board of Directors authorized the purchase of an additional
2,000,000 shares of Matthews common stock, bringing the total authorization for stock repurchases
to 10,000,000 shares.



Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of the Shareholders of Matthews International Corporation
was held on February 19, 2004. A total of 32,113,969 shares of Class A Common
Stock were eligible to vote at such meeting.

The matters voted upon at such meeting were as follows:

1. Election of Directors:
The following individuals were nominated for election to the Board
of Directors for a term expiring at the Annual Meeting of
Shareholders in the year indicated.





23
Item 4. Submission of Matters to a Vote of Security Holders, continued:


Votes
-----------------------------
Term Withhold
Nominee Expiration For Authority
------- ---------- ----------- -----------
G.R. Mahone 2006 22,236,537 6,669,985
D.J. DeCarlo 2007 22,284,084 6,622,438
R.J. Kavanaugh 2007 28,441,279 465,243
J.P. O'Leary, Jr. 2007 28,397,618 508,904

The nominations were made by the Board of Directors and no other
nominations were made by any shareholder. The nominees had currently
been members of the Board of Directors at the date of the Annual Meeting.

The terms of the following additional directors continued after the
meeting: D.M. Kelly, W.J. Stallkamp and J.D. Turner.

2. Selection of Auditors:
The shareholders voted to ratify the appointment by the Audit Committee
of the Board of Directors of PricewaterhouseCoopers LLP as independent
auditors to audit the records of the Company for the year ending
September 30, 2004.

Votes For: 28,157,070
Votes Against: 718,128
Abstaining: 31,324


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
No. Description
------- -----------
10.1 First Amendment to Revolving Credit Facility

31.1 Certification of Principal Executive Officer for David M.
Kelly.
31.2 Certification of Principal Financial Officer for Steven F.
Nicola.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
for David M. Kelly.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
for Steven F. Nicola.

(b) Reports on Form 8-K

On January 21, 2004, Matthews filed a Current Report on Form 8-K under
Item 12 in connection with a press release announcing its earnings for
the quarter ended December 31, 2003.

On February 17, 2004, Matthews filed a Current Report on Form 8-K under
Item 9 in connection with a press release announcing personnel changes.


24


SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




MATTHEWS INTERNATIONAL CORPORATION
(Registrant)




Date 5/10/04 D.M. Kelly
------------ -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer




Date 5/10/04 S.F. Nicola
------------ -----------------------------------------
S.F. Nicola, Chief Financial Officer,
Secretary and Treasurer