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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 June 30, 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 July 31, 2004, shares of common stock outstanding were:

Class A Common Stock 32,267,330 shares



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


June 30, 2004 September 30, 2003
------------- ------------------

ASSETS
Current assets:
Cash and cash equivalents $109,481 $66,954
Short-term investments 16,634 4,588
Accounts receivable, net 66,141 62,883
Inventories: Materials and finished goods $27,884 $25,576
Labor and overhead in process 2,859 1,489
------- -------
30,743 27,065
Other current assets 3,751 4,564
------- -------
Total current assets 226,750 166,054
Investments 7,650 4,561
Property, plant and equipment: Cost 147,967 140,487
Less accumulated depreciation (82,941) (70,854)
------- -------
65,026 69,633
Deferred income taxes and other assets 26,061 32,182
Goodwill 156,847 154,690
Other intangible assets, net 12,801 13,062
------- -------
Total assets $495,135 $440,182
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities $ 18,209 $ 6,029
Accounts payable 17,913 19,805
Accrued compensation 26,786 24,745
Accrued income taxes 17,197 1,274
Customer prepayments 2,367 2,488
Other current liabilities 19,056 21,982
------ ------
Total current liabilities 101,528 76,323

Long-term debt 51,795 57,023
Estimated finishing costs 4,798 4,863
Postretirement benefits 17,678 17,644
Environmental reserve 10,713 11,154
Deferred income taxes 2,274 3,441
Other liabilities and deferred revenue 13,245 13,506

Shareholders' equity:
Common stock 36,334 36,334
Additional paid in capital 10,250 6,476
Retained earnings 293,264 257,559
Accumulated other comprehensive income 10,309 6,643
Treasury stock, at cost (57,053) (50,784)
------- -------
293,104 256,228
------- -------
Total liabilities and shareholders' equity $495,135 $440,182
======= =======



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


Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- -----------------------
2004 2003 2004 2003
---- ---- ---- ----

Sales $120,635 $116,145 $362,524 $340,799

Cost of sales (72,181) (71,696) (223,815) (214,757)
------- ------- -------- --------
Gross profit 48,454 44,449 138,709 126,042

Selling and administrative expenses (23,242) (22,876) (69,478) (67,157)
------- ------- ------- -------
Operating profit 25,212 21,573 69,231 58,885

Investment income 435 354 1,097 985
Interest expense (613) (578) (1,493) (2,250)
Other income (deductions), net (118) (84) (203) (129)
Minority interest (1,418) (1,179) (3,984) (3,280)
------- ------- ------- -------
Income before income taxes 23,498 20,086 64,648 54,211

Income taxes (9,118) (7,797) (25,084) (21,037)
------- ------- ------- -------
Net income $14,380 $12,289 $39,564 $33,174
======= ======= ======= =======



Earnings per share:
Basic $ .45 $ .38 $1.23 $1.05
===== ===== ===== =====
Diluted $ .44 $ .38 $1.21 $1.03
===== ===== ===== =====

Dividends per share: $.04 $.0275 $.12 $.0825
===== ===== ===== =====



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


Nine Months Ended
June 30,
--------------------------
2004 2003
---- ----

Cash flows from operating activities:
Net income $39,564 $33,174
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,138 11,044
Change in deferred taxes 165 339
Changes in working capital items 7,526 (13,086)
Decrease in other assets 5,138 2,555
Decrease in estimated finishing costs (65) (1,090)
Decrease in other liabilities (585) (4,395)
Decrease in postretirement benefits (212) (375)
Tax benefit of exercised stock options 2,805 5,100
Net gain on sales of assets (133) (336)
------- -------
Net cash provided by operating activities 65,341 32,930
------- -------
Cash flows from investing activities:
Capital expenditures (6,826) (6,761)
Proceeds from sales of assets 850 2,216
Purchases of investment securities (15,193) (145)
Proceeds from disposition of investment securities 17 16
------ ------
Net cash used in investing activities (21,152) (4,674)
------ ------
Cash flows from financing activities:
Proceeds from long-term debt 52,066 -
Payments on long-term debt (45,907) (31,495)
Proceeds from the sale of treasury stock 7,271 10,685
Purchases of treasury stock (12,570) (2,199)
Dividends (3,859) (2,615)
------- -------
Net cash used in financing activities (2,999) (25,624)
------- -------
Effect of exchange rate changes on cash 1,337 4,205
------- -------

Net increase in cash and cash equivalents $42,527 $ 6,837
====== ======




5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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; merchandising solutions; and custom-
made products which are used to identify people, places, products and events.
The Company's products and operations are comprised of six business segments:
Bronze, York Casket, Cremation, Graphics Imaging, Marking Products and, as of
July 19,2004, Merchandising Solutions (see Note 13). 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 nine months ended June 30, 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 Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Net income, as reported $14,380 $12,289 $39,564 $33,174
Net income, pro forma 13,939 11,919 38,359 32,175
Basic earnings per share, as reported .45 .38 1.23 1.05
Diluted earnings per share, as reported .44 .38 1.21 1.03
Basic earnings per share, pro forma .43 .37 1.19 1.02
Diluted earnings per share, pro forma .43 .37 1.18 1.01





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 Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Net income $14,380 $12,289 $39,564 $33,174
========== ========== ========== ==========

Weighted-average common
shares outstanding 32,252,258 31,845,791 32,172,931 31,523,848

Dilutive securities,
primarily stock options 466,418 497,032 486,574 664,760
---------- ---------- ---------- ----------
Diluted weighted-average
common shares outstanding 32,718,676 32,342,823 32,659,505 32,188,608
========== ========== ========== ==========


Basic earnings per share $ .45 $ .38 $1.23 $1.05
==== ==== ==== ====

Diluted earnings per share $ .44 $ .38 $1.21 $1.03
==== ==== ==== ====



Note 6. Segment Information

The Company's products and operations are comprised of six business segments:
Bronze, York Casket, Cremation, Graphics Imaging, Marking Products and, as of
July 19, 2004, Merchandising Solutions (see Note 13). The segments 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 Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Sales to external customers:
Bronze $51,666 $49,978 $144,271 $137,699
York Casket 27,013 28,661 91,155 92,437
Cremation 5,163 4,374 16,552 15,052
Graphics Imaging 27,495 24,718 82,420 71,705
Marking Products 9,298 8,414 28,126 23,906
----------- ----------- ----------- -----------
$120,635 $116,145 $362,524 $340,799
=========== =========== =========== ===========



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



Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2004 2003 2004 2003
---- ---- ---- ----

Operating profit:
Bronze $14,948 $14,278 $35,338 $35,461
York Casket 3,763 2,863 13,390 10,013
Cremation (128) 175 829 887
Graphics Imaging 4,959 3,178 14,634 9,506
Marking Products 1,670 1,079 5,040 3,018
----------- ----------- ----------- -----------
$25,212 $21,573 $69,231 $58,885
=========== =========== =========== ===========



Note 7. Comprehensive Income

Comprehensive income consists of net income adjusted for changes, net of tax,
in cumulative foreign currency translation, unrealized gains and losses on
investments, unrealized gains and losses on a derivative instrument and
minimum pension liability. For the three months ended June 30, 2004 and 2003,
comprehensive income was $13,672 and $16,878, respectively. For the nine
months ended June 30, 2004 and 2003, comprehensive income was $43,230 and
$43,628, 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 nine months
ended June 30, 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 985 - - 1,172 - 2,157
------ ------ ------ ------ --- -------

Balance at June 30, 2004 $ 73,107 $ 40,706 $ 6,536 $ 36,333 $ 165 $156,847
====== ====== ====== ====== === =======




9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)


The following tables summarize the carrying amounts and related accumulated
amortization for intangible assets as of June 30, 2004 and September 30, 2003,
respectively.

York Casket Segment Cremation Segment
-------------------- ------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------- ------------ -------- ------------
June 30, 2004:
- ------------------
Trade names $ 8,000 $ - * $ - $ -
Customer relationships 4,100 (623) - -
Copyrights/patents/other 1,300 (224) 300 (52)
------ ---- --- ---
$13,400 $(847) $ 300 $(52)
====== ==== === ===

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 June 30, 2004,
amortization expense on intangible assets was $82 for the York Casket segment
and $5 for the Cremation segment. For the nine-month period ended June 30,
2004, amortization expense was $246 for the York Casket segment and $15 for
the Cremation segment. Amortization expense on intangible assets is expected
to approximate $350 each year between 2004 and 2008.

Note 9. Long-term Debt
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 extended 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
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.

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

flow hedge 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 the hedge match the underlying terms
of the hedged debt and related forecasted interest payments and as such, these
hedges are considered effective.

The fair value of the interest rate swap reflected an unrealized gain of
$934,000 ($570,000 after tax) at June 30, 2004 that is included in equity as
part of accumulated other comprehensive income. Assuming market rates remain
constant with the rates at June 30, 2004, approximately $115,000 of the
$570,000 gain included in accumulated other comprehensive income is expected
to be recognized in earnings over the next 12 months.

At June 30, 2004 the outstanding balance on the Revolving Credit Facility was
$50,000 and the weighted-average interest rate on the outstanding borrowings
under this facility was 3.16%. Equal quarterly payments of $2,500 plus
interest are due on the facility until its maturity in April 2009.

Caggiati S.p.A. has financed several acquisitions through loans with various
Italian banks. Outstanding borrowings on these loans totaled U.S.$14,800 at
June 30, 2004. Caggiati also has four lines of credit totaling approximately
U.S.$12,000 with the same Italian banks. Outstanding borrowings on these
lines approximated $4,500 at June 30, 2004.

Note 10. 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 12:



Pension Other Postretirement
---------------- --------------------
Three months ended June 30, 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
===== ===== ===== =====












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



Pension Other Postretirement
---------------- --------------------
Nine months ended June 30, 2004 2003 2004 2003
------ ------ ------ ------

Service cost $ 2,719 $2,277 $296 $216
Interest cost 3,797 3,624 786 795
Expected return on
plan assets (4,452) (3,462) - -
Amortization:
Prior service cost 84 84 (966) (966)
Net actuarial loss 879 939 335 372
----- ----- ----- -----
Net benefit cost $ 3,027 $3,462 $451 $417
===== ===== ===== =====



Benefit payments under the Company's principal retirement plan are made from
plan assets, while benefit payments under the supplemental retirement plan and
postretirement benefit plan are made from the Company's operating funds. Due
to the IRS full funding limitations, the Company is not required to make any
contributions to its principal retirement plan in fiscal year 2004. As of
June 30, 2004, contributions of $258 and $588 have been made under the
supplemental retirement plan and postretirement plan, respectively. The
Company currently anticipates contributing an additional $96 and $338 under
the supplemental retirement plan and postretirement plan, respectively, for
the remainder of fiscal 2004.

Note 11. 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.





12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)


Note 12. 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.

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 May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (the "Act"). The Act
introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of post-retirement health care benefit plans that provide
a benefit that is at least actuarially equivalent to Medicare Part D. When
adopted, FSP 106-2 will supersede FSP 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," which was issued in January 2004 and permitted a
sponsor of a post-retirement health care plan that provides a prescription
drug benefit to make a one-time election to defer accounting for the effects
of the Act until more authoritative guidance on the accounting for the federal
subsidy was issued. The Company elected the one-time deferral allowed under
FSP 106-1 and, as a result, any measures of the accumulated post-retirement
benefit obligation or net periodic post-retirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the
Act on post-retirement health care benefit plans. FSP 106-2 provides
authoritative guidance on the accounting for the federal subsidy and specifies
the disclosure requirements for employers who have adopted FSP 106-2,
including those who are unable to determine whether benefits provided under
its plan are actuarially equivalent to Medicare Part D. FSP 106-2 is
effective for the Company's fourth quarter of fiscal 2004, but it is not
expected to have a material impact on the Company's consolidated financial
position or results of operations.


13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar amounts in thousands, except per share data)

Note 13. Subsequent Events

In July 2004, the Company acquired Cloverleaf Group, Inc. ("Cloverleaf"), a
provider of merchandising solutions. Cloverleaf was formed by the recent
merger of iDL, Inc., which is a merchandising solutions company headquartered
near Pittsburgh, PA and Big Red Rooster, which is a marketing and design
services organization located in Columbus, OH. The transaction was structured
as an asset purchase, at a cost of approximately $34,000. The transaction was
also structured to include potential additional consideration during the next
six years contingent on the future growth in value of the acquired operations.
The acquisition is designed to expand the Company's products and services into
the merchandising solutions market.

In July 2004, the Company acquired Holjeron Corporation, an industrial
controls manufacturer located in Wilsonville, OR. The transaction was
structured as a stock purchase, and is a part of Matthews' strategy to
increase its presence in the marking products industry.


14
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 foreign currency
translation 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 net sales for the periods indicated.

Nine months ended Years ended
June 30, September 30,
----------------- --------------------
2004 2003 2003(1) 2002 2001(2)
---- ---- ------ ---- ------
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 38.3 37.0 37.1 37.5 42.2
Operating profit 19.1 17.3 17.5 15.9 18.8
Income before taxes (3) 17.8 15.9 16.0 14.6 18.2
Net income (3) 10.9 9.7 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 nine months ended June 30, 2004 were $362.5 million and were
$21.7 million, or 6.4%, higher than sales of $340.8 million for the nine
months ended June 30, 2003. Bronze segment sales for the first nine months
of fiscal 2004 were $144.3 million compared to $137.7 million for the first
15

Results Of Operations, continued:

nine months of fiscal 2003. The higher level of Bronze sales principally
reflected the favorable impact of increases in the values of foreign
currencies against the U.S. dollar and the effect of a temporary price
surcharge instituted in April 2004 in response to increases in the cost of
bronze ingot. These increases were offset partially by a decline in
mausoleums sales. Sales for the York Casket segment were $91.1 million for
the first nine months of fiscal 2004 compared to $92.4 million for the same
period last year. The decrease primarily reflected the divestiture of a small
manufacturing facility and several distribution operations in fiscal 2003.
Sales for the Cremation segment were $16.6 million for the first nine months
of fiscal 2004 compared to $15.1 million for the same period a year ago. The
increase reflected higher sales volume of cremation equipment and cremation
caskets compared to the same period a year ago. Sales for the Graphics
Imaging segment in the first nine months of fiscal 2004 were $82.4 million,
compared to $71.7 million for the same period a year ago. The increase
reflected the acquisition of Reproservice Eurodigital GmbH Munchen
("Reproservice Munich") in August 2003, higher sales in the segment's other
European operations and an increase in the value of the Euro against the U.S.
dollar. These increases were partially offset by lower sales in the segment's
domestic operations, which primarily related to the closure, in September
2003, of an unprofitable manufacturing business in North Carolina. Marking
Products segment sales for the nine months ended June 30, 2004 were $28.1
million, compared to $23.9 million for the first nine months of fiscal 2003.
The increase of $4.2 million, or 17.7%, was principally due to higher volume,
reflecting higher demand in North America and in Europe as a result of
improving economic conditions, and the increase in 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 $11.0 million on the Company's
consolidated sales for the nine months ended June 30, 2004, compared to the
same period a year ago.

Gross profit for the nine months ended June 30, 2004 was $138.7 million,
compared to $126.0 million for the nine months ended June 30, 2003.
Consolidated gross profit as of percent of sales increased from 37.0% for the
first nine months of fiscal 2003 to 38.3% for the first nine months of fiscal
2004. The increase in consolidated gross profit and gross profit percentage
primarily resulted from higher sales in the Marking Products and European
Graphics Imaging businesses and manufacturing efficiency improvements in
several of the Company's segments.

Selling and administrative expenses for the nine months ended June 30, 2004
were $69.5 million, compared to $67.2 million for the first nine months of
fiscal 2003. The increase resulted from higher sales, the acquisition of
Reproservice Munich in August 2003 and the increase in values of foreign
currencies against the U.S. dollar. Consolidated selling and administrative
expenses as a percent of sales were 19.2% for the nine months ended June 30,
2004 compared to 19.7% for the same period last year.

Operating profit for the nine months ended June 30, 2004 was $69.2 million,
representing an increase of $10.3 million, or 17.6%, over operating profit of
$58.9 million for the nine months ended June 30, 2003. Bronze segment
operating profit for the first nine months of fiscal 2004 was $35.4 million,
compared to $35.5 million for the first nine months of fiscal 2003. The
slight decrease reflected the absence of a one-time favorable adjustment
recorded in fiscal 2003 related to the segment's pre-need memorial finishing
cost liability, early retirement and severance costs incurred in March 2004,
and increased bronze ingot costs. Bronze ingot costs at June 30, 2004 were
approximately 60% higher than a year ago. These increases were partially
offset by favorable impact in the third quarter of March 2004 personnel
16

Results Of Operations, continued:

reduction initiatives and the favorable impact of increases in the values of
foreign currencies against the U.S. dollar. Operating profit for the York
Casket segment for the first nine months of fiscal 2004 was $13.4 million, an
increase of $3.4 million, or 33.7%, 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. Cremation segment operating profit was $829,000 for
the first nine months of fiscal 2004 compared to $887,000 for the same period
in fiscal 2003. The decrease primarily reflected the benefit of higher sales
offset by changes in employee benefit costs in fiscal 2004 compared to fiscal
2003. Graphics Imaging operating profit for the nine months ended June 30,
2004 was $14.6 million compared to $9.5 million for the nine months ended June
30, 2003, an increase of 53.9%. The segment's operating profit was favorably
impacted by the acquisition of Reproservice Munich, sales growth in the
Company's other European operations, an increase in the value of the Euro
against the U.S. dollar and the results of cost structure initiatives in the
segment's domestic operations. Operating profit for the Marking Products
segment for the first nine months of fiscal 2004 was $5.0 million,
representing an increase of $2.0 million, or 67.0%, over the same period a
year ago. The increase resulted from higher sales combined with 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 $2.5 million on the Company's consolidated operating profit for
the nine months ended June 30, 2004 compared to the same period a year ago.

Investment income for the nine months ended June 30, 2004 was $1.1 million,
compared to $985,000 for the nine months ended June 30, 2003. The increase
over the prior period reflected higher levels of invested cash. Interest
expense for the first nine months of fiscal 2004 was $1.5 million, compared to
$2.3 million for the same period last year. The decline in interest expense
reflected a lower average level of debt during the fiscal 2004 nine-month
period combined with a reduction in the average borrowing rate.

Other deductions, net, for the nine months ended June 30, 2004 was $203,000
compared to $129,000 for same period last year. Minority interest deduction
for the first nine months of fiscal 2004 was $4.0 million, compared to $3.3
million for the first nine months 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 nine months ended June 30, 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,
the Company uses a combination of valuation techniques, including discounted
cash flows. The Company performed its annual impairment review in the second
17

Results Of Operations, continued:

quarter of fiscal 2004 and determined that no adjustments to the carrying
values of goodwill were necessary at that time.


Liquidity And Capital Resources:

Net cash provided by operating activities was $65.3 million for the nine
months ended June 30, 2004, compared to $32.9 million for the first nine
months of fiscal 2003. Operating cash flow for the first nine months of
fiscal 2004 reflected net income adjusted for depreciation and amortization
(non-cash charges), an increase in accrued income taxes and a tax benefit of
$2.8 million from exercised stock options. Accrued income taxes at June 30,
2004 were higher due to the current provision and overpayments of fiscal 2003
taxes that have been applied to future periods. For the nine months ended
June 30, 2003, operating cash flow primarily reflected net income adjusted for
depreciation, amortization, payments to customers under York Casket segment's
rebate programs, a $7.5 million contribution to the Company's pension plan,
and a tax benefit of $5.1 million from exercised stock options.

Cash used in investing activities was $21.2 million for the nine months ended
June 30, 2004, compared to $4.7 million for the nine months ended June 30,
2003. Investing activities for the first nine months of fiscal 2004 included
capital expenditures of $6.8 million and net purchases of investments of $15.2
million, partially offset by proceeds of $850,000 from the sale of assets.
Investing activities for the first nine months of fiscal 2003 primarily
included capital expenditures of $6.8 million, which was partially offset by
proceeds of $2.2 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 nine months ended June 30, 2004 was
$3.0 million, reflecting repayment of long-term debt of $45.9 million, stock
repurchases of $12.6 million and dividends of $3.9 million to the Company's
shareholders, partially offset by proceeds from long-term debt of $52.1
million and net proceeds from the sale of treasury stock of $7.3 million
(stock option exercises). Cash used in financing activities for the nine
months ended June 30, 2003 was $25.6 million, reflecting payments on long-term
debt of $31.5 million, treasury stock purchases of $2.2 million and dividends
of $2.6 million to the Company's shareholders. These payments were partially
offset by proceeds of $10.7 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 extended 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
18

Liquidity and Capital Resources, continued:

required to pay an annual commitment fee ranging from .20% to .30% (based on
the Company's leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility, 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.

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.

At June 30, 2004 the outstanding balance on the Revolving Credit Facility was
$50.0 million and the weighted-average interest rate on the outstanding
borrowings under this facility was 3.16%. Equal quarterly payments of $2.5
million plus interest are due on the facility until its final maturity in
April 2009.

Caggiati S.p.A. has four lines of credit totaling approximately U.S.$12.0
million with various Italian banks. Outstanding borrowings on these lines
approximated $4.5 million at June 30, 2004.

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 10,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,759,895 shares have been repurchased as of
June 30, 2004. The buy-back program is designed to increase shareholder
value, enlarge the Company's holdings of its common stock, and add to earnings
per share. Repurchased shares may be retained in treasury, utilized for
acquisitions, or reissued to employees or other purchasers, subject to the
restrictions of the Company's Restated Articles of Incorporation.

Consolidated working capital of the Company was $125.2 million at June 30,
2004, compared to $89.7 million at September 30, 2003. Cash and cash
equivalents were $109.5 million at June 30, 2004, compared to $67.0 million at
September 30, 2003. The increase in working capital reflected the extension
of the maturity on the Revolving Credit Facility. The increase in cash
resulted from the Company's earnings during the current period and additional
borrowings under its credit facility. The Company's current ratio was 2.2 at
June 30, 2004 and September 30, 2003.


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.

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
19

Environmental Matters, continued:

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 June 30, 2004, an accrual of $11.5 million was recorded for environmental
remediation (of which $786,000 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 July 2004, the Company acquired Cloverleaf Group, Inc. ("Cloverleaf"), a
provider of merchandising solutions. Cloverleaf was formed by the recent
merger of iDL, Inc., which is a merchandising solutions company headquartered
near Pittsburgh, PA and Big Red Rooster, which is a marketing and design
services organization located in Columbus, OH. The transaction was structured
as an asset purchase, at a cost of approximately $34.0 million. The
transaction was also structured to include potential additional consideration
during the next six years contingent on the future growth in value of the
acquired operations. The acquisition is designed to expand the Company's
products and services into the merchandising solutions market.

In July 2004, the Company acquired Holjeron Corporation, an industrial
controls manufacturer located in Wilsonville, OR. The transaction was
structured as a stock purchase, and is a part of Matthews' strategy to
increase its presence in the marking products industry.

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
20

Acquisitions, continued:

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
nine 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
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 nine months of fiscal 2004, the Company's earnings of $1.21 per
share were in line with management's original expectations for the year and
represented an increase of 17.5% over earnings per share of $1.03 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 to
achieve diluted earnings per share of $1.58 for the fiscal year ending
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.





21

Critical Accounting Policies, continued:

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
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.

At June 30, 2004, the Company held 359,181 memorials and 236,844 vases in its
storage facilities under the pre-need sales program.

Construction revenues are recognized under the percentage-of-completion method
of accounting using the cost-to-cost method. The Company offers rebates to
certain customers participating in volume purchase programs. Rebates are
22

Critical Accounting Policies, continued:

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 June
30, 2004, and the effect such obligations are expected to have on its
liquidity and cash flows in future periods.

Long Term Contractual Obligations, 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 $50,000 $2,500 $20,000 $20,000 $ 7,500
Notes payable to banks 14,866 537 4,650 2,609 7,070
Short-term borrowings 4,536 4,536 - - -
Capital lease obligations 602 147 443 12 -
Non-cancelable operating leases 13,223 832 5,251 4,066 3,074
------- ------ ------- ------- -------

Total contractual cash obligations $83,227 $8,552 $30,344 $26,687 $17,644
======= ====== ======= ======= =======




Benefit payments under the Company's principal retirement plan are made from
plan assets, while benefit payments under the supplemental retirement plan and
postretirement benefit plan are made from the Company's operating funds. Due
to IRS full funding limitations, the Company is not required to make any
contributions to its principal retirement plan in fiscal year 2004. As of
June 30, 2004, contributions of $258,000 and $588,000 have been made under the
supplemental retirement plan and postretirement plan, respectively. The
Company currently anticipates contributing an additional $96,000 and $338,000
under the supplemental retirement plan and postretirement plan, respectively,
for the remainder of fiscal 2004.
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.

23

Accounting Pronouncements, continued:

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 May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"),
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (the "Act"). The Act
introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of post-retirement health care benefit plans that provide
a benefit that is at least actuarially equivalent to Medicare Part D. When
adopted, FSP 106-2 will supersede FSP 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," which was issued in January 2004 and permitted a
sponsor of a post-retirement health care plan that provides a prescription
drug benefit to make a one-time election to defer accounting for the effects
of the Act until more authoritative guidance on the accounting for the federal
subsidy was issued. The Company elected the one-time deferral allowed under
FSP 106-1 and, as a result, any measures of the accumulated post-retirement
benefit obligation or net periodic post-retirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the
Act on post-retirement health care benefit plans. FSP 106-2 provides
authoritative guidance on the accounting for the federal subsidy and specifies
the disclosure requirements for employers who have adopted FSP 106-2,
including those who are unable to determine whether benefits provided under
its plan are actuarially equivalent to Medicare Part D. FSP 106-2 is
effective for the Company's fourth quarter of fiscal 2004, but it 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, except as noted below.

Interest Rates - 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. 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. The fair value of the interest rate swap
reflected an unrealized gain of $934,000 ($570,000 after tax) at June 30, 2004
that is included in equity as part of accumulated other comprehensive income.
A decrease of 10% in market interest rates (i.e. a decrease from 3.5% to
3.15%) would result in a decrease of approximately $360,000 in the fair value
of the interest rate swap.



24

Quantitative And Qualitative Disclosures About Market Risk, continued:

Commodity Price Risks - 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.

Foreign Currency Exchange Rates - The Company is subject to changes in various
foreign currency exchange rates, including the Euro, the Canadian dollar, the
Australian dollar and the Swedish Krona, 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. An adverse change of 10% in
exchange rates would have resulted in a decrease in sales of $9.1 million and
a decrease in operating income of $3.4 million for the nine months ended June
30, 2004.


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 June 30, 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.


25


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 10,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,759,895 shares have been repurchased as of
June 30, 2004. All purchases of the Company's common stock during the first
nine 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 2003 158,300 $27.63 158,300 509,768
November 2003 60,700 28.62 60,700 449,068
December 2003 79 28.70 79 448,989
January 2004 - - - 448,989
February 2004 - - - 448,989
March 2004 12,300 32.03 12,300 436,689
April 2004 196,584 31.04 196,584 2,240,105
May 2004 - - - 2,240,105
June 2004 - - - 2,240,105
------- ----- ------- =========
Total 427,963 29.46 427,963
======= ===== =======


(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

None















26


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
No. Description
------- -----------
10.1 Asset Purchase Agreement Between I.D.L. Incorporated and
Hugh Andrew, L.P. and Big Red Rooster, Inc. and Cloverleaf
Group, L.P. and the iDL Shareholders and the BRR
Shareholders and Cloverleaf Group, Inc. and Matthews
International Corporation dated as of July 19, 2004.
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 April 26, 2004, Matthews filed a Current Report on Form 8-K under
Item 9 in connection with a press release announcing the continuation of
the Company's stock repurchase program and an increase in the
authorization for stock repurchases by 2 million shares.

On April 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 March 31, 2004.




27


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 8/10/04 David M. Kelly
------------ -----------------------------------------
David M. Kelly, Chairman of the Board,
President and Chief Executive Officer




Date 8/10/04 Steven F. Nicola
------------ -----------------------------------------
Steven F. Nicola, Chief Financial Officer,
Secretary and Treasurer