1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 30, 2001
Commission File Numbers 0-9115 and 0-24494

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

COMMONWEALTH OF 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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, $1.00 par value NASDAQ National Market System
Class B Common Stock, $1.00 par value None

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 if disclosure of delinquent filers pursuant to Item
405a of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 30, 2001 was $706,000,000.

As of November 30, 2001, shares of common stock outstanding were:
Class A Common Stock 30,278,500 shares
Class B Common Stock none

Documents incorporated by reference: None

The index to exhibits is on pages 72-73.

2
PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

Any forward-looking statements contained in this Annual Report on Form 10-K
(specifically those contained in Item 1, "Business" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations") are
included in this report 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 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 competitive
pressures, unknown risks in connection with the Company's acquisitions, and
technological factors beyond the Company's control.

ITEM 1. BUSINESS.

Matthews International Corporation ("Matthews"), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of custom-made products which are used to identify people, places,
products and events. The Company's products and operations are comprised of
three business segments: Bronze, Graphics Imaging and Marking Products. The
Bronze segment is a leading manufacturer of cast bronze memorials and other
memorialization products, crematories and cremation-related products and a
leading builder of mausoleums in the United States. The Graphics Imaging
segment provides printing plates, pre-press services and imaging services for
the corrugated and primary 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. On December 3, 2001, the Company
acquired The York Group, Inc., a manufacturer of caskets in the United States
(see "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Part II of this Annual Report on Form 10-K).

At November 30, 2001, the Company and its majority-owned subsidiaries had
approximately 2,200 employees. The Company's principal executive offices are
located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212 and its
telephone number is (412) 442-8200.

The following table sets forth sales and operating profit for the Company's
business segments for the past three fiscal years. Detailed financial
information relating to business segments and to domestic and international
operations is presented in Note 14 (Segment Information) to the Consolidated
Financial Statements included in Part II of this Annual Report on Form 10-K.

3
ITEM 1. BUSINESS, continued.

Fiscal Year Ended September 30,
--------------------------------------------------------
2001 2000 1999
--------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Sales to unaffiliated customers:
Bronze $164,078 57.9% $142,368 53.3% $125,456 51.6%
Graphics Imaging 89,568 31.6 92,169 34.5 86,948 35.7
Marking Products 29,636 10.5 32,450 12.2 30,966 12.7
------- ----- ------- ----- ------- -----
Total $283,282 100.0% $266,987 100.0% $243,370 100.0%
======= ===== ======= ===== ======= =====

Operating profit (1):
Bronze 37,744 72.1 33,416 69.9 31,777 77.6
Graphics Imaging 10,042 19.2 9,640 20.2 5,135 12.5
Marking Products 4,562 8.7 4,720 9.9 4,036 9.9
------- ----- ------- ----- ------- -----
Total $ 52,348 100.0% $ 47,776 100.0% $ 40,948 100.0%
======= ===== ======= ===== ======= =====

(1) Fiscal 2001 excludes special items. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Part II
of this Annual Report on Form 10-K.

In fiscal 2001, approximately 78% of the Company's sales were made from the
United States, and 17%, 3% and 2% were made from Europe, Canada and Australia,
respectively. Bronze segment products are sold throughout the world with the
segment's principal operations located in the United States, Italy, Canada and
Australia. Products and services of the Graphics Imaging segment are sold
primarily in the United States, Germany and Austria. The Marking Products
segment sells equipment and consumables directly to industrial consumers in
the United States and internationally through the Company's wholly-owned
subsidiaries in Canada and Sweden and through other foreign distributors.
Matthews owns a minority interest in distributors in Asia, Australia, France,
Germany, the Netherlands and the United Kingdom.

PRODUCTS AND MARKETS:

Bronze:

The Bronze segment manufactures and markets in the United States, Europe,
Canada and Australia products used primarily in the cemetery and funeral home
industries. The segment's principal products include cast bronze memorials
and other memorialization products used primarily in cemeteries. Other
cemetery and funeral home products of the Bronze segment include mausoleums,
crematories and cremation-related products. In addition, the segment
manufactures and markets cast bronze and aluminum architectural products used
to identify or commemorate people, places and events.

4
ITEM 1. BUSINESS, continued.

PRODUCTS AND MARKETS, continued:

Bronze, continued:

Memorial products, which comprise the majority of the Bronze segment's sales,
include flush bronze memorials, flower vases, crypt letters, cremation urns,
niche units, cemetery features and statues, along with other related products.
Flush bronze memorials are bronze plaques which contain personal information
about a deceased individual such as name, birth date and death date. These
memorials are used in cemeteries as an alternative to upright granite
monuments. The memorials are even or "flush" with the ground and therefore
are preferred by many cemeteries for easier mowing and other maintenance. In
order to provide products for the granite memorial and mausoleum markets, the
Company's other memorial products include community and family mausoleums,
granite monuments and bronze plaques, letters, emblems, vases, lights and
photoceramics that can be affixed to granite monuments, mausoleums and crypts.
In addition, Matthews is a leading builder of mausoleums within North America.
Principal customers for memorial products are cemeteries and memorial parks,
which in turn sell the Company's products to the consumer.

The Bronze segment manufactures a full line of memorial products for
cremation, including urns in a variety of sizes, styles and shapes. The
segment also manufactures bronze and granite niche units, which are comprised
of numerous compartments used to display cremation urns in mausoleums and
churches. In addition, the Company also markets "turnkey" cremation gardens,
which include the design and all related products for a cremation garden.

The Bronze segment is also the leading North American designer and
manufacturer of cremation equipment and cremation-related products. Cremation
equipment and products are sold primarily to cemeteries and mortuary
facilities within North America, Europe and Asia.

Architectural products include cast bronze and aluminum plaques, etchings and
letters that are used to recognize, commemorate and identify people, places,
events and accomplishments. The Company's plaques are frequently used to
identify the name of a building or the names of companies or individuals
located within a building. Such products are also used to commemorate events
or accomplishments, such as military service or financial donations. The
principal markets for the segment's architectural products are corporations,
fraternal organizations, contractors, churches, hospitals, schools and
government agencies. These products are sold to and distributed through a
network of independent dealers including sign suppliers, recognition companies
and trophy dealers.

In May 2001, Matthews acquired the Commemorative Products business of The York
Group, Inc. ("York"). As part of the transaction, Matthews acquired York's
bronze manufacturing operation in Kingwood, West Virginia.

Raw materials used by the Bronze segment consist principally of bronze and
aluminum ingot, sheet metal, coating materials, polymer sheet, electrical
components and construction materials and are generally available in adequate
supply. Ingot is obtained from various North American, European and
Australian smelters.

5
ITEM 1. BUSINESS, continued.

PRODUCTS AND MARKETS, continued:

Bronze, continued:

Competition from other bronze memorialization product manufacturers is on the
basis of reputation, product quality, delivery, price and design availability.
In North America, the Company and its major bronze competitor account for a
substantial portion of the bronze memorial market. The Company also competes
with upright granite monument and flush granite memorial providers. The
Company believes that its superior quality, broad product lines, innovative
designs, delivery capability, customer responsiveness, experienced personnel
and customer-oriented merchandising systems are competitive advantages in its
markets. The Company competes with several manufacturers in the crematory
market principally on the basis of product quality and price. Competition in
the mausoleum construction industry includes various construction companies
throughout North America and is on the basis of design, quality and price.
Competitors in the architectural market are numerous and include companies
that manufacture cast and painted signs, plastic materials, sand-blasted wood
and other fabricated products.

Graphics Imaging:

The Graphics Imaging segment provides printing plates, pre-press services and
imaging services to the corrugated and primary packaging industries. The
corrugated packaging industry consists of manufacturers of printed corrugated
containers. The primary packaging industry consists of manufacturers of
printed packaging materials such as boxes, folding cartons and bags commonly
seen at retailers of consumer goods.

The principal products and services of this segment include printing plates,
pre-press graphics services, print process assistance, print production
management, digital asset and content management and package design. These
products and services are used by packaging manufacturers and end-users to
develop and print packaging graphics that identify and help sell the product.
Other packaging graphics can include nutritional information, directions for
product use, consumer warning statements and UPC codes. The corrugated
packaging manufacturer produces printed containers from corrugated sheets.
Using the Company's products, this sheet is printed and die cut to make a
finished container. The primary packaging manufacturer produces printed
packaging from paper, film, foil and other composite materials used to both
display and protect the product.

The Company works closely with manufacturers to provide the proper printing
plates and tooling used to print the packaging to the user's specifications.
The segment's printing plate products are made principally from photopolymer
resin and sheet materials. Upon customer request, plates can be pre-mounted
press-ready in a variety of configurations that maximize print quality and
minimize press set-up time.

6
ITEM 1. BUSINESS, continued.

PRODUCTS AND MARKETS, continued:

Graphics Imaging, continued:

The segment offers a wide array of value-added services and products. These
include print process and print production management services; pre-press
preparation, which includes computer-generated camera-ready art, films and
proofs; plate mounting accessories and various press aids; and rotary and flat
cutting dies used to cut out intricately designed containers and point-of-
purchase displays. The segment provides digital graphics services to
advertising agencies and packaging markets through its 50%-owned affiliate,
O.N.E. Color Communications, L.L.C., located in Oakland, California, and its
Studio M design studio, located in Pittsburgh.

The Graphics Imaging segment customer base consists primarily of packaging
industry converters and "national accounts." National accounts are generally
large, well-known consumer products companies with a national presence. These
types of companies tend to purchase their graphics needs directly and supply
the printing plates, or the film to make the printing plates, to the packaging
printer for their products. The Graphics Imaging segment serves customers
primarily in the United States and Europe. In Europe, Matthews owns a 50%
interest in S+T GmbH (Julich, Germany) and 75% interests in Repro-Busek GmbH
(Vienna, Austria), Scholler GmbH (Nuremberg, Germany) and Rudolf Reproflex
GmbH (Goslar, Germany). Products and services of these operations include
pre-press packaging, digital and analog flexographic printing plates, design,
art work, lithography and color separation.

Major raw materials for this segment's products include photopolymers, film
and graphic art supplies. All such materials are presently available in
adequate supply from various industry sources.

Graphics Imaging is one of several manufacturers of printing plates and
providers of pre-press services with a national presence in the United States.
The segment competes in a fragmented industry consisting of a few multi-plant
regional printing plate suppliers and a large number of local single-facility
companies located across the United States. The combination of the Company's
Graphics Imaging business in the United States and Europe is an important part
of Matthews' strategy to become a worldwide leader in the graphics industry
and service multinational customers on a global basis. Competition is on the
basis of product quality, timeliness of delivery, price and value-added
services. The Company differentiates itself from the competition by
consistently meeting customer demands, its ability to service customers
nationally and globally and its ability to provide value-added services.

7
ITEM 1. BUSINESS, continued.

Marking Products:

The Marking Products segment designs, manufactures and distributes a wide
range of marking equipment and consumables used by customers to identify
various consumer and industrial products, components and packaging containers.
Marking products range from simple indent hand stamps made from a special
alloy steel to a wide variety of sophisticated microprocessor-based ink-jet
printing systems. The segment manufactures and markets products and systems
that employ the following marking methods to meet customer needs: contact
printing, indenting, etching, ink-jet printing and laser marking. Customers
will often use a combination of these methods in order to achieve an
appropriate mark. These methods apply product information required for
identification and trace ability as well as to facilitate inventory and
quality control, regulatory compliance and brand name communication.

A significant portion of the revenue of the Marking Products segment is
attributable to the sale of consumables, software and replacement parts in
connection with the marking hardware sold by the Company. The Company
develops inks, rubber and steel consumables in harmony with the marking
equipment in which they are used, which is critical to assure ongoing
equipment reliability and mark quality. Many marking equipment customers also
use the Company's inks, solvents and cleaners.

The principal customers for the Company's marking products include food and
beverage processors, metal fabricators, producers of health and beauty
products and manufacturers of textiles, plastic, rubber and building products.

A large percentage of the segment's sales are outside the United States and
are distributed through the Company's subsidiaries in Canada and Sweden in
addition to other international distributors. Matthews owns a minority
interest in distributors in Asia, Australia, France, Germany, the Netherlands
and the United Kingdom.

The marking products industry is diverse, with many companies offering limited
product lines focusing only on well-defined specialty markets. Other industry
participants, like the Company, have broad product offerings and compete in
various product markets and countries. In the United States, the Company has
manufactured and sold marking products and related consumable items for over
150 years.

Major raw materials for this segment's products include printing components,
tool steels, rubber and chemicals, all of which are presently available in
adequate supply from various sources.

Competition for marking products is intense and based on product performance,
service and price. The Company normally competes with specialty companies in
specific marking applications. The Company believes that, in general, it
offers the broadest line of marking products to address a wide variety of
industrial marking applications.

8
ITEM 1. BUSINESS, continued.

The York Group, Inc.:

On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would acquire 100% of the outstanding common shares of York for $10 cash per
share. Matthews also agreed to pay up to an additional $1 cash per share
based on the excess cash (as defined in the merger agreement) remaining on
York's balance sheet as of October 31, 2001. On December 3, 2001, this
transaction was completed at $11 per share. At December 3, 2001, there were
8,940,950 shares of York common stock outstanding. York is the second leading
casket manufacturer in the United States and is expected to have annual sales
of approximately $130.0 million. York will operate as a wholly-owned
subsidiary and separate segment of Matthews.

9
ITEM 1. BUSINESS, continued.

PATENTS, TRADEMARKS AND LICENSES:

The Company holds a number of domestic and foreign patents and trademarks.
However, the Company believes the loss of any or a significant number of
patents or trademarks would not have a material impact on operations
or revenues.

BACKLOG:

Because the nature of the Company's business is primarily custom products made
to order with short lead times, backlogs are not generally material in any of
the Company's operations except for mausoleums, cremation equipment and
marking products. Backlogs generally vary in a range of seven to nine months
of sales for mausoleums, four to eight months of sales for cremation
equipment, and up to four weeks of sales in the Marking Products segment.

REGULATORY MATTERS:

The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. The Company
believes that its operations are in material compliance with all presently
applicable environmental laws and regulations. The Company's expenditures for
environmental compliance have not had, nor are they presently expected to
have, a material adverse effect on the Company.

The Clean Air Act Amendments of 1990 have had minimal impact to date on two of
the Company's business segments, Graphics Imaging and Marking Products. In
the United States, the Company's Bronze segment operates nonferrous foundries,
none of which is within the "major source" industry category as defined by the
Environmental Protection Agency. The Bronze segment operations are regulated
as "minor sources" at certain locations. No material capital expenditures are
anticipated as a result of the Clean Air Act Amendments.

Like most nonferrous foundry operations, the Company's plants produce a
significant volume of residual materials as a result of the bronze casting
process. Chief among these is spent foundry sands. Currently, the majority
of these materials, including foundry sands, are regulated as solid waste
under most state and federal laws. Pursuant to the Resource Conservation and
Recovery Act, the Company is regulated as a generator of hazardous waste, and
all plants are registered with the Environmental Protection Agency in
accordance with applicable regulations. The Company has implemented detailed
plans and procedures for waste management at each of its Bronze operating
plants in the United States.

10
ITEM 2. PROPERTIES.

Principal properties of the Company and its majority-owned subsidiaries as of
November 30, 2001 were as follows (properties are owned by the Company except
as noted):

Location Description of Property Square Feet
- -------- ----------------------- -----------
Bronze:
Pittsburgh, PA Manufacturing / Division Offices 97,000
Apopka, FL Manufacturing 40,000
Kingwood, WV Manufacturing 59,000
Kingwood, WV Manufacturing 43,000(1)
Melbourne, Australia Manufacturing 26,000(1)
Milton, Ontario, Canada Manufacturing 30,000
Montreal, Quebec, Canada Manufacturing 16,000(1)
Nanuet, NY Manufacturing 15,000(1)
Nashotah, WI Manufacturing 12,000(1)
Parma, Italy Manufacturing / Warehouse 231,000(1)
Searcy, AR Manufacturing 104,000
Seneca Falls, NY Manufacturing 21,000
Sun City, CA Manufacturing 24,000

Graphics Imaging:
Pittsburgh, PA Manufacturing / Division Offices 56,000
Atlanta, GA Manufacturing 16,000
Dallas, TX Manufacturing 15,000(1)
Denver, CO Manufacturing 12,000(1)
Goslar, Germany Manufacturing 39,000(1)
High Point, NC Manufacturing 35,000(1)
Kansas City, MO Manufacturing 42,000(1)
LaPalma, CA Manufacturing 22,000
Nuremberg, Germany Manufacturing 27,000(1)
St. Louis, MO Manufacturing 25,000
Vienna, Austria Manufacturing 12,000(1)

Marking Products:
Pittsburgh, PA Manufacturing / Division Offices 67,000
Pittsburgh, PA Ink Manufacturing 18,000
Gothenburg, Sweden Manufacturing / Distribution 28,000(1)
Melbourne, Australia Leased to distributor 13,000

Corporate Office:
Pittsburgh, PA General Offices 48,000(2)

(1) These properties are leased by the Company under operating lease
arrangements. Rent expense incurred by the Company for leased facilities
was $1,535,000 in fiscal 2001.
(2) The Company uses approximately one-third of this building and leases, or
offers to lease, the remainder to unrelated parties.

All of the owned properties are unencumbered. The Company believes its
facilities are generally well suited for their respective uses and are of
adequate size and design to provide the operating efficiencies necessary for
the Company to be competitive. The Company's facilities provide adequate
space for meeting its near term production requirements and have availability
for additional capacity. The Company intends to continue to expand and
modernize its facilities as necessary to meet the demand for its products.

11
ITEM 3. LEGAL PROCEEDINGS.

The Company is party to various legal proceedings, the eventual outcome of
which are not predictable. It is possible that an unfavorable resolution of
these matters could have a material impact to the Company. Although the
ultimate disposition of these proceedings is not presently determinable,
management is of the opinion that they should not result in liabilities in an
amount which would materially affect the Company's consolidated financial
position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal year 2001.

12
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

(a) Market Information:

The authorized common stock of the Company consists of 70,000,000 shares of
Class A Common Stock, $1 par value. Prior to September 2001, the authorized
common stock of the Company was divided into two classes consisting of Class A
Common Stock, $1 par value, and Class B Common Stock, $1 par value. Shares of
Class A stock have one vote per share and are freely transferable subject to
applicable securities laws. Shares of Class B stock had ten votes per share
and were only transferable by a shareholder to the Company or to an active
employee of the Company. In September 2001, the number of outstanding shares
of Class B stock declined below 5% of the aggregate outstanding shares of
Class A and Class B stock. As a result, in accordance with the Company's
Restated Articles of Incorporation, all shares of Class B stock were
immediately converted to an equivalent number of shares of Class A stock.

In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Class A and Class B Common Stock in the form of a 100% stock
distribution. Shareholders' equity was adjusted for the stock split by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. All per share amounts and numbers
of shares in this report reflect the stock split.

The Company's Class A Common Stock is traded on the NASDAQ National Market
System. The following table sets forth the high, low and closing prices as
reported by NASDAQ (adjusted for the stock split) for the periods indicated:

High Low Close
---- --- -----
Fiscal 2001:
Quarter ended: September 30, 2001 $22.96 $16.12 $22.06
June 30, 2001 22.63 15.86 21.98
March 31, 2001 16.56 14.53 16.36
December 31, 2000 16.25 12.50 15.78

Fiscal 2000:
Quarter ended: September 30, 2000 $14.88 $13.81 $14.69
June 30, 2000 14.75 10.00 14.50
March 31, 2000 13.94 10.00 11.31
December 31, 1999 14.88 10.00 13.75

The Company has an active stock repurchase program, which was initiated in
1996. Under the program, the Company's Board of Directors have authorized the
repurchase of a total of 8,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,079,072 shares have been repurchased as of
September 30, 2001. 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.

13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS, continued.

(b) Holders:

The number of registered holders of the Company's common stock at November 30,
2001 was as follows:
Class A Common Stock 640
Class B Common Stock none

A quarterly dividend of $.02625 per share was paid for the fourth quarter of
fiscal 2001 to shareholders of record on October 31, 2001. The Company paid
quarterly dividends of $.025 per share for the first three quarters of fiscal
2001 and the fourth quarter of fiscal 2000. The Company paid quarterly
dividends of $.02375 per share for the first three quarters of fiscal 2000.

Cash dividends have been paid on common shares in every year for at least the
past thirty years. It is the present intention of the Company to continue to
pay quarterly cash dividends on its common stock. However, there is no
assurance that dividends will be declared and paid as the declaration and
payment of dividends is at the discretion of the Board of Directors of the
Company and is dependent upon the Company's financial condition, results of
operations, cash requirements, future prospects and other factors deemed
relevant by the Board.

14
ITEM 6. SELECTED FINANCIAL DATA.

Years ended September 30,
-------------------------------------------------------------------
2001 (1) 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(Amounts in thousands, except per share data)
(Not Covered by Report of Independent Accountants)

Net sales (2) $283,282 $266,987 $243,370 $215,379 $192,480

Gross profit 119,436 118,089 103,037 93,050 83,501

Operating profit 53,357 47,776 40,948 35,929 30,887

Interest expense 1,647 1,488 867 466 337

Income before income taxes 51,458 45,938 41,277 37,132 32,298

Income taxes 19,859 18,015 16,261 14,630 12,672
---------- ---------- ---------- ---------- ----------

Net income $ 31,599 $ 27,923 $ 25,016 $ 22,502 $ 19,626
========== ========== ========== ========== ==========

Earnings per common share (3):
Basic $ 1.03 $ .90 $ .79 $ .69 $ .57
Diluted 1.01 .88 .77 .67 .55

Weighted-average common
shares outstanding (3):
Basic 30,560 31,031 31,703 32,673 34,388
Diluted 31,320 31,703 32,482 33,540 35,394

Cash dividends per share (3) $ .101 $ .096 $ .091 $ .086 $ .081

Total assets $288,952 $220,665 $225,678 $187,206 $169,204
Long-term debt, noncurrent 40,726 13,908 14,144 1,435 2,151

<FN>
(1) The second quarter of fiscal 2001 included after-tax income of $300 ($.01 per share) from special
items which consisted of a pre-tax gain of $7,099 on the sale of a subsidiary and asset impairments,
restructuring costs and other special pre-tax charges totaling $6,600 (see Note 17 to the Consolidated
Financial Statements).
(2) Net sales for prior periods has been adjusted to reflect the reclassification, in accordance with
Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," of
shipping costs billed to customers.
(3) All per share amounts and numbers of shares reflect the two-for-one stock split in August 2001.

15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the consolidated
financial statements of Matthews International Corporation and related notes
thereto. In addition, see "Cautionary Statement Regarding Forward-Looking
Information" included in Part I of this Annual Report on Form 10-K.

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 and the
percentage change in such income statement data from year to year.

Years Ended
September 30, Percentage Change
---------------------- -----------------
2001- 2000-
2001 2000 1999 2000 1999
---- ---- ---- ----- -----
Sales 100.0% 100.0% 100.0% 6.1% 9.7%
Gross profit 42.2 44.2 42.3 1.1 14.6
Operating profit 18.8 17.9 16.8 11.7 16.7
Income before taxes 18.2 17.2 17.0 12.0 11.3
Net income 11.2 10.5 10.3 13.2 11.6

Note: Prior periods have been adjusted to reflect the reclassification, in
accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," of shipping costs billed to customers.

Comparison of Fiscal 2001 and Fiscal 2000:

Sales for the year ended September 30, 2001 were $283.3 million and were
$16.3 million, or 6.1%, higher than sales of $267.0 million for the year ended
September 30, 2000. Bronze segment sales for fiscal 2001 were $164.1 million,
which was 15.3% higher than a year ago, primarily reflecting an increase in
mausoleum construction revenues and the acquisition of the Commemorative
Products business of The York Group, Inc. in May 2001. The Bronze segment
also benefited from an increase in architectural product sales due to the
acquisition of The SLN Group, Inc. in October 2000. Fiscal 2001 sales for the
Graphics Imaging segment were $89.6 million, representing a decrease of 2.8%
below a year ago. The decline reflected the sale of Tukaiz Communications,
L.L.C. ("Tukaiz") on January 19, 2001 (see "Disposition"). Fiscal 2001
revenues for Tukaiz up to the disposition date were $6.5 million, compared to
$23.5 million for the year ended September 30, 2000. The sales decline from
the divestiture of Tukaiz was partially offset by the Company's recent
acquisitions of Repro-Busek GmbH ("Busek") in August 2000, Press Ready Plate,
Inc. in November 2000, Scholler GmbH ("Scholler") in January 2001 and Rudolf
Reproflex GmbH ("Rudolf") in July 2001. See "Acquisitions" for further
discussion of the Company's acquisitions during the last three fiscal years.

16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 2001 and Fiscal 2000, continued:

Marking Products segment sales for the year ended September 30, 2001 were
$29.6 million compared to $32.5 million for fiscal 2000. The decline was
mainly due to a drop in demand for equipment products sold to the tire,
automotive and building segments of the domestic economy. For the year ended
September 30, 2001, declines in foreign currency values against the U.S.
dollar had an unfavorable impact of approximately $5.5 million on the
Company's consolidated sales compared to fiscal 2000.

Gross profit for the year ended September 30, 2001 was $119.4 million,
compared to $118.1 million for fiscal 2000. The increase in consolidated
gross profit reflected higher sales in the Bronze segment offset partially by
the divesture of Tukaiz, a decline in sales for the Marking Products segment
and a change in product mix in the Bronze segment. Fiscal 2001 reflected
higher mausoleum construction revenues in the Bronze segment, which generally
have lower margins than the segment's memorial products. Consolidated gross
profit as a percent of sales for the year ended September 30, 2001 declined to
42.2%, compared to 44.2% for fiscal 2000, primarily reflecting the change in
product mix within the Bronze segment.

Selling and administrative expenses for the year ended September 30, 2001 were
$68.3 million, representing a decrease of $2.1 million, or 2.9%, compared to
fiscal 2000. Fiscal 2001 selling and administrative expenses included special
charges of $1.2 million (see "Special Items"). Excluding the special charges,
selling and administrative expenses declined $3.2 million, or 4.6%, from last
year reflecting the divestiture of Tukaiz, internal cost control initiatives
and lower employee benefit costs. Employee benefit costs were favorably
impacted by an increase in the Company's pension fund assets in fiscal 2000
compared to the preceding year, which was partially offset by an increase in
health care costs. Excluding special charges, consolidated selling and
administrative expenses as a percent of sales was 23.7% for fiscal 2001
compared to 26.3% for last year.

Operating profit for the year ended September 30, 2001 was $53.4 million,
representing an increase of $5.6 million, or 11.7%, over operating profit of
$47.8 million for fiscal 2000. Fiscal 2001 operating profit was favorably
impacted by special items (including special charges classified as selling and
administrative expenses) of $1.0 million. Excluding these special items,
consolidated operating profit for fiscal 2001 was $52.4 million.

Excluding special items, operating profit for the Graphics imaging segment for
fiscal 2001 was $10.0 million, representing an increase of 4.2% over the same
period last year. The increase was due to a combination of factors including
cost control initiatives implemented in fiscal years 2000 and 2001,
contributions from the segment's recent acquisitions and higher profitability
of the Company's 50%-owned affiliate, O.N.E. Color Communications L.L.C.
These increases were partially offset by the divestiture of Tukaiz. Fiscal
2001 operating profit for Tukaiz up to the disposition date was $700,000,
compared to $2.7 million for the year ended September 30, 2000.

17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 2001 and Fiscal 2000, continued:

Bronze segment operating profit, excluding special items, for the year ended
September 30, 2001 was $37.7 million, compared to $33.4 million a year ago.
Fiscal 2001 reflected the benefits of the acquisition of the Commemorative
Products business of The York Group, Inc. (see "Acquisitions"), higher
mausoleum construction revenues, cost control initiatives and lower employee
benefit costs. Operating profit, excluding special items, for the Marking
Products segment for the year ended September 30, 2001 was $4.6 million,
compared to operating profit of $4.7 million for fiscal 2000. The reduction
in the segment's operating profit reflected a decline in sales for the year,
which was partially offset by lower selling and administrative costs.
Declines in foreign currency values against the U.S. dollar had an unfavorable
impact of approximately $1.0 million on the Company's consolidated operating
profit for the year ended September 30, 2001 compared to last year.

Investment income for fiscal 2001 was $2.4 million compared to $1.8 million
for fiscal 2000. The increase reflected higher average cash and investment
balances and realized gains on sales of investment securities. Interest
expense for the year ended September 30, 2001 was $1.6 million, compared to
$1.5 million for fiscal 2000. The increase in interest expense compared to
last year principally reflected the effect of new borrowings of $30.0 million
in connection with the acquisition of the Commemorative Products business of
The York Group, Inc., which was partially offset by reduced debt from the
divestiture of Tukaiz.

Other income (deductions), net, for fiscal 2001 represented a reduction to
pre-tax income of $279,000, compared to an increase of $125,000 for
fiscal 2000. Fiscal 2001 other deductions included a special contribution of
$500,000 to the Jas. H. Matthews Educational and Charitable Trust. Minority
interest approximated $2.3 million for both fiscal 2001 and fiscal 2000.
Increases in minority interest deduction for fiscal 2001 from the recent
acquisitions of Busek, Scholler and Rudolf were offset by a reduction due to
the divestiture of Tukaiz.

The Company's effective tax rate for the year ended September 30, 2001 was
38.6%, compared to 39.2% for the year ended September 30, 2000. The reduction
resulted primarily from a lower effective state income tax rate for fiscal
2001. 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 and non-deductible goodwill amortization.

Special Items:

On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz (see
"Disposition"). The sale resulted in a pre-tax gain of $7.1 million, which
has been reported in Special Items on the Consolidated Statement of Income.
In the second quarter of fiscal 2001, the Company recorded asset impairments,
restructuring costs and other special charges totaling $6.6 million. The
majority of these charges have been classified as Special Items on the
Consolidated Statement of Income, except for $1.2 million classified as
selling and administrative expenses and $500,000 classified as other income
(deductions), net.

18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Special Items, continued:

In connection with the restructuring of certain operations within the Graphics
Imaging and Marking Products segments, asset impairments of $4.0 million were
recorded, primarily reflecting a reduction in the value of goodwill related to
various investments. In accordance with the Company's accounting policies,
management evaluated the net realizable value of such goodwill and, based on
this analysis, goodwill was reduced to reflect estimated fair value on a
discounted cash flow basis. Asset impairments also included other write-downs
of certain assets to reflect estimated realizable values.

In addition, special items included restructuring costs of $1.2 million for
certain operations within the Graphics Imaging and Marking Products segments.
These restructuring costs were designed to improve operating efficiency and
primarily included consulting fees and personnel reduction costs. Special
items also included non-recurring expenses of approximately $1.4 million
consisting of costs incurred in connection with a potential acquisition which
was not completed, a special contribution to the Company's educational and
charitable trust of $500,000 (classified in other income (deductions), net),
and other one-time charges. Substantially all of the restructuring costs and
non-recurring expenses were incurred as of September 30, 2001.

Comparison of Fiscal 2000 and Fiscal 1999:

Sales for the year ended September 30, 2000 were $267.0 million and were
$23.6 million, or 9.7%, higher than sales of $243.4 million for the year ended
September 30, 1999. Each of the Company's three segments contributed to the
revenue growth over fiscal 1999. Bronze segment sales for fiscal 2000 were
$142.4 million, representing an increase of $16.9 million, or 13.5%, over
fiscal 1999. The sales growth for the Bronze segment resulted primarily from
the Company's acquisition of Caggiati S.p.A. in June 1999 and higher sales of
architectural and memorial products. These increases were partially offset by
a decline in mausoleum construction revenues. Sales for the Graphics Imaging
segment for the year ended September 30, 2000 were $92.2 million, representing
an increase of $5.2 million, or 6.0%, over fiscal 1999. The increase in
Graphics Imaging sales for fiscal 2000 principally resulted from the Company's
purchase of a 50% interest in S+T GmbH & Co. KG ("S+T") in September 1998.
S+T was recorded under the equity method of accounting for the first six
months of fiscal 1999. The consolidated financial statements of Matthews
reflected the accounts of S+T effective April 1, 1999 as a result of a change
in control. Fiscal 2000 sales for the Graphics Imaging segment also reflected
higher sales volume for Tukaiz Communications, L.L.C. ("Tukaiz"). The sales
volume increase for Tukaiz, a 50%-owned subsidiary of Matthews, resulted
primarily from the installation of a commercial printing operation in fiscal
1999. Marking Products segment sales for the year ended September 30, 2000
were $32.5 million, representing an increase of $1.5 million, or 4.8%, over
fiscal 1999. The segment's sales increase for fiscal 2000 resulted primarily
from higher volume in North America of ink-jet equipment and related products,
reflecting the favorable impact of new product introductions.

19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 2000 and Fiscal 1999, continued:

Gross profit for the year ended September 30, 2000 was $118.1 million,
representing an increase of $15.1 million, or 14.6%, compared to fiscal 1999
gross profit of $103.0 million. Gross profit for the Bronze segment was
higher in fiscal 2000 principally as a result of the Company's acquisition of
Caggiati S.p.A. in June 1999. In addition, higher sales of architectural and
memorial products combined with improved margins contributed to the segment's
gross profit increase over fiscal 1999. Gross profit for the Graphics Imaging
segment increased as a result of higher sales for the year, reflecting the
investment in S+T in September 1998 and sales growth for Tukaiz. Marking
Products gross profit also improved over fiscal 1999 reflecting an increase in
sales volume and a change in product mix. Consolidated gross profit as a
percent of sales for the year ended September 30, 2000 increased to 44.2%,
compared to 42.3% a year ago. The higher gross profit percentage in fiscal
2000 is mainly due to a change in product mix in both the Bronze and Marking
Products segments and improved results for Tukaiz.

Selling and administrative expenses for the year ended September 30, 2000 were
$70.3 million, compared to $62.1 million for fiscal 1999. The increase of
$8.2 million, or 13.2%, over fiscal 1999 principally resulted from the
acquisitions of Caggiati S.p.A. and S+T combined with an increase in marketing
and promotional costs within the Bronze segment. Consolidated selling and
administrative expenses as a percent of sales increased to 26.3% for fiscal
2000, compared to 25.5% for fiscal 1999, primarily due to the acquisition of
Caggiati S.p.A., which has a higher rate of selling costs to sales.

Operating profit for the year ended September 30, 2000 was $47.8 million,
representing an increase of $6.9 million, or 16.7%, over operating profit of
$40.9 million for fiscal 1999. Graphics Imaging operating profit for fiscal
2000 was $9.6 million, representing an increase of $4.5 million, or 87.7%,
compared to operating profit of $5.1 million for fiscal 1999. The segment's
fiscal 2000 results were favorably impacted by the Company's investment in S+T
combined with an improvement in the operating results of Tukaiz. Operating
profit for the Bronze segment for the year ended September 30, 2000 was $33.4
million, compared to $31.8 million for fiscal 1999. The increase of $1.6
million, or 5.2%, resulted primarily from the acquisition of Caggiati S.p.A.
In addition, higher sales and improved margins for architectural and memorial
products more than offset a decline in profitability from mausoleum
construction projects. Fiscal 2000 operating profit for the Marking Products
segment was $4.7 million, representing an increase of $700,000, or 16.9%, over
operating profit of $4.0 million for fiscal 1999. Higher sales in North
America of ink-jet equipment and related products as a result of new product
introductions and a better product mix resulted in the operating profit
growth.

Investment income for the year ended September 30, 2000 was $1.8 million,
compared to $1.8 million for fiscal 1999. Investment income for fiscal 1999
included equity income of $310,000 from the Company's investment in S+T, which
was recorded under the equity method of accounting through the first six
months of fiscal 1999.

20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 2000 and Fiscal 1999, continued:

Interest expense for the year ended September 30, 2000 was $1.5 million,
compared to $867,000 for fiscal 1999. The increase in interest expense
principally related to fiscal 1999 borrowings by Tukaiz and new borrowings and
assumed debt in connection with the acquisition of Caggiati S.p.A.

Other income (deductions), net, for the year ended September 30, 2000
represented an increase to pre-tax income of $125,000 compared to a reduction
of $570,000 for fiscal 1999. Other deductions in fiscal 1999 included costs
for organizational changes and other unusual non-operating expenses. For the
year ended September 30, 2000, minority interest deduction was $2.3 million,
compared to $22,000 for fiscal 1999. The higher minority interest deduction
in fiscal 2000 resulted from the full year impact of the consolidation of S+T
and an improvement in the operating results of Tukaiz.

The Company's effective tax rate for the year ended September 30, 2000 was
39.2%, compared to 39.4% for the year ended September 30, 1999. The decline
reflected a lower effective state tax rate. 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 and non-deductible
goodwill amortization.

Comparison of Fiscal 1999 and Fiscal 1998:

Sales for the year ended September 30, 1999 were $243.4 million and were
$28.0 million, or 13.0%, higher than sales of $215.4 million for the year
ended September 30, 1998. Fiscal 1999 sales for the Bronze segment were
$125.5 million, representing an increase of $17.6 million, or 16.3%, over
fiscal 1998. The sales increase primarily reflected the Company's
acquisitions of Gibraltar Mausoleum Construction Company ("Gibraltar") in
September 1998 and Caggiati S.p.A. in June 1999. Graphics Imaging segment
sales were $86.9 million in fiscal 1999, representing an increase of
$10.0 million, or 13.0%, over fiscal 1998. The increase in Graphics Imaging
sales resulted principally from the Company's acquisitions of a 50% interest
in O.N.E. Color Communications, L.L.C. ("O.N.E.") in May 1998 and a 50%
interest in S+T in September 1998. In addition, sales for the Graphics
Imaging segment were favorably impacted by the installation of a commercial
printing operation at Tukaiz. The increase in sales from these events was
partially offset by a decline in sales for the segment's existing operations
resulting from weak demand for corrugated printing plates. Marking Products
segment sales for the year ended September 30, 1999 were $31.0 million,
representing an increase of $454,000 over fiscal 1998. Sales for the
segment's North American operations increased over the prior year primarily as
a result of new product offerings during fiscal 1999. These increases were
partially offset by a decline resulting from the sale of the segment's
distribution operation in France in February 1998.

21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 1999 and Fiscal 1998, continued:

Gross profit for the year ended September 30, 1999 was $103.0 million, or
42.3% of sales, compared to $93.1 million, or 43.2% of sales, for fiscal 1998.
The increase in consolidated gross profit of approximately $10.0 million, or
10.7%, reflected higher gross profit levels in all three business segments.
Increases in gross profit in the Bronze and Graphics Imaging segments resulted
from higher sales, reflecting the impact of acquisitions. Gross profit as a
percent of sales for the Bronze segment in fiscal 1999 was comparable with
fiscal 1998 and reflected higher margins on sales of memorialization products
by Caggiati S.p.A. offset by lower margins on sales of mausoleums. Fiscal
1999 gross profit as a percent of sales for the Graphics Imaging segment was
lower than the prior year as a result of lower margins on the segment's
pre-press sales, higher material costs related to the commercial printing
operation of Tukaiz and an increase in depreciation expense due to higher
levels of capital investment. Capital expenditures for the segment in fiscal
1999 included the investment by Tukaiz in commercial printing equipment and
related facilities. Gross profit and gross profit as a percent of sales for
the Marking Products segment for fiscal 1999 were higher than the prior year
reflecting higher North American sales and an improved product mix.

Selling and administrative expenses for the year ended September 30, 1999 were
$62.1 million, representing an increase of $5.0 million, or 8.7%, over
$57.1 million for fiscal 1998. The increase over the prior year principally
resulted from the acquisitions of O.N.E. in May 1998 and Caggiati S.p.A. in
June 1999. In addition, administrative costs in the Graphics Imaging segment
were higher in fiscal 1999 reflecting one-time expenses associated with
implementing organizational changes. Partially offsetting these increases
were lower selling and administrative costs for the Marking Products segment
due to the sale of the Company's subsidiary in France and a reduction in the
Company's corporate administration costs. Excluding selling and
administrative expenses of Caggiati S.p.A. for the period, the Bronze
segment's selling and administrative expenses declined slightly in fiscal 1999
as a result of cost improvements combined with lower incremental selling costs
of Gibraltar. Consolidated selling and administrative expense as a percent of
sales was 25.5% for the year ended September 30, 1999 compared to 26.5% for
fiscal 1998.

Operating profit for the year ended September 30, 1999 was $40.9 million and
was $5.0 million, or 14.0%, higher than fiscal 1998. The improvement for
fiscal 1999 resulted from increases in the operating profits of the Bronze and
Marking Products segments of 22.1% and 34.4%, respectively. Operating profit
for the Bronze segment increased to $31.8 million in fiscal 1999 as a result
of higher revenues from the acquisitions of Caggiati S.p.A. and Gibraltar, an
increase in sales and improved margins for cremation products and improvements
in the segment's selling and administrative costs. Fiscal 1999 operating
profit for the Marking Products segment was $4.0 million compared to operating
profit of $3.0 million in fiscal 1998. The increase primarily resulted from
higher sales in the segment's North American operations as a result of new
product offerings.

22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

Comparison of Fiscal 1999 and Fiscal 1998, continued:

Operating profit for the Graphics Imaging segment in fiscal 1999 was
$5.1 million, compared to $6.9 million in fiscal 1998. The 25.7% decline in
operating profit from fiscal 1998 was due to several factors which included
weak demand for corrugated printing plates, lower margins on the segment's
pre-press sales, and an increase in depreciation expense due to higher levels
of capital investment at Tukaiz. The Graphics Imaging segment also incurred
one-time expenses of approximately $400,000 during fiscal 1999 associated with
the start-up of a commercial printing operation at Tukaiz and the
implementation of organizational changes within the segment.

Investment income for the year ended September 30, 1999 was $1.8 million,
compared to $2.5 million for fiscal 1998. The decline in investment income
primarily reflected a reduction in the Company's average cash and investment
balances. The Company's average cash and investment balances were lower than
the prior year primarily as a result of acquisitions and stock repurchases.

Interest expense for the year ended September 30, 1999 was $867,000, compared
to $466,000 for fiscal 1998. Interest expense principally related to new
borrowings and assumed debt in connection with the acquisition of Caggiati
S.p.A., the long-term debt and capital lease obligations of Tukaiz, and the
Company's obligations related to the acquisition of O.N.E.

Other income (deductions), net, for the year ended September 30, 1999
represented a reduction to pre-tax income of $570,000, compared to a reduction
of $382,000 for fiscal 1998. Fiscal 1998 included gains on the sale of
various fixed assets. Minority interest, which was $22,000 for fiscal 1999,
related to income generated by Tukaiz and S+T. Minority interest was
$461,000 for fiscal 1998. The reduction in minority interest for fiscal 1999
reflected a decline in the operating results of Tukaiz.

The Company's effective tax rate for the year ended September 30, 1999 was
39.4%, compared to 39.4% for fiscal 1998. The difference between the
Company's effective tax rate and the Federal statutory rate of 35% primarily
reflected the impact of state income taxes and non-deductible goodwill
amortization.

23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

LIQUIDITY AND CAPITAL RESOURCES:

Cash flow from operations was $38.4 million for the year ended September 30,
2001, compared to $38.0 million for fiscal 2000 and $27.8 million for fiscal
1999. For the year ended September 30, 2001, operating cash flow reflected
net income, excluding the gain on the sale of Tukaiz, adjusted for
depreciation, amortization and impairment losses (non-cash items) in
connection with the special charges recorded in the fiscal 2001 second
quarter. Fiscal 2000 operating cash flow principally reflected the Company's
net income adjusted for non-cash expenses such as depreciation and
amortization. Operating cash flow for fiscal 2000 also included a tax benefit
of $2.4 million from exercised stock options, which was offset by net changes
of $2.9 million in working capital items. Fiscal 1999 operating cash flow was
impacted by an increase in accounts receivable related to mausoleum
construction revenues, the payment of income tax accruals and a tax benefit of
$1.4 million from exercised stock options.

Cash used in investing activities was $54.5 million for the year ended
September 30, 2001, compared to $24.4 million and $18.0 million for fiscal
years 2000 and 1999, respectively. Fiscal 2001 investing activities primarily
reflected the acquisitions of the Commemorative Products business of The York
Group, Inc. ($45.0 million), The SLN Group, Inc., Press Ready Plate, Inc.,
Scholler and Rudolf. Investing activities in fiscal 2001 also included
proceeds of $18.6 million from the sale of Tukaiz, capital expenditures of
$7.3 million and the final payment of Lit. 7.2 billion in connection with the
acquisition of Caggiati S.p.A. Under the Caggiati S.p.A. purchase agreement,
Matthews paid Lit. 20.2 billion upon closing with Lit. 7.2 billion paid on
June 1, 2000 and the remainder of Lit. 7.2 billion paid on June 1, 2001. See
"Acquisitions" for further discussion of the Company's acquisitions during the
last three fiscal years.

Investing activities in fiscal 2000 consisted of capital expenditures totaling
$7.7 million, net purchases of investment securities of $4.9 million and
payments of $12.2 million in connection with the acquisitions of S+T, Busek
and Caggiati S.p.A. The purchase price for the acquisition of a 50% interest
in S+T (September 1998) was paid in January 2000 in accordance with the
purchase agreement. Matthews purchased various investment securities in the
fiscal 2000 first quarter to obtain a better rate of return on the Company's
excess cash.

Investing activities for the year ended September 30, 1999 included capital
expenditures of $13.3 million and acquisitions of $10.8 million (net of cash
acquired). Fiscal 1999 acquisitions consisted primarily of the purchase of
Caggiati S.p.A. in June 1999. Investing activities for fiscal 1999 also
reflected proceeds from the net disposition of investments of $5.5 million.

24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

LIQUIDITY AND CAPITAL RESOURCES, continued:

Capital expenditures were $7.3 million for the year ended September 30, 2001,
compared to $7.7 million and $13.3 million for fiscal 2000 and 1999,
respectively. Capital expenditures in each of the last three fiscal years
reflected reinvestment in the Company's three 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. The
higher level of capital expenditures in fiscal 1999 resulted primarily from
investments in commercial printing equipment and facilities for Tukaiz and
production equipment for the Bronze segment operations in Searcy, Arkansas.
Capital expenditures for the last three fiscal years were primarily financed
through operating cash and the related assets are unencumbered. Capital
spending for property, plant and equipment has averaged $9.4 million for the
last three fiscal years. The capital budget for fiscal 2002 is $12.9 million.
The Company expects to generate sufficient cash from operations to fund all
anticipated capital spending projects.

Cash provided by financing activities for the year ended September 30, 2001
was $16.0 million, consisting of proceeds from long-term debt of $32.4 million
offset partially by net treasury stock purchases of $12.0 million, net
repayments of $1.3 million on long-term debt, and dividends of $3.1 million
($0.101 per share) to the Company's shareholders. Proceeds from long-term
debt primarily reflected borrowings of $30.0 million in connection with the
acquisition of the Commemorative Products business of The York Group, Inc.
(see "Acquisitions").

Cash used in financing activities for the year ended September 30, 2000 was
$14.4 million, consisting of net treasury stock purchases of $9.9 million,
proceeds of $3.9 million from borrowings by Caggiati S.p.A., repayments of
$5.4 million on long-term debt of Caggiati S.p.A. and Tukaiz, and dividend
payments of $3.0 million ($0.096 per share) to the Company's shareholders.
Cash used in financing activities in fiscal 1999 was $3.6 million and included
borrowings of $10.9 million (Lit. 20.2 billion) for the acquisition of
Caggiati S.p.A. and $4.0 million by Tukaiz to finance capital projects.
Repayments under these borrowings and the Company's capital lease obligations
were $1.6 million in fiscal 1999. Fiscal 1999 financing activities also
included net treasury stock purchases of $14.0 million and the Company's
dividends on common stock of $2.9 million ($0.091 per share).

The Company had a Revolving Credit and Term Loan Agreement. Under terms of
the agreement, the Company could borrow principal amounts up to $30.0 million
in the aggregate at LIBOR plus .75%. At September 30, 2001, outstanding
borrowings under this agreement totaled $30.0 million at an interest rate of
3.36%. At September 30, 2000, no amounts were outstanding under this
agreement.

25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

LIQUIDITY AND CAPITAL RESOURCES, continued:

On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125.0 million with a syndicate of four financial institutions. Borrowings
under the facility, which matures on November 30, 2004, bear interest at LIBOR
plus a factor ranging from .75% to 1.5% 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 .375% (based on
the Company's leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility requires the Company to maintain minimum levels of
consolidated net worth and fixed charge 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. In addition, the facility
provides for an additional credit line for borrowings up to $10.0 million at
current market rates. The Revolving Credit Facility replaced the existing
Revolving Credit and Term Loan Agreement. The Company borrowed $124.5 million
under the Revolving Credit Facility on December 3, 2001 in connection with the
acquisition of The York Group, Inc. (see "Acquisitions") and for the repayment
of all amounts outstanding under the Revolving Credit and Term Loan Agreement.

The Company has a line of credit of $500,000 (Canadian dollars), which
provides for borrowings at the bank's prime interest rate. There were no
borrowings outstanding on this line of credit at September 30, 2001 and 2000.
Caggiati S.p.A. has four lines of credit totaling Lit. 19.0 million (U.S.$8.9
million) with various banks. Outstanding borrowings on these lines at
September 30, 2001 and 2000 were $4.1 million and $1.5 million, respectively.
The weighted-average interest rate on these borrowings, which are
collateralized by certain trade accounts receivable, was 4.5% at September 30,
2001.

Consolidated working capital of the Company was $35.8 million at September 30,
2001, compared to $48.0 million and $36.2 million at September 30, 2000
and 1999, respectively. Working capital at September 30, 2001 reflected a
liability of approximately $11.0 million for the acquisition of a 75% interest
in Rudolf (see "Acquisitions"). Cash and cash equivalents were $28.7 million
at September 30, 2001, compared to $29.2 million and $31.5 million at
September 30, 2000 and 1999, respectively. The Company's current ratio at
September 30, 2001 was 1.5, compared to 2.0 and 1.6 at September 30, 2000 and
1999, respectively.

26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

ACQUISITIONS:

On May 24, 2001, Matthews acquired the Commemorative Products business of The
York Group, Inc. ("York") for $45.0 million. The transaction was completed
through the purchase of certain assets (pursuant to an asset purchase
agreement) and stock of subsidiaries under the Commemorative Products segment
of York (pursuant to a stock purchase agreement). As part of the transaction,
Matthews acquired York's manufacturing facilities in Kingwood, West Virginia
and Bryan, Texas. The transaction was financed by Matthews through existing
cash on hand and a $30.0 million bank loan under the Company's Revolving
Credit and Term Loan Agreement (see "Liquidity and Capital Resources").

On May 24, 2001, Matthews and York also signed a merger agreement whereby
Matthews would acquire 100% of the outstanding common shares of York for $10
cash per share. Matthews also agreed to pay up to an additional $1 cash per
share based on the excess cash (as defined in the merger agreement) remaining
on York's balance sheet as of October 31, 2001. On December 3, 2001, this
transaction was completed at $11 per share. At December 3, 2001, there were
8,940,950 shares of York common stock outstanding. York is the second leading
casket manufacturer in the United States and is expected to have annual sales
of approximately $130.0 million. York will operate as a wholly-owned
subsidiary and separate segment of Matthews.

Effective July 1, 2001, Matthews acquired a 75% interest in Rudolf Reproflex
GmbH ("Rudolf"). The purchase price of DM 24 million (U.S.$11.0 million) was
paid in October 2001. Rudolf is headquartered in Goslar, Germany and reported
sales of approximately U.S.$13.0 million for the year ended December 31, 2000.
In January 2001, Matthews acquired a 75% interest in Scholler GmbH
("Scholler"), which is located in Nuremberg, Germany. In August 2000,
Matthews purchased a 75% interest in Repro-Busek GmbH ("Busek"), which is
headquartered in Vienna, Austria. Products and services of Rudolf, Scholler
and Busek include pre-press packaging, digital and analog flexographic
printing plates, design, art work, lithography and color separation. The
acquisitions of Rudolf, Scholler and Busek are an important part of the
Matthews strategy to become a worldwide leader in the graphics industry and
serve existing multinational customers on a global basis.

In October 2000, Matthews acquired certain assets and liabilities of The SLN
Group, Inc. ("SLN"). SLN, located in Nanuet, New York, is a manufacturer and
marketer of photo-etched metal plaques and water-jet cut letters and logos.
The acquisition of SLN is intended to broaden Matthews' offerings for
identification and recognition products. In November 2000, Matthews acquired
Press Ready Plate, Inc. ("Press Ready"). Press Ready, located in Kansas City,
Missouri, provides pre-press services and printing plates to the flexible
packaging industry. The acquisition of Press Ready is designed to increase
Matthews' presence in the market for pre-press services used by the flexible
packaging industry.

27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

ACQUISITIONS, continued:

In June 1999, Matthews purchased Caggiati S.p.A., the leading supplier of
bronze memorialization products in Europe. Caggiati S.p.A., with consolidated
annual sales of approximately $25 million (U.S.), is based in Colorno (Parma),
Italy. The purchase price was Lit. 34.6 billion (U.S.$19.0 million) cash plus
the assumption of bank debt of Lit. 10.2 billion and certain other trade
liabilities. Matthews paid cash of Lit. 20.2 billion (U.S.$10.9 million) upon
closing with Lit. 7.2 billion paid on June 1, 2000 and the remaining balance
of Lit. 7.2 billion paid on June 1, 2001. The payments were financed through
borrowings from an Italian bank, UniCredito Italiano, Parma, Italy. The
combination of Matthews and Caggiati S.p.A. is an important part of Matthews'
strategy to enhance its position as the worldwide leader in the
memorialization industry.

Matthews has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the fair value of the net assets has been recorded as goodwill and was being
amortized on a straight-line basis over periods ranging from 20 to 25 years,
except for Rudolf, which was acquired subsequent to the effective date of SFAS
No. 141. In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations," which requires that goodwill related to
business combinations after June 30, 2001 will no longer be amortized and will
be subject to periodic review for impairment. In addition, the Company will
adopt SFAS No. 142, "Goodwill and Other Intangible Assets," in the first
quarter of fiscal 2002 (see "Accounting Pronouncements").

DISPOSITION:

On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz.
Proceeds to Matthews from the sale were $18.6 million, which included the
repayment of intercompany debt of approximately $8.4 million. All
intercompany debt provided by Matthews to Tukaiz, including a $5.5 million
Subordinated Convertible Note, was repaid upon the closing of this
transaction. The sale resulted in a pre-tax gain of $7.1 million, which has
been reported in Special Items on the Consolidated Statement of Income.

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
seven fiscal years, the Company has achieved an average annual increase in
earnings per share of 14.6%.

Matthews International Corporation 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 new product development and the expansion into new markets with
existing products), acquisitions and share repurchases under the Company's
stock repurchase program (see "Liquidity and Capital Resources").

28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

FORWARD-LOOKING INFORMATION, continued:

Due to a decline in the value of plan assets under the Company's defined
benefit plan during fiscal 2001, pension cost will increase in fiscal 2002
(see Note 10 to the Consolidated Financial Statements). This increase will be
partially offset by a reduction in goodwill amortization as a result of the
adoption of SFAS No. 142 in fiscal 2002 (see "Accounting Pronouncements"). In
addition, the Company has scaled back the repurchases of its common stock and
is concentrating its efforts on using excess cash for the repayment of debt
and related interest expense.

As a result of the Company's recent acquisitions (including The York Group,
Inc. on December 3, 2001), expected internal growth and the impact of changes
in pension cost and goodwill amortization, the Company expects to achieve
growth in earnings per share of approximately 15% for the fiscal year ended
September 30, 2002.

STOCK SPLIT:

On August 2, 2001, the Board of Directors declared a two-for-one stock split
on the Company's Class A and Class B Common Stock in the form of a 100% stock
distribution. The stock distribution was issued August 31, 2001 to
shareholders of record on August 16, 2001. Shareholders' equity has been
adjusted for the stock split by reclassifying from retained earnings to common
stock the par value of the additional shares arising from the split. All per
share amounts and numbers of shares have been adjusted in this report to
reflect the stock split.

ACCOUNTING PRONOUNCEMENTS:

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
the purchase method of accounting (instead of pooling-of-interests) for all
business combinations initiated after June 30, 2001. In addition, goodwill
related to business combinations after June 30, 2001 will no longer be
amortized and will be subject to periodic review for impairment. SFAS No. 142
addresses the financial statement accounting for goodwill and other intangible
assets upon acquisition and the accounting subsequent to their initial
recognition in the financial statements. Upon adoption, goodwill related to
business combinations on or before June 30, 2001 will no longer be amortized
and will be subject to periodic review for impairment. Based on management's
preliminary assessment, goodwill impairment is not expected to result upon
adoption. The Company will adopt SFAS No. 142 in the first quarter of fiscal
2002. Goodwill amortization was $3.5 million, $2.6 million, and $1.9 million,
respectively, for the years ended September 30, 2001, 2000 and 1999.

29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.

ACCOUNTING PRONOUNCEMENTS, continued:

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 outlines basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company implemented
SAB No. 101 in the fourth quarter of fiscal 2001. SAB No. 101 did not have a
material impact on the Company's consolidated financial statements.

30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Description Pages
- ----------- -----

Report of Independent Accountants 31

Consolidated Balance Sheet 32-33

Consolidated Statement of Income 34

Consolidated Statement of Shareholders' Equity 35

Consolidated Statement of Cash Flows 36

Notes to Consolidated Financial Statements 37-57

Supplementary Financial Information 58

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and
Board of Directors of
Matthews International Corporation:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Matthews
International Corporation and subsidiaries at September 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Pittsburgh, Pennsylvania
November 15, 2001, except for
paragraph 3 of Note 6 and
Note 18, as to which the date
is December 3, 2001.

32
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2001 and 2000
(dollar amounts in thousands, except share data)
----------

ASSETS 2001 2000
---- ----
Current assets:
Cash and cash equivalents $ 28,691 $ 29,150
Short-term investments 240 1,321
Accounts receivable, net of allowance
for doubtful accounts of $3,725
and $2,468, respectively 52,086 44,819
Inventories (Note 3) 18,773 16,849
Deferred income taxes 1,241 978
Other current assets 1,297 1,716
------- ------
Total current assets 102,328 94,833

Investments (Note 4) 18,048 14,803

Property, plant and equipment, net (Note 5) 49,009 48,467

Deferred income taxes (Note 11) 5,151 6,899

Other assets 9,831 6,951

Goodwill, net of accumulated amortization of
$9,985 and $7,319, respectively 104,585 48,712
------- -------

Total assets $288,952 $220,665
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.

33
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
September 30, 2001 and 2000
(dollar amounts in thousands, except share data)
----------

LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
---- ----
Current liabilities:
Long-term debt, current maturities $ 5,023 $ 3,478
Trade accounts payable 12,971 10,075
Accrued compensation 8,172 8,710
Accrued vacation pay 4,251 3,956
Profit distribution to employees 3,860 4,063
Accrued income taxes 4,962 270
Customer prepayments 6,130 5,875
Postretirement benefits, current portion 817 781
Other current liabilities 20,353 9,624
------ ------
Total current liabilities 66,539 46,832

Long-term debt (Note 6) 40,726 13,908

Estimated finishing costs 7,401 4,072

Postretirement benefits other than pensions
(Note 10) 18,639 18,991

Other liabilities 11,931 10,006

Commitments and contingent liabilities (Note 12)

Shareholders' equity (Notes 2, 7 and 8):
Common stock:
Class A, $1.00 par value; authorized
70,000,000 shares; 36,333,992 and
30,066,970 shares issued, respectively 36,334 15,033
Class B, $1.00 par value; authorized
30,000,000 shares; 6,267,022 shares
issued at September 30, 2000 - 3,134
Preferred stock, $100 par value, authorized
10,000 shares, none issued - -
Retained earnings 184,845 174,689
Accumulated other comprehensive income (loss) (8,983) (9,177)
Notes receivable - (7)
Treasury stock, 6,060,158 and 5,326,234 shares,
respectively, at cost (68,480) (56,816)
------- -------
Total shareholders' equity 143,716 126,856
------- -------

Total liabilities and shareholders' equity $288,952 $220,665
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.

34
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the years ended September 30, 2001, 2000 and 1999
(dollar amounts in thousands, except share data)
----------

2001 2000 1999
---- ---- ----

Sales $ 283,282 $ 266,987 $ 243,370
Cost of goods sold (163,846) (148,898) (140,333)
------- ------- -------
Gross profit 119,436 118,089 103,037

Selling expense (38,100) (42,923) (36,877)
Administrative expense (30,156) (27,390) (25,212)
Special items (Note 17) 2,177 - -
------- ------- -------
Operating profit 53,357 47,776 40,948

Investment income 2,365 1,828 1,788
Interest expense (1,647) (1,488) (867)
Other income (deductions), net (279) 125 (570)
Minority interest (2,338) (2,303) (22)
------- ------- -------

Income before income taxes 51,458 45,938 41,277

Income taxes (Note 11) (19,859) (18,015) (16,261)
------- ------- -------

Net income $ 31,599 $ 27,923 $ 25,016
======= ======= =======

Earnings per share (Notes 2 and 9):
Basic $ 1.03 $ .90 $ .79
==== ==== ====
Diluted $ 1.01 $ .88 $ .77
==== ==== ====

The accompanying notes are an integral part of these consolidated financial
statements.

35
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2001, 2000 and 1999
(dollar amounts in thousands, except share data)
----------

Accumulated
Other
Common Comprehensive Notes
Stock Retained Income (Loss) Receivable Treasury
(Note 7) Earnings (net of tax) (Note 7) Stock Total
---------- ----------- ------------- ---------- ----------- ----------

Balance, September 30, 1998 $18,167 $131,061 $(4,390) $ (453) $(40,075) $104,310
Net income - 25,016 - - - 25,016
Unrealized gains (losses) - - (205) - - (205)
Minimum pension liability - - 278 - - 278
Translation adjustment - - 347 - - 347
Total comprehensive income 25,436
Treasury stock transactions:
Purchase of 1,086,768 shares - - - - (15,723) (15,723)
Issuance of 385,472 shares
under stock plans - (1,101) - - 4,179 3,078
Dividends, $.091 per share - (2,877) - - - (2,877)
Payments on notes receivable - - - 398 - 398
------ ------- ----- ----- ------ -------
Balance, September 30, 1999 18,167 152,099 (3,970) (55) (51,619) 114,622
Net income - 27,923 - - - 27,923
Unrealized gains (losses) - - 36 - - 36
Minimum pension liability - - (727) - - (727)
Translation adjustment - - (4,516) - - (4,516)
Total comprehensive income 22,716
Treasury stock transactions:
Purchase of 1,018,492 shares - - - - (13,225) (13,225)
Issuance of 706,722 shares
under stock plans - (2,355) - - 8,028 5,673
Dividends, $.096 per share - (2,978) - - - (2,978)
Payments on notes receivable - - - 48 - 48
------ ------- ----- ----- ------ -------
Balance, September 30, 2000 18,167 174,689 (9,177) (7) (56,816) 126,856
Net income - 31,599 - - - 31,599
Unrealized gains (losses) - - 402 - - 402
Minimum pension liability - - 787 - - 787
Translation adjustment - - (995) - - (995)
Total comprehensive income 31,793
Treasury stock transactions:
Purchase of 778,462 shares - - - - (12,305) (12,305)
Issuance of 44,538 shares
under stock plans - (198) - - 641 443
Stock split, two-for-one 18,167 (18,167) - - - -
Dividends, $.101 per share - (3,078) - - - (3,078)
Payments on notes receivable - - - 7 - 7
------ ------- ----- ----- ------ -------
Balance, September 30, 2001 $36,334 $184,845 $(8,983) $ - $(68,480) $143,716
====== ======= ===== ===== ====== =======

The accompanying notes are an integral part of these consolidated financial statements.

36
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended September 30, 2001, 2000 and 1999
(dollar amounts in thousands, except share data)
----------

2001 2000 1999
---- ---- ----

Cash flows from operating activities:
Net income $31,599 $27,923 $25,016
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,932 12,007 10,609
Change in deferred taxes 709 1,041 617
Changes in working capital items (Note 13) 768 (2,917) (8,923)
Increase in other assets (2,813) (972) (110)
Increase in estimated finishing costs 126 12 228
Increase (decrease) in other liabilities 107 (594) (1,106)
Decrease in postretirement benefits (317) (533) (527)
Tax benefit on exercised stock options 174 2,370 1,400
Impairment losses 2,824 - -
Loss on dispositions of assets 248 570 143
Gain on sale of subsidiary (7,099) - -
Net (gain) loss on investments (209) 113 (95)
Effect of exchange rate changes on operations (649) (1,054) 523
------ ------ ------
Net cash provided by operating activities 38,400 37,966 27,775
------ ------ ------
Cash flows from investing activities:
Capital expenditures (7,264) (7,674) (13,282)
Proceeds from dispositions of assets 75 366 201
Proceeds from sale of subsidiary 18,582 - -
Acquisitions, net of cash acquired (63,567) (12,245) (10,798)
Purchases of investment securities (12,883) (6,967) (788)
Proceeds from dispositions of investments 10,553 2,053 6,317
Payments on notes receivable 7 48 398
------ ------ ------
Net cash used in investing activities (54,497) (24,419) (17,952)
------ ------ ------
Cash flows from financing activities:
Proceeds from long-term debt 32,430 3,943 14,951
Payments on long-term debt (1,320) (5,401) (1,603)
Proceeds from the sale of treasury stock 269 3,303 1,678
Purchases of treasury stock (12,305) (13,225) (15,723)
Dividends (3,078) (2,978) (2,877)
------ ------ ------
Net cash provided by (used in) financing activities 15,996 (14,358) (3,574)
------ ------ ------
Effect of exchange rate changes on cash (358) (1,571) (87)
------ ------ ------
Net change in cash and cash equivalents (459) (2,382) 6,162
Cash and cash equivalents at beginning of year 29,150 31,532 25,370
------ ------ ------
Cash and cash equivalents at end of year $28,691 $29,150 $31,532
====== ====== ======
Cash paid during the year for:
Interest $ 1,630 $ 1,488 $ 867
Income taxes 13,227 15,618 17,447
The accompanying notes are an integral part of these consolidated financial statements.

37
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except share data)
----------

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 custom-made products which are used to identify people, places,
products and events. The Company's products and operations are comprised of
three business segments: Bronze, Graphics Imaging and Marking Products. The
Bronze segment is a leading manufacturer of cast bronze memorials and other
memorialization products, crematories and cremation-related products and is a
leading builder of mausoleums in the United States. The Graphics Imaging
segment provides printing plates, pre-press services and imaging services for
the corrugated and primary packaging industries. The Marking Products segment
designs, manufactures and distributes a wide range of equipment and
consumables for identifying various consumer and industrial products,
components and packaging containers. On December 3, 2001, the Company
acquired The York Group, Inc., a manufacturer of caskets in the United States
(see Note 18).

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:

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 affiliates, Tukaiz Communications, L.L.C.
("Tukaiz"), O.N.E. Color Communications, L.L.C. ("O.N.E.") and, effective
April 1, 1999, S+T GmbH & Co. KG ("S+T"). All intercompany accounts and
transactions have been eliminated. On January 19, 2001, the Company sold its
50% interest in Tukaiz (see Note 16).

Use of Estimates:

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 the 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.

38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

Stock Split:

Foreign Currency:

Balance sheet accounts for foreign subsidiaries are translated into U.S.
dollars at exchange rates in effect at the consolidated balance sheet date.
Gains or losses that result from this process are recorded in other
comprehensive income. The cumulative translation adjustment at September 30,
2001 and 2000 was a reduction in accumulated other comprehensive income of
$9,407 and $8,412, respectively. The revenue and expense accounts of foreign
subsidiaries are translated into U.S. dollars at the average exchange rates
that prevailed during the period.

Cash and Cash Equivalents:

For purposes of the consolidated statement of cash flows, the Company
considers all investments purchased with a remaining maturity of three months
or less to be cash equivalents. The carrying amount of cash and cash
equivalents approximates fair value due to the short-term maturities of these
instruments. At September 30, 2001, a significant portion of the Company's
cash and cash equivalents was invested with two financial institutions.

Inventories:

Inventories are stated at the lower of cost or market with cost generally
determined under the average cost method.

Property, Plant and Equipment:

Property, plant and equipment are carried at cost. Depreciation is computed
primarily on the straight-line method over the estimated useful lives of the
assets, which generally range from 10 to 45 years for buildings and 3 to 12
years for machinery and equipment. Gains or losses from the disposition of
assets are generally included in other income or other deductions from income.
The cost of maintenance and repairs is charged against income as incurred.
Renewals and betterments of a nature considered to extend the useful lives of
the assets are capitalized.

39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

Goodwill:

Goodwill, which represents the excess of cost over the estimated fair value of
net assets of acquired businesses, was amortized using the straight-line
method over periods ranging from 10 to 25 years. Management periodically
evaluated the net realizable value of goodwill and, based on such analysis,
goodwill was reduced if considered necessary.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses the financial statement accounting
for goodwill and other intangible assets upon acquisition and the accounting
subsequent to their initial recognition in the financial statements. Upon
adoption, goodwill will no longer be amortized and will be subject to periodic
review for impairment. Based on management's preliminary assessment, goodwill
impairment is not expected to result upon adoption. The Company will adopt
SFAS No. 142 in the first quarter of fiscal 2002. Goodwill amortization was
$3,492, $2,581 and $1,926, respectively, for the years ended September 30,
2001, 2000 and 1999.

Estimated Finishing Costs:

Estimated costs for finishing have been provided for bronze memorials, vases
and granite bases which have been manufactured, sold to customers and placed
in storage for future delivery.

Treasury Stock:

Treasury stock is carried at cost. The cost of treasury shares sold is
determined under the average cost method. At September 30, 2001, treasury
stock consisted of 6,060,158 shares of Class A Common Stock. At September 30,
2000, treasury stock consisted of 3,055,290 shares of Class A Common Stock and
2,270,944 shares of Class B Common Stock.

Income Taxes:

Deferred tax assets and liabilities are provided for the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to
reverse. Deferred income taxes for U.S. tax purposes have not been provided
on the undistributed earnings of foreign subsidiaries, as such earnings are
considered to be reinvested indefinitely. At September 30, 2001,
undistributed earnings for which deferred U.S. income taxes have not been
provided approximated $13,500. Determination of the amount of unrecognized
U.S. deferred tax liability on these unremitted earnings is not practical as
any taxes paid upon distribution to the Company would be offset, at least in
part, by foreign tax credits under U.S. tax regulations.

40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:

Research and Development Expenses:

Research and development costs are expensed as incurred and approximated
$2,500, $1,900 and $2,000 for the years ended September 30, 2001, 2000 and
1999, respectively.

Earnings Per Share:

Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding. Diluted earnings per share is computed
using the treasury stock method, which assumes the issuance of common stock
for all dilutive securities.

Revenue Recognition:

Revenues are generally recognized when title and risk of loss pass to the
customer, which is generally at the time of product shipment, except for
construction revenues which are recognized under the percentage-of-completion
method of accounting.

Reclassifications:

Sales and cost of goods sold for 2000 and 1999 have been adjusted in
accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," to reflect the reclassification of
shipping costs billed to customers.

41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

3. INVENTORIES:

Inventories at September 30 consisted of the following:
2001 2000
---- ----

Materials and finished goods $16,816 $14,928
Labor and overhead in process 1,520 1,498
Supplies 437 423
------ ------
$18,773 $16,849
====== ======

4. INVESTMENTS:

Investment securities are recorded at estimated market value at the
consolidated balance sheet date and are classified as available-for-sale.
Short-term investments consisted principally of corporate obligations with
purchased maturities of over three months but less than one year. The cost of
short-term investments approximated market value at September 30, 2001 and
2000. Investments classified as non-current consisted of securities of the
U.S. government and its agencies and corporate obligations with purchased
maturities in the range of one to five years. Accrued interest on all
investment securities was classified with short-term investments.

At September 30, 2001 and 2000, investments classified as non-current were as
follows:
Book Value Gross Gross
(Amortized Unrealized Unrealized Market
Cost) Gains Losses Value
---------- ---------- ---------- ------
September 30, 2001:
- ------------------
U.S. government and
its agencies $ 8,281 $429 $ - $ 8,710
Corporate obligations 6,171 266 - 6,437
Other 93 - - 93
------ --- --- ------
Total $14,545 $695 $ - $15,240
====== === === ======

September 30, 2000:
- ------------------
U.S. government and
its agencies $ 7,195 $ 44 $ 28 $ 7,211
Corporate obligations 5,013 32 12 5,033
Other 160 - - 160
------ --- --- ------
Total $12,368 $ 76 $ 40 $12,404
====== === === ======

42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

4. INVESTMENTS, continued:

Unrealized gains and losses on investment securities, including related
deferred taxes, are reflected in other comprehensive income. Realized gains
and losses are based on the specific identification method and are recorded in
investment income. Realized gains (losses) for fiscal 2001, 2000 and 1999
were $225, ($30) and $17, respectively. Bond premiums and discounts are
amortized on the straight-line method, which does not significantly differ
from the interest method.

In addition, investments included the Company's 49% ownership interest in
Applied Technology Developments, Ltd. ("ATD"), which was $647 and $1,735 at
September 30, 2001 and 2000, respectively. In fiscal 2001, the investment in
ATD was written-down for impairment (see Note 17). The investment in ATD is
recorded under the equity method of accounting. Income under the equity
method of accounting is recorded in investment income. Investments also
included ownership interests in various entities of less than 20%, which
totaled $2,161 and $664 at September 30, 2001 and 2000, respectively.
Investments of less than 20% ownership interest are recorded under the cost
method of accounting.

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment and the related accumulated depreciation at
September 30, 2001 and 2000 were as follows:

2001 2000
---- ----
Buildings $25,666 $25,380
Machinery and equipment 65,515 65,162
------ ------
91,181 90,542
Less accumulated depreciation (46,409) (45,640)
------ ------
44,772 44,902
Land 3,159 2,946
Construction in progress 1,078 619
------ ------
$49,009 $48,467
====== ======

43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

6. LONG-TERM DEBT:

Long-term debt at September 30, 2001 and 2000 consisted of the following:
2001 2000
---- ----
Revolving Credit and Term Loan Agreement $30,000 $ -
Note payable to bank, 4.145% 8,082 8,433
Note payable to bank, 4.3% 3,395 3,542
Note payable to bank, 6.7% - 3,143
Short-term borrowings 4,073 1,478
Capital lease obligations 199 790
------ ------
45,749 17,386
Less current maturities (5,023) (3,478)
------ ------
$40,726 $13,908
====== ======

The Company had a Revolving Credit and Term Loan Agreement. Under terms of
the agreement, the Company could borrow principal amounts up to $30,000 in the
aggregate at LIBOR plus .75%. At September 30, 2001, outstanding borrowings
under this agreement totaled $30,000 at an interest rate of 3.36%. At
September 30, 2000, no amounts were outstanding under this agreement.

On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125,000 with a syndicate of four financial institutions. Borrowings under
the facility, which matures on November 30, 2004, bear interest at LIBOR plus
a factor ranging from .75% to 1.5% 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 .375% (based on
the Company's leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility requires the Company to maintain minimum levels of
consolidated net worth and fixed charge and interest coverage ratios. A
portion of the facility (not to exceed $10,000) is available for the issuance
of trade and standby letters of credit. In addition, the facility provides
for an additional credit line for borrowings up to $10,000 at current market
rates. The Revolving Credit Facility replaced the existing Revolving Credit
and Term Loan Agreement. The Company borrowed $124,500 under the Revolving
Credit Facility on December 3, 2001 in connection with the acquisition of The
York Group, Inc. (see Note 18) and for the repayment of all amounts
outstanding under the Revolving Credit and Term Loan Agreement.

In June 1999, a portion of the purchase price of Caggiati S.p.A. (see Note 15)
was financed through a loan of Lit. 20.2 billion (U.S.$10,900) from an Italian
bank, UniCredito Italiano, Parma, Italy. The loan amortization period is
15 years with interest at an annual rate of 4.145%, subject to renewal after
five and ten years at an interest rate approximating current market rates. In
June 2000, the first deferred payment due in connection with the purchase of
Caggiati S.p.A. was financed through a loan of Lit. 7.9 billion (U.S.$3,600).
The loan amortization period is 14 years, subject to renewal after five and
ten years, with a variable interest rate which approximates market. The
interest rate on this loan was 4.3% at September 30, 2001.

44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

6. LONG-TERM DEBT, continued:

Aggregate maturities of the notes payable to banks (excluding the Revolving
Credit and Term Loan Agreement) for the next five fiscal years are as follows:

2002 $ 900
2003 900
2004 900
2005 900
2006 900
------
$ 4,500
======

The carrying amounts of the Company's borrowings under its financing
arrangements approximate their fair value.

Long-term debt, current maturities, also included short-term borrowings by
Caggiati S.p.A. of $4,073 and $1,478 at September 30, 2001 and 2000,
respectively. These short-term borrowings consisted principally of several
line of credit arrangements for working capital requirements. The
weighted-average interest rate on these borrowings, which are collateralized
by certain trade accounts receivable, was 4.5% at September 30, 2001.

The Company has a line of credit of $500 (Canadian dollars), which provides
for borrowings at the bank's prime interest rate. There were no borrowings
outstanding on this line of credit at September 30, 2001 and 2000. Caggiati
S.p.A. has four lines of credit totaling Lit. 19.0 billion (U.S.$8,900) with
various banks. Outstanding borrowings on these lines at September 30, 2001
and 2000 were $4,073 and $1,478, respectively.

7. SHAREHOLDERS' EQUITY:

The authorized common stock of the Company consists of 70,000,000 shares of
Class A Common Stock, $1 par value. Prior to September 2001, the authorized
common stock of the Company was divided into two classes consisting of Class A
Common Stock, 70,000,000 shares, $1 par value, and Class B Common Stock,
30,000,000 shares, $1 par value. Shares of Class A stock have one vote per
share and are freely transferable subject to applicable securities laws.
Shares of Class B stock had ten votes per share and were only transferable by
a shareholder to the Company or to an active employee of the Company. In
September 2001, the number of outstanding shares of Class B stock declined
below 5% of the aggregate outstanding shares of Class A and Class B stock. As
a result, in accordance with the Company's Restated Articles of Incorporation,
all shares of Class B stock were immediately converted to an equivalent number
of shares of Class A stock. During fiscal 2000 and 1999, 512,188 and 724,894
shares, respectively, of Class B Common Stock were exchanged for an equal
number of shares of Class A Common Stock.

45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

7. SHAREHOLDERS' EQUITY, continued:

At September 30, 2000, shareholders' equity included notes receivable from
employees, which resulted from purchases of common stock by designated
employees under the Employees' Stock Purchase Plan. All outstanding amounts
under these notes were paid in full during fiscal 2001.

Comprehensive income consists of net income adjusted for changes, net of any
related income tax effect, in cumulative foreign currency translation,
unrealized investment gains and losses and minimum pension liability.

8. STOCK PLANS:

The Company has a stock incentive plan that provides for grants of incentive
stock options, nonstatutory stock options and restricted share awards in an
aggregate number not to exceed 15% of the outstanding shares of the Company's
common stock. The plan is administered by the Compensation Committee of the
Board of Directors. The option price for each stock option that may be
granted under the plan may not be less than the fair market value of the
Company's common stock on the date of grant. The aggregate number of shares
of the Company's common stock that may be issued upon exercise of outstanding
stock options was 3,698,866 shares at September 30, 2001.

Outstanding stock options are exercisable in various share amounts based on
the attainment of certain market value levels of Class A Common Stock but, in
the absence of such events, are exercisable in full for a one-week period
beginning five years from the date of grant. In addition, options granted
after September 1996 vest in one-third increments after three, four and five
years, respectively, from the grant date (but, in any event, not until the
attainment of the certain market value levels described above). The options
expire on the earlier of ten years from the date of grant, upon employment
termination, or within specified time limits following voluntary employment
termination (with the consent of the Company), retirement or death.

The Company has elected to account for its stock incentive plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." If compensation cost had been determined under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
diluted earnings per share would have been as follows:

46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

8. STOCK PLANS, continued:

2001 2000 1999
---- ---- ----
Net income, as reported $31,599 $27,923 $25,016
Net income, pro forma 30,198 26,357 23,852
Earnings per share, as reported $ 1.01 $ .88 $ .77
Earnings per share, pro forma .96 .83 .73

The weighted-average fair value of options granted was $5.28 per share in
2001, $5.37 per share in 2000 and $5.81 per share in 1999.

The fair value of each option grant is estimated on the date of grant using a
Black-Scholes based pricing model with the following assumptions:

2001 2000 1999
---- ---- ----
Expected volatility 27.0% 26.0% 24.8%
Dividend yield 0.8% 0.8% 0.8%
Average risk-free interest rate 4.5% 5.8% 6.3%
Average expected term (years) 8.1 8.3 8.0

The transactions for shares under options were as follows:

2001 2000 1999
---- ---- ----
Outstanding, beginning of year:
Number 3,397,866 3,898,700 2,965,300
Weighted-average exercise price $10.53 $ 9.34 $ 6.60
Granted:
Number 402,000 223,100 1,399,600
Weighted-average exercise price $14.03 $12.84 $13.97
Exercised:
Number 43,666 701,002 384,600
Weighted-average exercise price $ 6.05 $ 4.64 $ 4.41
Expired or forfeited:
Number 57,334 22,932 81,600
Weighted-average exercise price $13.43 $10.91 $12.53
Outstanding, end of year:
Number 3,698,866 3,397,866 3,898,700
Weighted-average exercise price $10.92 $10.53 $ 9.34
Exercisable, end of year:
Number 1,103,955 585,254 860,000
Weighted-average exercise price $ 7.27 $ 6.48 $ 4.68
Shares reserved for future options,
end of year 842,209 1,253,298 799,230

47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

8. STOCK PLANS, continued:

The following tables summarize certain stock option information at
September 30, 2001:

Options outstanding:
- -------------------
Range of Weighted-average Weighted-average
exercise price Number remaining life exercise price
- -------------- -------- ---------------- ----------------
$3.56 and $6.50 152,000 3.9 $ 5.15
$7.03 - $8.69 1,224,100 5.2 7.09
$10.70 407,666 6.2 10.70
$13.84 - $15.34 1,323,000 7.4 13.97
$12.84 198,300 8.1 12.84
$14.03 393,800 9.1 14.03
--------- --- -----
3,698,866 6.6 $10.92
========= === =====

Options exercisable:
- -------------------
Range of Weighted-average
exercise price Number exercise price
- -------------- ------- ----------------
$3.56 and $6.50 152,000 $ 5.15
$7.03 - $8.69 816,066 7.09
$10.70 135,889 10.70
--------- -----
1,103,955 $ 7.27
========= =====

Under the Company's Director Fee Plan, directors who are not also officers of
the Company each receive, as an annual retainer fee, shares of the Company's
Class A Common Stock equivalent to approximately $16. Directors may also
elect to receive the common stock equivalent of meeting fees. Each director
may elect to be paid these shares on a current basis or have such shares
credited to a deferred stock account as phantom stock, with such shares to be
paid to the director subsequent to leaving the Board. The value of deferred
shares is recorded in other liabilities. Shares deferred under the
Director Fee Plan at September 30, 2001, 2000 and 1999 were 53,218, 48,014 and
46,144, respectively.

48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

9. EARNINGS PER SHARE
2001 2000 1999
---- ---- ----

Net income $31,599 $27,923 $25,016
====== ====== ======

Weighted-average common
shares outstanding 30,560,339 31,031,016 31,702,786
Dilutive securities,
primarily stock options 759,715 672,138 779,520
---------- ---------- ----------
Diluted weighted-average
common shares outstanding 31,320,054 31,703,154 32,482,306
========== ========== ==========

Basic earnings per share $1.03 $ .90 $ .79
==== ==== ====

Diluted earnings per share $1.01 $ .88 $ .77
==== ==== ====

10. PENSION AND OTHER POSTRETIREMENT PLANS:

The Company provides defined benefit pension and other postretirement plans to
certain employees. In addition, certain employees of the Commemorative
Products business of The York Group, Inc., which was acquired on May 24, 2001
(see Note 15), participate in a separate defined benefit pension plan.

Net periodic pension and other postretirement benefit (income) cost for the
plans included the following:

Pension Other Postretirement
-------------------------- --------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------

Service cost $ 3,059 $ 2,452 $ 2,161 $ 303 $ 268 $ 322
Interest cost 4,384 3,955 3,725 913 882 816
Expected return on
plan assets (8,807) (6,100) (5,288) - - -
Amortization:
Transition asset - (404) (404) - - -
Prior service cost 162 162 162 (1,009) (1,009) (1,009)
Net actuarial (gain) loss (1,948) (430) 54 136 137 112
----- ----- ----- ----- ----- -----
Net benefit (income) cost $(3,150) $ (365) $ 410 $ 343 $ 278 $ 241
===== ===== ===== ===== ===== =====

49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

10. PENSION AND OTHER POSTRETIREMENT PLANS, continued:

The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:

Pension Other Postretirement
------------------- --------------------
2001 2000 2001 2000
------ ------ ------ ------

Change in benefit obligation:
Benefit obligation, beginning $ 60,234 $ 55,960 $ 12,983 $ 12,563
Acquisition 5,282 - - -
Service cost 3,059 2,452 303 268
Interest cost 4,384 3,955 913 882
Assumption changes (207) - 336 -
Actuarial (gain) loss (1,747) 694 (306) 201
Benefit payments (3,111) (2,827) (660) (931)
------ ------ ------ ------
Benefit obligation, ending 67,894 60,234 13,569 12,983
------ ------ ------ ------
Change in plan assets:
Fair value, beginning 98,108 69,657 - -
Acquisition 5,690 - - -
Actual return (26,934) 31,050 - -
Benefit payments (3,111) (2,827) (660) (931)
Employer contributions 306 228 660 931
------ ------ ------ ------
Fair value, ending 74,059 98,108 - -
------ ------ ------ ------

Funded status 6,165 37,874 (13,569) (12,983)
Unrecognized transition asset - - - -
Unrecognized actuarial (gain) loss (669) (36,403) 2,863 2,969
Unrecognized prior service cost 574 736 (8,750) (9,758)
------ ------ ------ ------

Net amount recognized $ 6,070 $ 2,207 $(19,456) $(19,772)
====== ====== ====== ======

Amounts recognized in the
balance sheet:
Prepaid pension cost $ 8,751 $ 4,210 $ - $ -
Accrued benefit liability (2,681) (3,537) (19,456) (19,772)
Intangible asset - 244 - -
Accumulated other
comprehensive income - 1,290 - -
------ ------ ------ ------

Net amount recognized $ 6,070 $ 2,207 $(19,456) $(19,772)
====== ====== ====== ======

The Company has an unfunded defined benefit pension plan which had a benefit
obligation at September 30, 2001 and 2000 of $2,961 and $4,487, respectively.

50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

10. PENSION AND OTHER POSTRETIREMENT PLANS, continued:

Weighted-average assumptions for the pension and other postretirement benefit
plans were:

Pension Other Postretirement
---------------------------- ----------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------

Discount rate 7.00% 7.25% 7.25% 7.00% 7.25% 7.25%
Return on plan assets 9.00 9.00 9.00 - - -
Compensation increase 4.25 4.50 4.50 4.25 4.50 4.50

For measurement purposes, annual rates of increase of 30.0% and 12.0% in the
per capita cost of health care benefits for Medicare HMO Plans and all other
plans, respectively, were assumed for 2001; the rates were assumed to decrease
gradually to 5.0% for 2004 and remain at that level thereafter. Assumed
health care cost trend rates have a significant effect on the amounts
reported. An increase in the assumed health care cost trend rates by one
percentage point would have increased the accumulated postretirement benefit
obligation as of September 30, 2001 by $516 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the year then ended by $72. A decrease in the assumed health care cost trend
rates by one percentage point would have decreased the accumulated
postretirement benefit obligation as of September 30, 2001 by $472 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $62.

11. INCOME TAXES:

The provision for income taxes consisted of the following:

2001 2000 1999
---- ---- ----
Current:
Federal $ 13,694 $ 11,940 $ 12,116
State 2,006 1,843 2,401
Foreign 3,435 2,761 1,117
------ ------ ------
19,135 16,544 15,634
Deferred 724 1,471 627
------ ------ ------
Total $ 19,859 $ 18,015 $ 16,261
====== ====== ======

51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

11. INCOME TAXES, continued:

The components of the net deferred tax asset at September 30 were as follows:

2001 2000
---- ----
Deferred tax assets:
Postretirement benefits other than pensions $ 7,588 $ 7,687
Deferred compensation 1,454 1,389
Bad debt / other provisions 1,694 998
Estimated finishing costs 2,524 1,105
Accrued vacation pay 933 873
Other 725 311
------ ------
14,918 12,363
------ ------
Deferred tax liabilities:
Depreciation (2,777) (2,465)
Goodwill amortization (2,775) (1,313)
Deferred gain on sale of facilities (435) (477)
Pension costs (2,268) (217)
Unrealized investment gain (271) (14)
------ ------
(8,526) (4,486)
------ ------
Net deferred tax asset 6,392 7,877

Less current portion (1,241) (978)
------ ------
$ 5,151 $ 6,899
====== ======

The components of the provision for deferred income taxes were as follows:

2001 2000 1999
---- ---- ----
Postretirement benefits other
than pensions $ 99 $ 207 $ 230
Deferred compensation 51 444 (378)
Estimated finishing costs (170) (31) 11
Accrued vacation pay 131 (15) (24)
Foreign subsidiary losses, net - 170 205
Depreciation (144) 276 495
Goodwill amortization 26 (4) 171
Deferred gain on sale of facilities (42) (32) 2
Pension costs 1,473 233 13
Bad debt / other provisions (559) 7 (261)
Other (141) 216 163
----- ----- -----
$ 724 $ 1,471 $ 627
===== ===== =====

52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

11. INCOME TAXES, continued:

The reconciliation of the federal statutory tax rate to the consolidated
effective tax rate was as follows:
2001 2000 1999
---- ---- ----
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Effect of state income taxes,
net of federal deduction 2.6 2.8 3.8
Foreign taxes in excess of (less
than) federal statutory rate .4 .5 ( .6)
Goodwill amortization .4 .5 .5
Other .2 .4 .7
---- ---- ----
Effective tax rate 38.6 % 39.2 % 39.4 %
==== ==== ====

The Company's foreign subsidiaries had income before income taxes for the
years ended September 30, 2001, 2000 and 1999 of approximately $8,400, $7,000
and $4,300, respectively.

12. COMMITMENTS AND CONTINGENT LIABILITIES:

The Company operates various production and office facilities and equipment
under operating lease agreements. Annual rentals under these and other
operating leases were $4,300, $3,700 and $3,100 in 2001, 2000 and 1999,
respectively. Future minimum rental commitments are not material.

The Company has employment agreements with certain employees, the terms of
which expire at various dates between 2002 and 2006. The agreements generally
provide for base salary and bonus levels and include a non-compete clause.
The aggregate commitment for salaries under these agreements at September 30,
2001 was approximately $2,300.

53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

13. SUPPLEMENTAL CASH FLOW INFORMATION:

Changes in working capital items as presented in the Consolidated Statement of
Cash Flows consisted of the following:
2001 2000 1999
---- ---- ----
Current assets:
Accounts receivable $ (4,854) $ 1,603 $ (1,977)
Inventories 728 (574) 1,126
Other current assets 709 109 28
------ ------ ------
(3,417) 1,138 (823)
------ ------ ------
Current liabilities:
Trade accounts payable 806 145 (2,311)
Accrued compensation (562) (1,509) 991
Accrued vacation pay 85 (27) 84
Profit distribution to employees (203) 137 (144)
Accrued income taxes 4,503 (548) (3,155)
Customer prepayments 257 (950) (616)
Other current liabilities (701) (1,303) (2,949)
------ ------ ------
4,185 (4,055) (8,100)
------ ------ ------
Net change $ 768 $ (2,917) $ (8,923)
====== ====== ======

In July 2001, Matthews acquired a 75% interest in Rudolf Reproflex GmbH (see
Note 15). The purchase price of DM 24 million (U.S.$11,000), which was paid
in October 2001, was recorded in other current liabilities at September 30,
2001 and reflected as a non-cash adjustment in the Consolidated Statement of
Cash Flows.

14. SEGMENT INFORMATION:

The Company is organized into three business segments based on products and
services. The segments, which are Bronze, 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.

The accounting policies of the segments are the same as those described in
Summary of Significant Accounting Policies (Note 2). Intersegment sales are
accounted for at negotiated prices. Operating profit is total revenue less
operating expenses. Segment assets include those assets that are used in the
Company's operations within each segment. Assets classified under Other
principally consist of cash and cash equivalents, investments, deferred income
taxes and corporate headquarters' assets. Long-lived assets include property,
plant and equipment, net of accumulated depreciation, and goodwill, net of
accumulated amortization.

54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

14. SEGMENT INFORMATION, continued:

Information about the Company's segments follows:

Graphics Marking
Imaging Products Bronze Other Consolidated
-------- -------- -------- ------- ------------

Sales to external customers:
2001 $ 89,568 $ 29,636 $164,078 $ - $283,282
2000 92,169 32,450 142,368 - 266,987
1999 86,948 30,966 125,456 - 243,370

Intersegment sales:
2001 5 46 26 - 77
2000 14 50 199 - 263
1999 5 55 46 - 106

Depreciation and amortization:
2001 5,264 613 6,626 429 12,932
2000 5,844 532 5,199 432 12,007
1999 5,829 587 3,789 404 10,609

Operating profit:
2001 14,443 3,108 35,806 - 53,357
2001 (excluding
special items) 10,042 4,562 37,744 - 52,348
2000 9,640 4,720 33,416 - 47,776
1999 5,135 4,036 31,777 - 40,948

Total assets:
2001 75,572 17,417 149,407 46,556 288,952
2000 64,186 18,449 88,194 49,836 220,665
1999 66,926 19,685 97,005 42,062 225,678

Capital expenditures:
2001 2,752 307 3,825 380 7,264
2000 4,227 640 2,610 197 7,674
1999 7,243 497 5,390 152 13,282

Information about the Company's operations by geographic area follows:

United States Canada Australia Europe Consolidated
------------- ------ --------- ------ ------------

Sales to external customers:
2001 $221,326 $9,140 $4,511 $48,305 $283,282
2000 216,550 9,365 4,632 36,440 266,987
1999 211,736 9,496 4,582 17,556 243,370

Long-lived assets:
2001 109,830 2,186 2,135 39,443 153,594
2000 69,426 2,401 2,404 22,948 97,179
1999 72,540 2,557 3,133 25,604 103,834

55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

15. ACQUISITIONS:

On May 24, 2001, Matthews acquired the Commemorative Products business of The
York Group, Inc. ("York") for $45,000. The transaction was completed through
the purchase of certain assets (pursuant to an asset purchase agreement) and
stock of subsidiaries under the Commemorative Products segment of York
(pursuant to a stock purchase agreement). As part of the transaction,
Matthews acquired York's manufacturing facilities in Kingwood, West Virginia
and Bryan, Texas. The transaction was financed by Matthews through existing
cash on hand and a $30,000 bank loan under the Company's Revolving Credit and
Term Loan Agreement (see Note 6).

The following unaudited pro forma information presents a summary of the
consolidated results of Matthews and the Commemorative Products business of
York as if the acquisition had occurred on October 1, 1999:
2001 2000
---- ----
Sales $311,000 $311,000
Net income 32,000 29,000
Earnings per share, diluted $1.03 $ .93

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as goodwill amortization and
interest expense on acquisition debt. The pro forma information does not
purport to be indicative of the results of operations which actually would
have resulted had the acquisition occurred on the date indicated, or which may
result in the future.

Effective July 1, 2001, Matthews acquired for DM 24 million (U.S.$11,000) a
75% interest in Rudolf Reproflex GmbH ("Rudolf"), a German graphics and
flexographic printing plate manufacturer. The purchase price, which was paid
in October 2001, was recorded in other current liabilities at September 30,
2001. Rudolf is headquartered in Goslar, Germany and reported sales of
approximately U.S.$13,000 for the year ended December 31, 2000.

On June 1, 1999, Matthews purchased the assets of Caggiati S.p.A., the leading
supplier of bronze memorialization products in Europe. The purchase price was
Lit. 34.6 billion (U.S.$19,000) cash plus the assumption of bank debt of
Lit. 10.2 billion (U.S.$5,500) and certain other trade liabilities. Matthews
paid Lit. 20.2 billion (U.S.$10,900) upon closing with Lit. 7.2 billion
(U.S.$3,500) paid on June 1, 2000 and the remainder of Lit. 7.2 billion paid
on June 1, 2001.

The following unaudited pro forma information presents a summary of the fiscal
1999 consolidated results of Matthews and Caggiati S.p.A. as if the
acquisition had occurred on October 1, 1998: Sales, $255,000; Net income,
$25,800; and earnings per share, diluted, $0.79. These unaudited pro forma
results have been prepared for comparative purposes only and include certain
adjustments, such as goodwill amortization and interest expense on acquisition
debt. The pro forma information does not purport to be indicative of the
results of operations which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.

56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

15. ACQUISITIONS, continued:

Matthews has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the fair value of the net assets has been recorded as goodwill and was being
amortized on a straight-line basis over periods ranging from 20 to 25 years,
except for Rudolf, which was acquired subsequent to the effective date of SFAS
No. 141. In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations," which requires the purchase method of
accounting (instead of pooling-of-interests) for all business combinations
initiated after June 30, 2001. Goodwill related to business combinations
after June 30, 2001 will no longer be amortized and will be subject to
periodic review for impairment. In addition, the Company will adopt SFAS No.
142, "Goodwill and Other Intangible Assets," in the first quarter of fiscal
2002 (see Note 2).

16. DISPOSITION:

On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz.
Proceeds to Matthews from the sale were $18,582, which included the repayment
of intercompany debt of approximately $8,400. All intercompany debt provided
by Matthews to Tukaiz, including a $5,500 Subordinated Convertible Note, was
repaid upon the closing of this transaction. The sale resulted in a pre-tax
gain of $7,099, which has been reported in Special Items on the Consolidated
Statement of Income.

17. SPECIAL ITEMS:

On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz (see
Note 16). The sale resulted in a pre-tax gain of $7,099, which has been
reported in Special Items on the Consolidated Statement of Income. In the
second quarter of fiscal 2001, the Company recorded asset impairments,
restructuring costs and other special charges totaling approximately $6,600.
The majority of these charges have been classified as Special Items on the
Consolidated Statement of Income, except for $1,168 classified as selling and
administrative expenses and $500 classified as other income (deductions), net.

In connection with the restructuring of certain operations within the Graphics
Imaging and Marking Products segments, asset impairments of $4,000 were
recorded, primarily reflecting a reduction in the value of goodwill related to
various investments. In accordance with the Company's accounting policies,
management evaluated the net realizable value of such goodwill and, based on
this analysis, goodwill was reduced to reflect estimated fair value on a
discounted cash flow basis. Asset impairments also included other write-downs
of certain assets to reflect estimated realizable values.

57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollar amounts in thousands, except share data)
----------

17. SPECIAL ITEMS, continued:

In addition, special items included restructuring costs of $1,200 for certain
operations within the Graphics Imaging and Marking Products segments. These
restructuring costs were designed to improve operating efficiency and
primarily included consulting fees and personnel reduction costs. Special
items also included non-recurring expenses of approximately $1,400 consisting
of costs incurred in connection with a potential acquisition which was not
completed, a special contribution to the Company's educational and charitable
trust of $500 (classified in other income (deductions), net), and other one-
time charges. Substantially all of the restructuring costs and non-recurring
expenses were incurred as of September 30, 2001.

18. SUBSEQUENT EVENT:

On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would acquire 100% of the outstanding common shares of York for $10 cash per
share. Matthews also agreed to pay up to an additional $1 cash per share
based on the excess cash (as defined in the merger agreement) remaining on
York's balance sheet as of October 31, 2001. On December 3, 2001, this
transaction was completed at $11 per share. At December 3, 2001, there were
8,940,950 shares of York common stock outstanding. York is the second leading
casket manufacturer in the United States and is expected to have annual sales
of approximately $130,000. York will operate as a wholly-owned subsidiary and
separate segment of Matthews.

58
SUPPLEMENTARY FINANCIAL INFORMATION

Selected Quarterly Financial Data (Unaudited):

The following table sets forth certain items included in the Company's
unaudited consolidated financial statements for each quarter of fiscal 2001
and fiscal 2000.

Quarter Ended
-------------------------------------------------- Year Ended
December 31 March 31 (1) June 30 September 30 September 30
----------- ----------- ----------- ------------ ------------
(dollar amounts in thousands, except share data)

FISCAL YEAR 2001:
Sales $ 66,556 $ 66,339 $ 71,461 $ 78,926 $283,282

Gross profit 28,160 28,218 31,390 31,668 119,436

Operating profit 11,474 13,599 14,631 13,653 53,357

Net income 6,742 8,124 8,761 7,972 31,599

Earnings per share .21 .26 .28 .26 1.01

FISCAL YEAR 2000:
Sales (2) $ 64,697 $ 67,129 $ 69,025 $ 66,136 $266,987

Gross profit 28,024 30,641 31,098 28,326 118,089

Operating profit 10,386 12,508 13,331 11,551 47,776

Net income 6,083 7,115 7,725 7,000 27,923

Earnings per share .19 .22 .25 .22 .88

<FN>
(1) The second quarter of fiscal 2001 included after-tax income of $300 ($.01 per
share) from special items which consisted of a pre-tax gain of $7,099 on the sale of a
subsidiary and asset impairments, restructuring costs and other special pre-tax charges
totaling $6,600 (see Note 17 to the Consolidated Financial Statements).
(2) Sales for fiscal 2000 have been adjusted to reflect the reclassification, in
accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs," of shipping costs billed to customers.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There have been no changes in accountants or disagreements on accounting or
financial disclosure between the Company and PricewaterhouseCoopers LLP,
Certified Public Accountants, for the fiscal years ended September 30, 2001,
2000 and 1999.

60
PART III

ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT.

The following information is furnished with respect to directors, officers and
executive management:

Name Age Positions with Registrant
- ---- --- -------------------------

David M. Kelly 59 Chairman of the Board, President and
Chief Executive Officer

Edward J. Boyle 55 Chief Financial Officer, Secretary
and Treasurer

David J. DeCarlo 56 President, Bronze Division
and Director

Brian J. Dunn 44 President, Marking Products,
North America

Robert J. Kavanaugh 64 Director

Lawrence W. Keeley, Jr. 40 President, Graphic Systems Division

Thomas N. Kennedy 66 Director

Steven F. Nicola 41 Vice President, Accounting & Finance

John P. O'Leary, Jr. 54 Director

Robert J. Schwartz 54 Group President, Graphic Systems &
Marking Products Divisions

William J. Stallkamp 62 Director

John D. Turner 55 Director

David M. Kelly has been Chairman of the Board since March 1996. He was
appointed President and Chief Operating Officer of the Company in April 1995
and President and Chief Executive Officer in October 1995. He was appointed
as a Director of the Company in May 1995.

Edward J. Boyle was appointed Chief Financial Officer, Secretary and Treasurer
in December 2001. He had been Vice President, Accounting & Finance, Treasurer
and Secretary since September 1996.

David J. DeCarlo, a Director of the Company since 1987, has been President,
Bronze Division since November 1993.

61
ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT,
continued.

Brian J. Dunn was appointed President, Marking Products, North America in
November 2000. He had been National Sales Manager, Marking Products, North
America since joining the Company in November 1998. Prior thereto, Mr. Dunn
was a regional sales manager for the Automation Division of Rockwell
International Corporation.

Robert J. Kavanaugh was elected to the Board of Directors in February 1998.
Mr. Kavanaugh retired in 1996 as a partner of the Pittsburgh office of Arthur
Andersen LLP.

Lawrence W. Keeley, Jr. joined the Company in September 1999 as President,
Graphic Systems Division. Prior thereto, he was a Vice President for
Container Graphics Corporation.

Thomas N. Kennedy, a Director of the Company since 1987, retired as an officer
of the Company in December 1995. He was Senior Vice President, Chief
Financial Officer and Treasurer.

Steven F. Nicola was appointed Vice President, Accounting and Finance in
December 2001. He had been Controller of the Company since December 1995.

John P. O'Leary, Jr., a Director of the Company since 1992, has been President
and Chief Executive Officer of Tuscarora, Incorporated, a manufacturer of
custom design protective packaging, since 1990. Tuscarora, Incorporated is a
wholly-owned subsidiary of SCA Packaging International B.V.

Robert J. Schwartz was appointed Group President, Graphic Systems & Marking
Products Divisions in November 2000. He had been President, Marking Products
Division since September 1997. Mr. Schwartz joined the Company in January
1997 as Director of Sales and Marketing for the Marking Products Division.
Prior thereto, he was Vice President - Sales for Northeast Distributors, Inc.

William J. Stallkamp, a Director of the Company since 1981, was a Vice
Chairman of Mellon Financial Corporation in Pittsburgh, PA and Chairman and
Chief Executive Officer of Mellon PSFS in Philadelphia, PA until his
retirement on January 1, 2000. He is currently a fund advisor and Chairman of
the Operations Group at Safeguard Scientifics, Inc.

John D. Turner was elected to the Board of Directors in April 1999. Mr.
Turner had been Executive Vice President and Chief Operating Officer of The
LTV Corporation, an integrated steel producer, and President of LTV
Copperweld, a manufacturer of tubular and bimetallic wire products. Since
December 2001, Mr. Turner has been Chairman and Chief Executive Officer of
Copperweld Corporation.

62
ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT,
continued.

Board Committees:

The Executive Committee is appointed by the Board of Directors to have and
exercise during periods between Board meetings all of the powers of the Board
of Directors, except that the Executive Committee may not elect directors,
change the membership of or fill vacancies in the Executive Committee, change
the By-laws of the Company or exercise any authority specifically reserved by
the Board of Directors. Among the functions customarily performed by the
Executive Committee during periods between Board meetings are the approval,
within limitations previously established by the Board of Directors, of the
principal terms involved in sales of securities of the Company, and such
reviews as may be necessary of significant developments in major events and
litigation involving the Company. In addition, the Executive Committee is
called upon periodically to provide advice and counsel in the formulation of
corporate policy changes and, where it deems advisable, make recommendations
to the Board of Directors. The Committee members are David M. Kelly
(Chairman), David J. DeCarlo and Thomas N. Kennedy.

The principal function of the Audit Committee is to endeavor to assure the
integrity and adequacy of financial statements issued by the Company. It is
intended that the Audit Committee will review internal auditing systems and
procedures as well as the activities of the public accounting firm performing
the external audit. The Committee members are John P. O'Leary, Jr.
(Chairman), William J. Stallkamp and Robert J. Kavanaugh.

The principal function of the Compensation Committee, the members of which are
William J. Stallkamp (Chairman), Robert J. Kavanaugh and John D. Turner, is to
review periodically the suitability of the remuneration arrangements
(including benefits), other than stock remuneration, for the principal
executives of the Company. A subcommittee of the Compensation Committee, the
Stock Compensation Committee, the members of which are Messrs. Stallkamp
(Chairman), Kavanaugh and Turner, consider and grant stock remuneration and
administer the Company's 1992 Stock Incentive Plan.

63
ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the individual compensation information for the
fiscal years ended September 30, 2001, 2000 and 1999 for the Company's Chief
Executive Officer and the four most highly compensated executives.

SUMMARY COMPENSATION TABLE

Annual Long-Term
Compensation Compensation
----------------- -----------------------
Awards Payouts
------ ------- All
Securities Other
Name of Individual Underlying LTIP Compen-
and Principal Position Year Salary Bonus Options Payouts sation
- ---------------------- ---- ------- ------- ---------- --------- -------
(1) (Shares) (2) (3)

David M. Kelly 2001 $376,506 $385,365 112,000 $262,878 $ 1,195
Chairman of the Board and 2000 367,117 360,585 None 736,928 117
Chief Executive Officer 1999 329,618 339,298 550,000 734,737 None

David J. DeCarlo 2001 238,380 174,685 28,000 372,415 1,564
Director and President, 2000 236,095 163,498 None 761,709 1,492
Bronze Division 1999 217,411 171,334 298,000 711,607 1,419

Edward J. Boyle 2001 174,300 109,876 26,000 114,639 990
Vice President, 2000 160,232 94,876 None 190,292 2,142
Accounting & Finance 1999 143,041 89,962 156,000 187,183 3,294

Robert J. Schwartz 2001 165,450 2,771 24,000 90,770 4,432
Group President, Graphic 2000 139,913 85,646 10,000 118,929 3,189
Systems & Marking 1999 126,577 80,952 20,000 55,464 747
Products Divisions

Lawrence W. Keeley, Jr. 2001 161,900 5,402 20,000 None 2,760
President, Graphic 2000 156,169 55,402 40,000 None 35,795
Systems Division
<FN>
(1) Includes the current portion of management incentive plan and supplemental management
incentive payments and for Mr. Kelly in 1999, an amount equal to his life insurance premium
cost. Until 2000, at his request, the Company did not provide life insurance for Mr. Kelly,
but in lieu thereof paid to him annually the amount which the Company would have paid in
premiums to provide coverage, considering his position and age. Such amounts were not
included in calculating other Company benefits for Mr. Kelly. The amount paid to Mr. Kelly
in lieu of life insurance for 1999 was $4,100. The Company has adopted a management
incentive plan for officers and key management personnel. Participants in such plan are not
eligible for the Company's profit distribution plan. The incentive plan is based on
improvement in divisional and Company economic value added and the attainment of established
personal goals. A portion of amounts earned are deferred by the Company and are payable with
interest at a market rate over a two-year period contingent upon economic value added
performance and continued employment during such period. See Long-Term Incentive Plans -
Awards in Last Fiscal Year table. In addition, payments include a supplement in amounts
which are sufficient to pay annual interest expense on the outstanding notes of management
under the Company's Designated Employee Stock Purchase Plan and to pay medical costs which
are not otherwise covered by a Company plan.

64
ITEM 11. EXECUTIVE COMPENSATION, continued.

(2) Represents payments of deferred amounts under the management incentive plan.

(3) Includes premiums for term life insurance and educational assistance for dependent
children. Each officer of the Company is provided term life insurance coverage in
an amount approximately equivalent to three times his respective salary. Educational
assistance for dependent children is provided to any officer or employee of the Company
whose child meets the scholastic eligibility criteria and is attending an eligible
college or university. Amounts reported in this column include only life insurance benefit
costs except for Messrs. Boyle, Schwartz and Keeley. Educational assistance amounts for
Mr. Boyle in fiscal 2000 and 1999, respectively, were $1,200 and $2,400. In 2001 and 2000,
Mr. Schwartz received $3,600 and $2,400, respectively, under the educational assistance
program. The amounts reported in this column in 2001 and 2000 for Mr. Keeley include $2,449
and $35,592, respectively, for the reimbursement of relocation expenses.

The Summary Compensation Table does not include expenses of the Company for
incidental benefits of a limited nature to executives, including the use of
Company vehicles, club memberships, dues, or tax planning services. The
Company believes such incidental benefits are in the conduct of the Company's
business; but, to the extent such benefits and use would be considered
personal benefits, the value thereof is not reasonably ascertainable and does
not exceed, with respect to any individual named in the Summary Compensation
Table, the lesser of $50,000 or 10% of the annual compensation reported in
such table.

Long-Term Incentive Plans - Awards in Last Fiscal Year

Performance Estimated Future
or Other Payouts Under
Number Period Non-Stock Price-
of Shares Until Based Plans
or Other Maturation ----------------
Name Rights or Payout Maximum
- ------------- ---------- ----------- ----------------

D.M. Kelly - 2 Years $ 491,579
D.J. DeCarlo - 2 Years 84,813
E.J. Boyle - 2 Years 138,999
R.J. Schwartz - - None
L.W. Keeley, Jr. - - None

<FN>
The Company has a management incentive plan based on improvement in divisional and
Company economic value added and the attainment of established personal goals. A
portion of amounts earned are deferred by the Company and are payable with interest at
a market rate over a two-year period contingent upon economic value added performance
and continued employment during such period. Payment of these amounts may be subject
to further deferral by the Company under the deferred compensation provisions of the
management incentive plan.

65
ITEM 11. EXECUTIVE COMPENSATION, continued.

Option/SAR Grants in Last Fiscal Year

Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants (1) Option Term
- ----------------------------------------------------------------- ----------------------
Percent
of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year per Share Date 5% 10%
- -------------- ---------- ---------- --------- ---------- -------- --------

D.M. Kelly 112,000 27.9% $14.031 11/15/10 $988,308 $2,504,566
D.J. DeCarlo 28,000 7.0 14.031 11/15/10 247,077 626,142
E.J. Boyle 26,000 6.5 14.031 11/15/10 229,429 581,417
R.J. Schwartz 24,000 6.0 14.031 11/15/10 211,780 536,693
L.W. Keeley, Jr. 20,000 5.0 14.031 11/15/10 176,484 447,244
<FN>
(1) All options were granted at market value as of the date of grant. Options are
exercisable in various share amounts based on the attainment of certain market value
levels of Class A Common Stock, but, in the absence of such events, are exercisable in
full for a one-week period beginning five years from the date of grant. In addition,
options vest in one-third increments after three, four and five years, respectively,
from the grant date (but, in any event, not until the attainment of the certain market
value levels described above). The options are not exercisable within six months from
the date of grant and expire on the earlier of ten years from the date of grant, upon
employment termination, or within specified time limits following voluntary employment
termination (with consent of the Company), retirement or death.

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values

Number of Value of Unexercised
Shares Securities Underlying In-the-Money Options
Acquired Unexercised Options at Fiscal Year End
On Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- ----------- ------------- ----------- -------------

D.M. Kelly None None 362,000 842,000 $5,373,381 $7,827,714
D.J. DeCarlo None None 333,333 492,667 4,997,912 5,125,362
E.J. Boyle None None 78,667 257,333 1,091,388 2,419,666
R.J. Schwartz None None 85,334 128,666 1,161,390 1,390,271
L.W. Keeley, Jr. None None None 60,000 None 527,125

66
ITEM 11. EXECUTIVE COMPENSATION, continued.

Retirement Plans:

The Company's domestic retirement plan is noncontributory and provides
benefits based upon length of service and final average earnings. Generally,
employees age 21 with one year of continuous service are eligible to
participate in the retirement plan. The benefit formula is 3/4 of 1% of the
first $550 of final average monthly earnings plus 1-1/4% of the excess times
years of credited service (maximum 35). The plan is a defined benefit plan
and covered compensation is limited generally to base salary or wages.
Benefits are not subject to any deduction or offset for Social Security.

In addition to benefits provided by the Company's retirement plan, the Company
has a Supplemental Retirement Plan, which provides for supplemental pension
benefits to executive officers of the Company designated by the Board of
Directors. Upon normal retirement under this plan, such individuals who meet
stipulated age and service requirements are entitled to receive monthly
supplemental retirement payments which, when added to their pension under the
Company's retirement plan and their maximum anticipated Social Security
primary insurance amount, equal, in total, 1.85% of final average monthly
earnings (including incentive compensation) times the individual's years of
continuous service (subject to a maximum of 35 years). Upon early retirement
under this plan, reduced benefits will be provided, depending upon age and
years of service. Benefits under this plan do not vest until age 55 and the
attainment of 15 years of continuous service. However, in order to recruit
Mr. Kelly, the Company waived such minimum service requirement with respect to
Mr. Kelly. No benefits will be payable under such supplemental plan following
the voluntary employment termination or death of any such individual. The
Supplemental Retirement Plan is unfunded; however, a provision has been made
on the Company's books for the actuarially computed obligation.

The following table shows the total estimated annual retirement benefits
payable at normal retirement under the above plans for the individuals named
in the Summary Compensation Table at the specified executive remuneration and
years of continuous service:

Years of Continuous Service
Covered ----------------------------------------------------
Remuneration 15 20 25 30 35
- ------------------ -------- -------- -------- -------- --------
$125,000 $ 34,688 $ 46,250 $ 57,813 $ 69,375 $ 80,938
150,000 41,625 55,500 69,375 83,250 97,125
175,000 48,563 64,750 80,938 97,125 113,313
200,000 55,500 74,000 92,500 111,000 129,500
250,000 69,375 92,500 115,625 138,750 161,875
300,000 83,250 111,000 138,750 166,500 194,250
400,000 111,000 148,000 185,000 222,000 259,000
500,000 138,750 185,000 231,250 277,500 323,750
600,000 166,500 222,000 277,500 333,000 388,500
700,000 194,250 259,000 323,750 388,500 453,250
800,000 222,000 296,000 370,000 444,000 518,000
900,000 249,750 333,000 416,250 499,500 582,750

67
ITEM 11. EXECUTIVE COMPENSATION, continued.

The table shows benefits at the normal retirement age of 65, before applicable
reductions for social security benefits. The Employee Retirement Income
Security Act of 1974 places limitations, which may vary from time to time, on
pensions which may be paid under federal income tax qualified plans, and some
of the amounts shown on the foregoing table may exceed the applicable
limitation. Such limitations are not currently applicable to the Company's
Supplemental Retirement Plan.

Estimated years of continuous service for each of the individuals named in the
Summary Compensation Table, as of October 1, 2001 and rounded to the next
higher year, are: Mr. Kelly, 7 years; Mr. DeCarlo, 17 years; Mr. Boyle,
15 years; Mr. Schwartz, 5 years and Mr. Keeley, 2 years.

Compensation of Directors:

Pursuant to the Director Fee Plan, directors who are not also officers of the
Company each receive as an annual retainer fee shares of the Company's Class A
Common Stock equivalent to approximately $16,000. In addition, each such
director is paid $1,000 for every meeting of the Board of Directors attended
and (other than a Chairman) $500 for every committee meeting attended. The
Chairman of a committee of the Board of Directors is paid $700 for every
committee meeting attended. Directors may also elect to receive the common
stock equivalent of meeting fees. Each director may elect to be paid these
shares on a current basis or have such shares credited to a deferred stock
account as phantom stock. No other remuneration is otherwise paid by the
Company to any director for services as a director.

68
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a)(b) Security Ownership of Certain Beneficial Owners and Management:

The Company's Articles of Incorporation divide its voting stock into three
classes: Preferred Stock and Class A and Class B Common Stock. At the
present time, none of the Preferred Stock is issued or outstanding. In
addition, in September 2001, all outstanding shares of Class B Common Stock
were automatically converted to an equivalent number of Class A shares (see
Item 5, "Market For Registrant's Common Equity And Related Stockholder
Matters"). The following information is furnished with respect to persons who
the Company believes, based on its records, beneficially own more than five
percent of the outstanding shares of Class A Common Stock of the Company, and
with respect to directors, officers and executive management. Those
individuals with more than five percent of such shares could be deemed to be
"control persons" of the Company.

This information is as of November 30, 2001.
Number of
Class A Shares
Name of Beneficially Percent
Beneficial Owner (1) Owned (2) of Class
- ---------------- -------------- --------
Directors, Officers and Executive Management:
- --------------------------------------------
D.M. Kelly 536,741 (3) 1.8%
E.J. Boyle 161,667 (3) 0.5
D.J. DeCarlo 928,375 (3) 3.0
R.J. Kavanaugh 2,000 *
L.W. Keeley, Jr. 4,208 (3) *
T.N. Kennedy 60,000 0.2
J.P. O'Leary, Jr. 24,580 0.1
R.J. Schwartz 116,284 (3) 0.4
W.J. Stallkamp 14,400 *
J.D. Turner 4,000 *
All directors, officers and executive
management as a group (12 persons) 1,937,858 (3) 6.2

Others:
- ------
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202 3,478,920 11.5
Ariel Capital Management, Inc.
200 East Randolph Drive, Suite 2900
Chicago, IL 60601 3,023,206 10.0
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158 2,090,030 6.9

* Less than 0.1%

(1) Unless otherwise noted, the mailing address of each beneficial owner is
the same as that of the Registrant.

69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(2) The nature of the beneficial ownership for all shares is sole voting and
investment power, except as follows:
Mr. Stallkamp has sole voting power except for 400 Class A shares held
by Mr. Stallkamp as custodian under UTMA for son. Mr. Schwartz has
sole voting power except for 80 Class A shares held by Mr. Schwartz
as custodian for daughter.
Shares held by T. Rowe Price Associates, Inc. ("Price Associates") are
owned by various individual and institutional investors, including
T. Rowe Price Small-Cap Stock Fund, Inc. (which owns 1,820,000
shares), for which Price Associates serves as investment advisor with
power to direct investments and/or power to vote the shares. For
purposes of the reporting requirements of the Securities Exchange
Act of 1934, Price Associates is deemed to be a beneficial owner of
such shares; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such shares. Price Associates
has sole dispositive power for 3,478,920 shares and sole voting power
for 1,322,920 shares.
Ariel Capital Management, Inc. has no beneficial interest in any of the
3,023,206 shares owned. Ariel Capital Management, Inc. holds the
shares solely for its clients of whom none of them individually owns
5% or more of Matthews International Corporation common stock. Ariel
Capital Management, Inc., in its capacity as investment advisor, has
sole voting power for 2,854,356 shares and sole investment discretion
for 3,023,206 shares.
Neuberger Berman, LLC ("NB"), as a registered investment advisor, may
have discretionary authority to dispose of or to vote shares that
are under its management. As a result, NB may be deemed to have
beneficial ownership of such shares. NB does not, however, have any
economic interest in the shares. The clients are the actual owners
of the shares and have the sole right to receive and the power to
direct the receipt of dividends from or proceeds from the sale of
such shares. As of November 9, 2001, of the shares set forth in the
table, NB had shared dispositive power with respect to 2,090,030
shares, sole voting power with respect to 803,430 shares and shared
voting power on 1,286,600 shares. With regard to the shared voting
power, Neuberger Berman Management, Inc. and Neuberger Berman Funds
are deemed to be beneficial owners for purpose of Rule 13(d) since
they have shared power to make decisions whether to retain or dispose
of the shares. NB is the sub-advisor to the above referenced Funds.
It should be further noted that the above mentioned shares are also
included with the shared power to dispose calculation.
(3) Includes options exercisable within 60 days of November 30, 2001 as
follows: Mr. Kelly, 378,667 shares; Mr. Boyle, 88,667 shares;
Mr. DeCarlo, 348,666 shares; Mr. Schwartz, 92,000 shares; Mr. Keeley,
no shares; and all directors and officers as a group, 942,666 shares.

The Company knows of no arrangement which may, at a subsequent date, result in
a change in control of the Company.

70
PART IV

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Securities and Exchange Commission requires disclosure of certain business
transactions or relationships between the Company, or its subsidiaries, and
other organizations with which any of the Company's directors are affiliated
as an owner, partner, director, officer or employee. Briefly, disclosure is
required where such a business transaction or relationship meets the standards
of significance established by the Securities and Exchange Commission with
respect to the types and amounts of business transacted. The Company is aware
of no transaction requiring disclosure pursuant to this item during the past
fiscal year.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements:

The following items are included in Part II, Item 8:

Pages
-----
Report of Independent Accountants 31

Consolidated Balance Sheet 32-33

Consolidated Statement of Income 34

Consolidated Statement of Shareholders' Equity 35

Consolidated Statement of Cash Flows 36

Notes to Consolidated Financial Statements 37-57

Supplementary Financial Information 58

2. Financial Statement Schedules:

Financial statement schedules have been omitted for the reason that the
information is not required or is otherwise given in the consolidated
financial statements and notes thereto.

3. Exhibits Filed:

The index to exhibits is on pages 72-73.

(b) Reports on Form 8-K:

None

71
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on December 20, 2001.

MATTHEWS INTERNATIONAL CORPORATION
----------------------------------
(Registrant)

By David M. Kelly
-------------------------------------
David M. Kelly, Chairman of the Board,
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 20, 2001:

David M. Kelly Edward J. Boyle
- ------------------------------------ ------------------------------------
David M. Kelly Edward J. Boyle
Chairman of the Board, President Chief Financial Officer, Secretary
and Chief Executive Officer and Treasurer (Principal Financial
(Principal Executive Officer) and Accounting Officer)

David J. DeCarlo John P. O'Leary, Jr.
- ------------------------------------ ------------------------------------
David J. DeCarlo, Director John P. O'Leary, Jr., Director

Robert J. Kavanaugh William J. Stallkamp
- ------------------------------------ ------------------------------------
Robert J. Kavanaugh, Director William J. Stallkamp, Director

Thomas N. Kennedy John D. Turner
- ------------------------------------ ------------------------------------
Thomas N. Kennedy, Director John D. Turner, Director

72
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS
INDEX
----------

The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated by reference. Exhibits marked with an "a"
represent a management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.

Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------

3.1 Restated Articles of Incorporation * Exhibit Number 3.1 to Form
10-K for the year ended
September 30, 1994

3.2 Restated By-laws * Exhibit Number 3.1 to Form
8-K dated July 22, 1999

4.1 a Form of Revised Option Agreement Exhibit Number 4.5 to Form
of Repurchase (effective 10-K for the year ended
October 1, 1993) * September 30, 1993

4.2 Form of Share Certificate for Exhibit Number 4.9 to Form
Class A Common Stock * 10-K for the year ended
September 30, 1994

4.3 Form of Share Certificate for Exhibit Number 4.10 to Form
Class B Common Stock * 10-K for the year ended
September 30, 1994

10.1 Revolving Credit Facility Filed Herewith

10.2 a Supplemental Retirement Plan * Exhibit Number 10.8 to Form
10-K for the year ended
September 30, 1988

10.3 a 1992 Stock Incentive Plan (as Exhibit A to Definitive
amended through December 23, 1998) * Proxy Statement filed on
January 20, 1999

10.4 a Form of Stock Option Agreement * Exhibit Number 10.1 to Form
10-Q for the quarter ended
December 31, 1994

10.5 a 1994 Director Fee Plan (as Exhibit Number 10.7 to Form
amended through April 22, 1999) * 10-K for the year ended
September 30, 1999

10.6 a 1994 Employee Stock Purchase Plan * Exhibit Number 10.2 to Form
10-Q for the quarter ended
March 31, 1995

73
INDEX, Continued
----------

Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------

10.7 Asset Purchase and Membership Exhibit Number 10.1 to Form
Interest Agreement, O.N.E. Color 10-Q for the quarter ended
Communications, L.L.C. * June 30, 1998

10.8 O.N.E. Color Communications, L.L.C., Exhibit Number 10.2 to Form
Operating Agreement * 10-Q for the quarter ended
June 30, 1998

10.9 Caggiati S.p.A. Asset Purchase Exhibit Number 10.1 to
Agreement * Form 10-Q for the quarter
ended June 30, 1999

10.10 Loan Agreement, Caggiati S.p.A. * Exhibit Number 10.20 to
Form 10-K for the year
ended September 30, 1999

10.11 Purchase Agreement among priNexus, Exhibit Number 10.17 to
Inc., Matt-One Holding Corporation, Form 10-K for the year
Tukaiz Litho, Inc. and Tukaiz ended September 30, 2000
Communications, LLC *

10.12 Stock Purchase Agreement among Exhibit Number 10.1 to
Matthews International Corporation, Form 8-K dated May 24, 2001
Empire Stock Corp., and The York
Group, Inc., dated as of May 24, 2001 *

10.13 Asset Purchase Agreement among Exhibit Number 10.2 to
Matthews International Corporation, Form 8-K dated May 24, 2001
Empire Stock Corp., The York Group,
Inc., York Bronze Company and OMC
Industries, Inc., dated as of
May 24, 2001 *

10.14 Agreement and Plan of Merger By and Exhibit Number 10.3 to
Among Matthews International Form 8-K dated May 24, 2001
Corporation, Empire Merger Corp.,
and The York Group, Inc., dated as
of May 24, 2001 *

21 Subsidiaries of the Registrant Filed Herewith

23 Consent of Independent Accountants Filed Herewith

Copies of any Exhibits will be furnished to shareholders upon written request.
Requests should be directed to Mr. Edward J. Boyle, Chief Financial Officer,
Secretary and Treasurer of the Registrant.