Matthews International Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

9 Months Ended

Jun. 30, 2011

Note 5. Debt

In December 2010, the Company entered into a new domestic Revolving Credit Facility with a syndicate of financial institutions. The maximum amount of borrowings available under the new facility is $300,000 and borrowings under the facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% based on the Company's leverage ratio. The facility's maturity is December 2015. The new facility replaced the Company's $225,000 Revolving Credit Facility. The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization). The Company is required to pay an annual commitment fee ranging from .20% to .30% (based on the Company's leverage ratio) of the unused portion of the facility.

The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $25,000) is available for the issuance of commercial and standby letters of credit. Outstanding borrowings on the Revolving Credit Facilities were $204,000 and $187,000 as of June 30, 2011 and September 30, 2010, respectively. The weighted-average interest rate on outstanding borrowings on these facilities at June 30, 2011 and 2010 was 2.98% and 2.94%, respectively.

The Company has entered into the following interest rate swaps:

Effective Date	Amount	Fixed Interest Rate	Interest Rate Spread at June 30, 2011	Maturity Date
September 2007	$25,000	4.77%	1.25%	September 2012
May 2008	20,000	3.72%	1.25%	September 2012
October 2008	20,000	3.46%	1.25%	October 2011
May 2011	25,000	1.37%	1.25%	May 2014
November 2011	25,000	2.13%	1.25%	November 2014
March 2012	25,000	2.44%	1.25%	March 2015
September 2012	25,000	3.03%	1.25%	December 2015

The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss of $4,577 ($2,792 after tax) at June 30, 2011 that is included in shareholders' equity as part of accumulated other comprehensive loss. Assuming market rates remain constant with the rates at June 30, 2011, approximately $1,331 of the $2,792 loss included in accumulated other comprehensive loss is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.

At June 30, 2011 and September 30, 2010, the interest rate swap contracts were reflected as a liability on the balance sheets. The following derivatives are designated as hedging instruments:

Liability Derivatives
Balance Sheet Location:	June 30, 2011		September 30, 2010
Current liabilities:
Other current liabilities	$	2,181	$	2,623
Long-term liabilities
Other liabilities		2,396		1,822
Total derivatives	$	4,577	$	4,445

The loss recognized on derivatives was as follows:

	Location of
Derivatives in	Gain or (Loss)	Amount of		Amount of
Cash Flow	Recognized in	Loss Recognized		Loss Recognized
Hedging	Income (Loss) on	in Income (Loss)		in Income (Loss)
Relationships	Derivative	on Derivatives		on Derivatives
		Three Months ended June 30,		Nine Months ended June 30,
		2011	2010	2011	2010

Interest rate swaps	Interest expense	$ (719)	$ (926)	$ (2,178)	$ (2,819)

The Company recognized the following losses in accumulated other comprehensive loss (“OCL”):

			Location of
			Gain or
			(Loss)
			Reclassified	Amount of Gain or (Loss)
			from	Reclassified from
	Amount of Gain or		Accumulated	Accumulated OCL into
Derivatives in	(Loss) Recognized in		OCL into	Income
Cash Flow	OCL on Derivatives		Income	(Effective Portion*)
Hedging Relationships	June 30, 2011	June 30, 2010	(Effective Portion*)	June 30, 2011	June 30, 2010

Interest rate swaps	$ (1,410)	$ (1,145)	Interest expense	$ (1,329)	$ (1,720)

*There is no ineffective portion or amount excluded from effectiveness testing.

The Company, through certain of its German subsidiaries, has a credit facility with a European bank. The maximum amount of borrowings available under this facility was 25.0 million Euros ($36,255). Outstanding borrowings under the credit facility totaled 23.6 million Euros ($34,225) at June 30, 2011 and 12.0 million Euros ($16,361) at September 30, 2010. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2011 and 2010 was 2.27% and 1.58%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks. Outstanding borrowings under these loans totaled 8.5 million Euros ($12,262) and 7.9 million Euros ($10,816) at June 30, 2011 and September 30, 2010, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2011 and 2010 was 6.02% and 6.05%, respectively.

The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks. Outstanding borrowings on these loans totaled 7.5 million Euros ($10,830) and 10.8 million Euros ($14,680) at June 30, 2011 and September 30, 2010, respectively. Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($16,489) with the same Italian banks. There were no outstanding borrowings on these lines at June 30, 2011, and outstanding borrowings on these lines totaled 2.1 million Euros ($2,834) at September 30, 2010. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at June 30, 2011 and 2010 was 3.26% and 3.61%, respectively.

As of June 30, 2011 the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Condensed Consolidated Balance Sheet. At September 30, 2010, the fair value of the Company's long-term debt, including current maturities, was approximately $225,052.