FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO

COMMISSION FILE NUMBER 1-6402-1

--------------------

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

TEXAS 74-1488375
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)

1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)

713-522-5141
(Registrant's telephone number, including area code)

--------------------

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 and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
----- -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Securities Exchange Act of 1934 Rule 12b-2).
YES X NO
----- -----

The number of shares outstanding of the registrant's common stock as of May 7,
2003 was 299,109,936 (net of treasury shares).

SERVICE CORPORATION INTERNATIONAL
INDEX
<Table>
<Caption>
Page

Part I. Financial Information
Item 1. Financial Statements

Consolidated Statement of Operations - 3
Three Months Ended March 31, 2003 and 2002

Consolidated Balance Sheet - 4
March 31, 2003 and December 31, 2002

Consolidated Statement of Cash Flows - 5
Three Months Ended March 31, 2003 and 2002

Consolidated Statement of Stockholders' Equity - 6
Three Months Ended March 31, 2003

Notes to Consolidated Financial Statements 7 - 19

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Introduction 19
Strategic Initiatives 19 - 21
Critical Accounting Policies, Accounting Changes and New
Accounting Pronouncements 21 - 22
Results of Operations 23 - 25
Financial Condition, Liquidity and Capital Resources 25 - 28
Prearranged Funeral and Preneed Cemetery Activities 28 - 30
Cautionary Statement on Forward-Looking Statements 30 - 31

Item 3. Quantitative and Qualitative Disclosures about Market Risk 31

Item 4. Controls and Procedures 31

Part II. Other Information

Item 1. Legal Proceedings 31

Item 6. Exhibits and Reports on Form 8-K 32 - 33

Signature 33

Certification of Chief Executive Officer 34

Certification of Principal Financial Officer 35
</Table>

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
Three months ended
March 31,
(In thousands, except per share amounts) 2003 2002
- ---------------------------------------- --------- ---------

Revenues ..................................................... $ 580,093 $ 601,265
Costs and expenses ........................................... (467,538) (482,101)
--------- ---------
Gross profits ................................................ 112,555 119,164

General and administrative expenses .......................... (21,411) (15,731)
Impairment losses and other operating expenses ............... 5,104 (4,894)
--------- ---------
Operating income ............................................. 96,248 98,539

Interest expense ............................................. (37,396) (43,386)
Other income, net ............................................ 4,012 8,184
Gains from dispositions ...................................... 4,230 1,982
--------- ---------
(29,154) (33,220)
--------- ---------
Income before income taxes and cumulative effect of
accounting change ....................................... 67,094 65,319
Provision for income taxes ................................... (24,825) (18,470)
--------- ---------
Income before cumulative effect of accounting change ......... 42,269 46,849
Cumulative effect of accounting change (net of income tax
benefit of $11,234) ..................................... -- (135,560)
--------- ---------
Net income (loss) .................................. $ 42,269 $ (88,711)
========= =========
Basic income (loss) per share:
Income before cumulative effect of accounting
change ................................... $ .14 $ .16
Cumulative effect of accounting change .............. -- (.46)
--------- ---------
Net income (loss) ......................... $ .14 $ (.30)
========= =========
Diluted income (loss) per share:
Income before cumulative effect of accounting
change ................................... $ .13 $ .15
Cumulative effect of accounting change .............. -- (.39)
--------- ---------
Net income (loss) ......................... $ .13 $ (.24)
========= =========
Basic weighted average number of shares ...................... 297,775 292,653
========= =========
Diluted weighted average number of shares .................... 348,665 345,554
========= =========
</Table>

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
March 31, December 31,
(In thousands, except share and per share amounts) 2003 2002
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 152,885 $ 200,625
Receivables, net of allowances ............................ 278,137 291,765
Inventories ............................................... 131,372 135,529
Other ..................................................... 33,669 126,980
------------ ------------
Total current assets .................................... 596,063 754,899
------------ ------------

Prearranged funeral contracts .................................. 4,403,214 4,273,790
Long-term receivables, net of allowances ....................... 1,116,120 1,156,458
Cemetery property, at cost ..................................... 1,543,551 1,567,584
Property, plant and equipment, at cost (net) ................... 1,212,408 1,188,340
Deferred charges and other assets .............................. 592,658 598,536
Goodwill ....................................................... 1,188,902 1,184,178
------------ ------------
$ 10,652,916 $ 10,723,785
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................. $ 351,266 $ 361,910
Current maturities of long-term debt ...................... 16,948 100,330
Income taxes .............................................. 8,608 2,043
------------ ------------
Total current liabilities ............................... 376,822 464,283
------------ ------------

Long-term debt ................................................. 1,727,364 1,884,508
Deferred prearranged funeral contract revenues ................. 4,788,564 4,659,994
Deferred preneed cemetery contract revenues .................... 1,633,953 1,672,661
Deferred income taxes .......................................... 537,375 522,453
Other liabilities .............................................. 217,665 216,115
Commitments and contingencies (note 6)
Stockholders' equity:
Common stock, $1 per share par value, 500,000,000 shares
authorized, 298,510,409 and 297,010,237, issued
and outstanding (net of 2,516,396 treasury
shares, at par) ....................................... 298,510 297,010
Capital in excess of par value ............................ 2,263,416 2,259,936
Accumulated deficit ....................................... (1,003,760) (1,046,029)
Accumulated other comprehensive loss ...................... (186,993) (207,146)
------------ ------------
Total stockholders' equity ............................. 1,371,173 1,303,771
------------ ------------
$ 10,652,916 $ 10,723,785
============ ============
</Table>

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
Three months ended
March 31,
(In thousands) 2003 2002
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................................ $ 42,269 $ (88,711)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Cumulative effect of accounting change, net of tax ...................................... -- 135,560
Depreciation and amortization ........................................................... 40,942 39,730
Provision for deferred income taxes ..................................................... 17,313 10,284
Impairment losses and other operating expenses .......................................... (5,104) 4,894
Payments on restructuring and non-recurring charges ..................................... (3,297) (2,594)
Gains from dispositions ................................................................. (4,230) (1,982)
Gains on early extinguishments of debt .................................................. (2,321) (946)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Decrease (increase) in receivables .................................................... 25,519 (15,606)
Decrease in other assets .............................................................. 91,560 15,016
Decrease in payables and other liabilities ............................................ (25,179) (15,061)
Other ................................................................................. 7,498 (1,251)
Net effect of prearranged funeral production and maturities ............................. (1,711) 3,459
---------- ----------
Net cash provided by operating activities .................................................... 183,259 82,792

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................................................... (21,248) (18,304)
Proceeds from divestitures and sales of property and equipment .......................... 29,035 8,617
Proceeds from joint ventures and sales of equity investments,
net of cash retained ................................................................... -- 266,704
Distributions from equity investments in excess of earnings ............................. 4,766 --
Net (deposits) withdrawals of restricted funds .......................................... (6,950) 11,297
Other ................................................................................... -- 755
---------- ----------
Net cash provided by investing activities .................................................... 5,603 269,069

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in borrowings under credit agreements ...................................... -- (29,061)
Payments of debt ........................................................................ (79,319) (4,644)
Early extinguishments of debt ........................................................... (161,738) (55,321)
Bank overdrafts and other ............................................................... 3,075 14,384
---------- ----------
Net cash used in financing activities ........................................................ (237,982) (74,642)
Effect of foreign currency ................................................................... 1,380 (1,652)
---------- ----------
Net (decrease) increase in cash and cash equivalents ......................................... (47,740) 275,567
Cash and cash equivalents at beginning of period ............................................. 200,625 29,292
---------- ----------
Cash and cash equivalents at end of period ................................................... $ 152,885 $ 304,859
========== ==========
</Table>

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<Table>
<Caption>
Accumulated
Capital in other
Common excess of Accumulated comprehensive
(In thousands) Stock par value deficit income (loss) Total
----------- ----------- ----------- -------------- -----------

Balance at December 31, 2002 ......... $ 297,010 $ 2,259,936 $(1,046,029) $ (207,146) $ 1,303,771
Comprehensive income:
Net income ....................... 42,269 42,269
Foreign currency translation ..... 20,153 20,153
-----------
Comprehensive income ................. 62,422
Common stock issued:
Contribution to employee 401(k) .... 1,500 3,480 4,980
----------- ----------- ----------- ----------- -----------
Balance at March 31, 2003 ............ $ 298,510 $ 2,263,416 $(1,003,760) $ (186,993) $ 1,371,173
=========== =========== =========== =========== ===========
</Table>

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. NATURE OF OPERATIONS

Service Corporation International (SCI or the Company) is the largest provider
of funeral and cemetery services in the world through its funeral service and
cemetery operations. At March 31, 2003, the Company operated 2,266 funeral
service locations, 436 cemeteries and 189 crematoria located in eight countries.
The Company also has minority interest investments in funeral and cemetery
operations in countries outside of North America.

The funeral service locations and cemetery operations consist of the
Company's funeral service locations, cemeteries, crematoria and related
businesses. Company personnel at the funeral service locations provide all
professional services relating to funerals, including the use of funeral
facilities and motor vehicles. Funeral related merchandise is sold at funeral
service locations and certain funeral service locations contain crematoria. The
Company sells prearranged funeral services whereby a customer contractually
agrees to the terms of a funeral to be performed in the future. The Company's
cemeteries provide cemetery interment rights (including mausoleum spaces, lots
and lawn crypts) and sell cemetery related merchandise. Cemetery items are sold
on an atneed or preneed basis. Company personnel at cemeteries perform interment
services and provide management and maintenance of cemetery grounds. Certain
cemeteries also operate crematoria. There are 189 combination locations that
contain a funeral service location within a Company owned cemetery.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements for the three
months ended March 31, 2003 and 2002 include the accounts of the Company and all
majority-owned subsidiaries and are unaudited but include all adjustments,
consisting of normal recurring accruals and any other adjustments which
management considers necessary for a fair presentation of the results for these
periods. These consolidated financial statements have been prepared in a manner
consistent with the accounting policies described in the annual report on Form
10-K filed with the U. S. Securities and Exchange Commission for the year ended
December 31, 2002, unless otherwise disclosed herein, and should be read in
conjunction therewith. The accompanying year-end consolidated balance sheet was
derived from the audited consolidated financial statements but does not include
all disclosures required by accounting principles generally accepted in the
United States of America. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full year
period.

The Company has reclassified certain prior year amounts to conform to the
current period financial presentation with no effect on previously reported
results of operations, financial condition or cash flows.

Use of Estimates in the Preparation of Financial Statements: The preparation of
the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. As a result, actual results could differ
from these estimates.

During the second quarter of 2002, the Company decided to implement new
information technology systems, including a new North America point of sale
system and an upgraded general ledger system. As a result of this decision, the
Company accelerated amortization of its existing capitalized systems costs
beginning in the second quarter of 2002 in order to reflect the estimated
remaining useful lives of these systems. The Company recognized approximately
$4,600 of additional amortization related to this change in estimate in the
first quarter of 2003.

3. ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses obligations associated with the retirement
of tangible long-lived assets and associated asset retirement costs. Under the
provisions of SFAS No. 143, the fair value of a liability for an asset
retirement obligation should be recognized in the period in which it is
incurred, if a reasonable estimate can be made. The associated costs are
capitalized as part of the carrying amount of the long-lived asset and are
allocated to expense over the useful life of the asset. The Company adopted SFAS
No. 143 during the first quarter of 2003 with no effect on its results of
operations, financial condition or cash flows.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Company adopted SFAS No. 145 during the first quarter of 2003
as it relates to the classification of extinguishments of debt for all periods
presented. SFAS No. 145 eliminates the requirement that gains and losses from
the extinguishment of debt be aggregated and classified as extraordinary items
as well as certain other items. Gains and losses from early extinguishments of
debt are included in Other income in the consolidated statement of operations.
The Company recorded $2,321 as gains from the early extinguishment of debt in
Other income in the first quarter of 2003 and has reclassified $946 related to
the prior year period to Other income, which was previously reported as an
extraordinary gain. The other provisions of SFAS No. 145 were generally
effective for transactions occurring after May 15, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No. 45),
"Guarantor's Accounting Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
No. 45 clarifies the disclosures required by a guarantor about its obligations
and it requires grantors to recognize a liability at fair value at the time of
issuance. The provisions for initial recognition and measurement are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements were effective for financial statements for periods
that end after December 15, 2002. There have been no material changes in the
guarantees related to FIN No. 45 as disclosed by the Company in its 2002 annual
report on Form 10-K.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin (ARB) No. 51." FIN No. 46 clarifies the application of ARB No.
51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
defines the terms related to variable interest entities and clarifies if such
entities should be consolidated. The provisions of FIN No. 46 are effective
immediately for all enterprises with variable interests in variable interest
entities created after January 31, 2003. A public entity with a variable
interest in a variable interest entity created before February 1, 2003 shall
apply the provisions of FIN No. 46 beginning after June 15, 2003. The Company is
currently in the process of determining the applicability of FIN No. 46 to the
Company's receivables from funeral and cemetery trust assets as well as other
aspects of its business. If it is determined FIN No. 46 is applicable to these
items, the Company would most likely be required to consolidate such trust
assets which are disclosed in the Company's 2002 annual report on Form 10-K.
This potential impact on the Company's results of operations, financial position
and cash flows is currently being assessed by the Company.

4. DEBT

<Table>
<Caption>
March 31, 2003 December 31, 2002
-------------- -----------------

6.3% notes due 2003 ......................................................... $ -- $ 84,801
7.375% notes due 2004 ....................................................... 111,190 111,190
8.375% notes due 2004 ....................................................... 50,797 50,797
6.0% notes due 2005 ......................................................... 282,717 387,241
7.2% notes due 2006 ......................................................... 150,000 150,000
6.875% notes due 2007 ....................................................... 146,300 150,000
6.5% notes due 2008 ......................................................... 200,000 200,000
6.75% convertible subordinated notes due 2008, conversion price of
$6.92 per share .......................................................... 315,694 328,005
7.7% notes due 2009 ......................................................... 358,356 371,183
6.95% amortizing notes due 2010 ............................................. 17,075 42,106
7.875% debentures due 2013 .................................................. 55,627 55,627
Convertible debentures, maturities through 2013, fixed interest rates
from 4.75% to 5.5%, conversion prices from $12.55 to $50.00 per share .... 39,531 39,531
Mortgage notes and other debt, maturities through 2050 ...................... 74,333 76,758
Deferred loan costs and net hedging losses .................................. (57,308) (62,401)
----------- -----------
Total debt ............................................................. 1,744,312 1,984,838
Less current maturities ................................................ (16,948) (100,330)
----------- -----------
Total long-term debt ............................................ $ 1,727,364 $ 1,884,508
=========== ===========
</Table>

Bank Credit Agreements

The Company's bank credit agreement matures in July 2005 and provides a total
commitment of $185,000, including a sublimit of $125,000 to support letters of
credit. The credit facility is secured by the stock, inventory and receivables
of certain of the Company's domestic subsidiaries and these domestic
subsidiaries have guaranteed the Company's debt obligation associated with this
facility. The bank credit agreement contains certain financial covenants,
including a minimum interest coverage ratio, a maximum leverage ratio and limits
on capital expenditures. Additionally, the Company is restricted from paying
dividends and making other distributions. The Company had no borrowings under
the bank credit agreement at either March 31, 2003 or December 31, 2002;
however, the Company had used the credit agreement sublimit to support letters
of credit, in the amounts of $99,419 and $85,845, at March 31, 2003 and December
31, 2002, respectively. Interest rates for outstanding borrowings are based on
various indices as determined by the Company. The Company also pays a quarterly
fee on the unused commitment, ranging from 0.50% to 0.75%, which is based on the
percentage of the facility used and was 0.625% at March 31, 2003 and at December
31, 2002.

Settlements and Extinguishments of Debt

During the three months ending March 31, 2003, the Company purchased the
following notes in the open market: $8,528 of the 6.3% notes due 2003; $104,524
of the 6.0% notes due 2005; $3,700 of the 6.875% notes due 2007; $12,311 of the
6.75% notes due 2008; $12,827 of the 7.7% notes due 2009; $25,031 of the 6.95%
amortizing notes due 2010; and the remaining $25 of the 7.00% notes due 2015. As
a result of these transactions, the Company recognized a gain of $2,321 recorded
in Other income in the statement of operations.

In March 2003, as required by the terms of the agreement, the Company
repaid the remaining $76,273 due on the 6.30% notes due in 2003.

Additional Debt Disclosures

The Company's consolidated debt had a weighted average interest rate of 6.95% at
March 31, 2003 compared to 6.87% at December 31, 2002. Approximately 99% of the
Company's total outstanding debt had a fixed interest rate at March 31, 2003 and
December 31, 2002.

At March 31, 2003 and December 31, 2002, respectively, the Company had
deposited $30,542 and $23,592 in restricted interest-bearing accounts, held as
security for various credit instruments, which is included in Deferred charges
and other assets in the consolidated balance sheet.

5. SEGMENT REPORTING

The Company's operations are both product and geographically based, and the
reportable operating segments presented below include funeral and cemetery
operations. The Company's geographic segments include North America, Europe and
Other Foreign. The Company conducts funeral and cemetery operations in its North
America and Other Foreign segments and conducts funeral operations in its
European segment. In the first quarter of 2002, the Company completed a joint
venture with respect to its United Kingdom operations which conducted both
funeral and cemetery operations in its European segment.

The Company has reclassified certain prior year amounts to conform to the
current period presentation with no effect on previously reported results of
operations, financial condition or cash flows.

The Company's reportable segment information is as follows:

<Table>
<Caption>
Reportable
Funeral Cemetery Segments
--------- -------- ----------

Revenues from external customers:
Three months ended March 31,
2003 ............................ $ 439,287 $140,806 $580,093
2002 ............................ $ 448,341 $152,924 $601,265

Gross profits:
Three months ended March 31,
2003 ............................ $ 87,249 $ 25,306 $112,555
2002 ............................ $ 100,785 $ 18,379 $119,164
</Table>

The following table reconciles gross profits from reportable segments to the
Company's consolidated income before income taxes and cumulative effect of
accounting change:

<Table>
<Caption>
Three months ended
March 31,
----------------------
2003 2002
--------- ---------

Gross profits from reportable segments ............................... $ 112,555 $ 119,164
General and administrative expenses ............................ (21,411) (15,731)
Impairment losses and other operating expenses (see note 9) .... 5,104 (4,894)
--------- ---------
Operating income ..................................................... 96,248 98,539
Interest expense ............................................... (37,396) (43,386)
Other income ................................................... 4,012 8,184
Gains from dispositions ........................................ 4,230 1,982
--------- ---------
Income before income taxes and cumulative effect of
accounting change ............................................... $ 67,094 $ 65,319
========= =========
</Table>

The Company's geographic segment information is as follows:

<Table>
<Caption>
North Other
America Europe Foreign Total
--------- --------- --------- ---------

Revenues from external customers:
Three months ended March 31,
2003 .......................................... $ 434,381 $ 137,257 $ 8,455 $ 580,093
2002 .......................................... $ 462,471 $ 129,250 $ 9,544 $ 601,265

Operating income:
Three months ended March 31,
2003 .......................................... $ 75,436 $ 19,026 $ 1,786 $ 96,248
2002 .......................................... $ 77,439 $ 19,142 $ 1,958 $ 98,539

Impairment losses and other operating expenses:
Three months ended March 31,
2003 .......................................... $ (5,104) $ -- $ -- $ (5,104)
2002 .......................................... $ 4,117 $ 777 $ -- $ 4,894

Depreciation and amortization:
Three months ended March 31,
2003 .......................................... $ 40,824 $ -- $ 118 $ 40,942
2002 .......................................... $ 39,730 $ -- $ -- $ 39,730

Operating locations at March 31:
2003 .......................................... 1,844 1,023 24 2,891
2002 .......................................... 1,946 1,156 26 3,128
</Table>

Included in the North America figures above are the following United States
amounts:

<Table>
<Caption>
Three months ended
March 31,
--------------------
2003 2002
-------- --------

Revenues from external customers .... $415,854 $443,332
Operating income .................... $ 71,602 $ 72,670
Depreciation and amortization ....... $ 39,588 $ 38,310
Operating locations at March 31, .... 1,689 1,792
</Table>

Included in the European figures above are the following French amounts:

<Table>
<Caption>
Three months ended
March 31,
--------------------
2003 2002
-------- --------

Revenues from external customers .... $135,433 $111,520
Operating income .................... $ 18,746 $ 16,000
Operating locations at March 31, .... 1,007 1,138
</Table>

During the first quarter of 2003 and throughout 2002, the Company divested
certain North America and international funeral service locations and cemeteries
not considered part of its core operations. These divested operations do not
qualify as discontinued operations under SFAS No. 144, "Accounting for the
Impairment or disposal of Long Lived Assets," because either the divested
operations were held for sale in accordance with previous accounting
pronouncements related to dispositions or they do not meet the criteria as
defined in SFAS No. 144. Revenue and gross profit information of the Company's
divested operations for the three months ended March 31, 2003 and 2002 are as
follows:

<Table>
<Caption>
North America Europe
--------------------- --------------------
March 31, March 31,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------

Revenues
Funeral ........... $ 771 $ 9,991 $ -- $ 14,284
Cemetery .......... -- 4,130 -- 2,190
-------- -------- -------- --------
$ 771 $ 14,121 $ -- $ 16,474
======== ======== ======== ========

Gross Profits
Funeral ........... $ (950) $ (834) $ -- $ 3,359
Cemetery .......... (465) (215) -- 740
-------- -------- -------- --------
$ (1,415) $ (1,049) $ -- $ 4,099
======== ======== ======== ========
</Table>

<Table>
<Caption>
Other Foreign Total
--------------------- --------------------
March 31, March 31,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------

Revenues
Funeral ........... $ -- $ -- $ 771 $ 24,275
Cemetery .......... -- -- -- 6,320
-------- -------- -------- --------
$ -- $ -- $ 771 $ 30,595
======== ======== ======== ========

Gross Profits
Funeral ........... $ -- $ -- $ (950) $ 2,525
Cemetery .......... -- -- (465) 525
-------- -------- -------- --------
$ -- $ -- $ (1,415) $ 3,050
======== ======== ======== ========
</Table>

6. CONTINGENCIES

The Company is a party to various litigation matters, investigations and
proceedings. The Company reserves for estimated losses relating to these
contingencies if amounts can be reasonably estimated and are probable to occur.
The following discussion describes certain litigation and proceedings as of
May 7, 2003.

In Re Service Corporation International; Cause No. H-99-0280; In the United
States District Court for the Southern District of Texas, Houston Division (the
Consolidated Lawsuit). The Consolidated Lawsuit was filed in January 1999 and
includes numerous separate lawsuits that were filed in various United States
District Courts in Texas. The Consolidated Lawsuit has been certified as a class
action and names as defendants the Company and three of the Company's current or
former executive officers or directors (the Individual Defendants).

The Consolidated Lawsuit has been brought on behalf of all persons and
entities who (i) acquired shares of Company common stock in the merger of a
wholly-owned subsidiary of the Company into Equity Corporation International
(ECI); (ii) purchased shares of Company common stock in the open market during
the period from July 17, 1998 through January 26, 1999 (the Class Period); (iii)
purchased Company call options in the open market during

the Class Period; (iv) sold Company put options in the open market during the
Class Period; (v) held employee stock options in ECI that became options to
purchase Company common stock pursuant to the merger; and (vi) held Company
employee stock options to purchase Company common stock under a stock plan
during the Class Period. Excluded from the class definition categories are the
Individual Defendants, the members of their immediate families and all other
persons who were directors or executive officers of the Company or its
affiliated entities at any time during the Class Period (with one amendment by
the Court to include James P. Hunter, III as a class member). Mr. Hunter was the
Chairman, President and Chief Executive Officer of ECI at the time of its merger
with a wholly-owned subsidiary of the Company.

The plaintiffs in the Consolidated Lawsuit allege that defendants violated
federal securities laws by making materially false and misleading statements and
failing to disclose material information concerning the Company's prearranged
funeral business. The Consolidated Lawsuit seeks to recover an unspecified
amount of monetary damages. Since the litigation is in its preliminary stages
and no discovery has occurred, the Company cannot quantify its ultimate
liability, if any, for the payment of damages or predict the outcome of the
litigation. However, the Company believes that the allegations in the
Consolidated Lawsuit do not provide a basis for the recovery of damages because
the Company made all required disclosures on a timely basis. The Company intends
to aggressively defend this lawsuit. At the Court's direction, meetings were
held in 2001 between the parties and their insurers to discuss possible
resolution of the case, but no progress was made. A Motion to Dismiss the
Consolidated Lawsuit filed by the Company and the Individual Defendants is
pending before the Court.

Several other lawsuits have been filed against the Company, the Individual
Defendants and other defendants, including, in the second and third lawsuits
listed below, the Company's independent accountants, PricewaterhouseCoopers,
LLP, in Texas state courts by former ECI shareholders, officers and directors.
These lawsuits include the following matters:

No. 32548-99-11; James P. Hunter, III, et al. v. Service Corporation
International, et al.; In the District Court of Angelina County, Texas
("Hunter" matter);

No. 2000-63917; Jack T. Hammer v. Service Corporation International,
et al.; In the 165th Judicial District Court of Harris County, Texas
("Hammer" matter);

No. 33701-01-01; Jack D. Rottman v. Service Corporation International,
et al.; In the District Court of Angelina County, Texas ("Rottman" matter);
and

No. 31820-99-2; Charles Fredrick, Individually, and as a
Representative of the Class v. Service Corp. International; In the District
Court of Angelina County, Texas.

These lawsuits allege, among other things, violations of Texas securities
law and statutory and common law fraud, and seek unspecified compensatory and
exemplary damages. Since these lawsuits are in their preliminary stages and no
discovery has occurred, the Company cannot quantify its ultimate liability, if
any, for the payment of damages or predict the outcome of these lawsuits.
However, the Company believes the allegations in these lawsuits, like those in
the Consolidated Lawsuit, do not provide a basis for the recovery of damages
because all required disclosures were made on a timely basis. The Company
intends to aggressively defend this litigation. The Company is seeking
arbitration in the Hunter, Hammer, and Rottman matters.

In the Hunter matter, the Texas state district court denied the motion to
compel arbitration filed by the Company and the Individual Defendants. On review
by appeal, the Texas Supreme Court reversed the finding of the Texas state
district court and granted the motion to compel arbitration against Hunter and
remanded the issue of whether the Hunter Family Trust must also arbitrate. Cause
No. 01-0650, In Re Service Corporation International, et al, 85 S.W. 3d 171
(Tex. 2002). The Texas state trial court in Hunter has not issued a further
order on this matter. In the Hammer matter, the Texas state district court
ordered the case to arbitration.

On November 5, 2002, Hunter and the Hunter Family Trust filed a demand for
arbitration styled Case No. 70 Y 168 00717 02; James P. Hunter, III and the
James P. Hunter, III Family Trust v. Service Corporation International, Robert
L. Waltrip, L. William Heiligbrodt, and George R. Champagne; before the American
Arbitration Association in Houston, Texas. The Hunter plaintiffs' arbitration
demand also asserts claims against the Company and the Individual Defendants
with respect to the Company's acquisition of

ECI. Hunter also individually asserts claims that he was instructed to resign as
an officer of the Company several months after the merger and suffered lost
income as a result.

Since the arbitration is in its preliminary stages and no discovery has
occurred, the Company and the Individual Defendants cannot quantify their
ultimate liability, if any, for the payment of damages or predict the outcome of
the arbitration. However, the Company and the Individual Defendants believe that
the allegations in the Hunter arbitration do not provide a basis for recovery of
damages on several legal grounds. The Company and the Individual Defendants
intend to aggressively defend this arbitration action which is set for hearing
in June 2003.

Copies of certain pleadings in these cases are filed as exhibits to the
Company's 2002 Annual Report on Form 10-K.

Certain insurance policies held by the Company to cover potential director
and officer liability may reduce cash outflows with respect to an adverse
outcome of the above lawsuits. If an adverse decision in these matters exceeds
the insurance coverage or if the insurance coverage is deemed not to apply to
these matters, an adverse decision could have a material adverse effect on the
Company, its financial condition, results of operations or cash flows.

Thomas G. Conway et al v. Service Corporation International, et al; Cause
No. CV-02-2818; In the United States District Court for the Eastern District of
New York, filed May 10, 2002 and Demand for Arbitration, No. 13 168 02061 02,
before the American Arbitration Association ("AAA")("Conway" action). The Conway
action was filed against the Company and two former officers of the Company who
were also former officers of ECI, James P. Hunter III ("Hunter") and Jack D.
Rottman ("Rottman"). On August 28, 2002, the Conway plaintiffs filed a Demand
for Arbitration and Statement of Claim against the Company, ECI and SCI Delaware
Funeral Services, Inc., a subsidiary of the Company ("SCI Delaware"), in New
York City. The American Arbitration Association ruled that the arbitration would
be conducted in Houston, Texas. The Conway plaintiffs have indicated that they
will refuse to recognize the transfer on the grounds that it is improper to
conduct the arbitration in Houston, Texas. The Company, ECI and SCI Delaware
have initiated an action in the United States District Court for the Southern
District of Texas to compel the Conway plaintiffs to arbitrate their claims in
Houston, Texas.

The plaintiffs in the Conway action owned funeral homes in Queens County
and Suffolk County, New York, which were sold and merged into a subsidiary of
ECI in January 1998. The plaintiffs are also included in the definition of class
members in the Consolidated Lawsuit described above. In the Conway action,
plaintiffs assert that ECI failed to disclose that ECI was negotiating the
merger with the Company in breach of covenants in the agreements between ECI and
the plaintiffs. ECI purchased the plaintiffs' funeral homes with ECI stock and
cash, and the Plaintiffs' ECI stock was exchanged for stock in the Company in
the merger of January 1999. Plaintiffs allege damages from the loss in value of
the Company's stock from 1999 to the present. The plaintiffs seek to recover
compensatory damages alleged at a minimum of $8 million and punitive damages
alleged at a minimum of $14 million. The plaintiffs allege that SCI and SCI
Delaware are liable as the alleged "successor" entities to ECI.

Since the arbitration is in its preliminary stages and no discovery has
occurred, the Company cannot quantify the ultimate liability of the Company or
its subsidiaries, if any, for the payment of damages or predict the outcome of
the litigation. However, the Company and its subsidiaries believe that the
allegations in the Conway action do not provide a basis for recovery of damages
on several legal grounds. The Company and its subsidiaries intend to
aggressively defend this lawsuit.

Shareholder Derivative Demand; The Company received a letter dated January
14, 2002, addressed to the Board of Directors, from a law firm stating that it
represented a shareholder of the Company. The letter asserts a shareholder
derivative demand that the Company take legal action against its directors and
officers based upon alleged conduct that is the subject of:

(1) a putative class action lawsuit filed on December 19, 2001, in
Broward County, Florida against the Company and one of its subsidiaries;

(2) a lawsuit filed against the Company by former employees of the
Company in Atlanta, Georgia; and

(3) certain events described in newspaper articles referred to in the
plaintiffs' consolidated complaint in the Consolidated Lawsuit (described
above).

The Board of Directors responded to the letter by forming a committee of
certain independent directors to conduct an inquiry into the allegations in the
letter. The committee retained independent counsel to assist it in its inquiry.
The letter does not seek a specified amount of legal damages. Based on its
investigation, the Committee determined that a lawsuit or derivative proceeding
against the directors or officers of SCI is not in the best interest of SCI. The
Committee reported its decision to the Executive Committee of the Board of
Directors on September 11, 2002.

Maurice Levie, Derivatively on behalf of Nominal Defendant, Service
Corporation International v. R. L. Waltrip, et al and Service Corporation
International; No. 2002-42417; In the 164th Judicial District Court of Harris
County, Texas, Filed August 20, 2002 ("Levie" action). The Levie action was
filed against the Company and the members of its Board of Directors individually
as a result of the Shareholder Derivative Demand of January 14, 2002, described
above. In response to the filing of the lawsuit before the conclusion of the
Committee's investigation, the Company and the individual directors filed an
answer denying the allegations in the lawsuit and a motion to dismiss.

Since the litigation is in its preliminary stages and no discovery has
occurred, the Company cannot quantify its ultimate liability or that of its
individual directors, if any, for the payment of damages or predict the outcome
of the litigation. However, the Company and the individual directors believe
that the allegations in the Levie action do not provide a basis for recovery of
damages on several legal grounds. The Company and the individual directors
intend to aggressively defend this lawsuit. The Company filed the motion to
dismiss the entire lawsuit against it and individual directors based on the
results of the investigation and determination of the Committee in response to
the shareholder demand letter. This motion is currently pending before the trial
court.

Joan Light, Shirley Eisenbert and Carol Prisco v. SCI Funeral Services of
Florida, Inc. d/b/a Menorah Gardens & Funeral Chapels, and Service Corporation
International; Case No. 01-21376 CA 08; In the Circuit Court of the 17th
Judicial Circuit in and for Broward County, Florida, General Jurisdiction
Division (the Consumer Lawsuit). The Consumer Lawsuit was filed December 19,
2001 and names the Company and a subsidiary as defendants. It is a putative
class action which has not been certified. A hearing on the Motion for Class
Certification has taken place but a ruling has not been made by the trial judge.

The Consumer Lawsuit has been brought on behalf of all persons with burial
plots or family members buried at Menorah Gardens & Funeral Chapels in Florida.
Excluded from the class definition are persons whose claims have been reduced to
judgment or have been settled as of the date of class certification.

The plaintiffs allege that defendants have failed to exercise reasonable
care in handling remains by secretly: (i) dumping remains in a wooded area; (ii)
burying remains in locations other than the ones purchased; (iii) crushing
vaults to make room for other vaults; (iv) burying remains on top of the other
or head to foot rather than side-by-side; (v) moving remains; and (vi)
co-mingling remains.

The plaintiffs in the Consumer Lawsuit allege that the above conduct
constitutes negligence, tortious interference with the handling of dead bodies,
infliction of emotional distress, and violation of industry specific state
statutes, as well as the state's Deceptive and Unfair Trade Practices Act. The
plaintiffs seek an unspecified amount of compensatory and punitive damages. The
Court has granted plaintiffs' motion for leave to amend their complaint to
include punitive damages. Plaintiffs also seek equitable/injunctive relief in
the form of a permanent injunction requiring defendants to fund a court
supervised program that provides for monitoring and studying of the cemetery and
any disturbed remains to insure their proper disposition.

On April 21, 2002, additional plaintiffs filed a lawsuit styled Sol
Guralnick, Linda Weiner, Joan Nix, Gilda Schwartz, Paul Schwartz, Ann Ferrante,
Steve Schwartz, Nancy Backlund, Jamie Osit, Corey King, Marc King, Barbara
Feinberg Clark v. SCI Funeral Services of Florida, Inc. d/b/a Menorah Gardens
and Funeral Chapels and Service Corporation International; In the Circuit Court
in the 15th Judicial Circuit, Palm Beach County, Florida; Case number CA024815AE
(the Guralnick Lawsuit), making essentially the same allegations as the Consumer
Lawsuit with the exception that it does not contain class allegations.

Since the Consumer and Guralnick Lawsuits, and related discovery, are in
preliminary stages, the Company cannot quantify its ultimate liability, if any,
for the payment of damages or predict the outcome of the litigation. The Company
intends to continue its investigation and to aggressively defend itself in the
litigation as well as continue to cooperate with state officials in resolving
the issues presented.

In addition to the litigation described above, the Florida Attorney General
and State Comptroller filed an action against the Company on March 1, 2002
styled Office of the Attorney General, Department of Legal Affairs, State of
Florida and Office of the Comptroller, Department of Banking and Finance, State
of Florida v. Service Corporation International, a Texas Corporation and

S.C.I. Funeral Services of Florida, Inc., a Florida Corporation doing business
as Menorah Gardens & Funeral Chapels; Case No. CA 02-02666AG; In the Circuit
Court of the 15th Judicial Circuit in and for Palm Beach County, Florida (the AG
Lawsuit).

The AG Lawsuit alleges similar claims as the Consumer Lawsuit including
that defendants conducted their business through the willful use of false and
deceptive representations regarding: (i) the certainty of plot location and
size; (ii) the permanence of interment; and (iii) the nature and quality of the
care that defendants intended to provide.

The AG Lawsuit alleges that defendants violated Florida statutes by
engaging in the above referenced conduct. The AG Lawsuit seeks: (i) the
appointment of a receiver or administrator to manage and correct the operations
of the defendants' Florida Menorah Gardens facilities; (ii) a full accounting of
all plots sold and offered for sale by defendants at their Florida Menorah
Gardens facilities; (iii) an award of unspecified actual damages sustained by
consumers; (iv) an award of unspecified punitive damages pursuant to Florida
statute; (v) imposition of civil penalties for each violation of the Florida
statutes; (vi) an award of attorneys' fees and costs; and (vii) a permanent
injunction against the defendants prohibiting them from (a) engaging in the
funeral and/or cemetery business at their Florida Menorah Gardens facilities;
(b) using false or misleading representations in their advertising and sales
materials directed to the State of Florida; and (c) violating the Florida
statutes.

In connection with the allegations in the Consumer and AG Lawsuits, the
Florida Department of Law Enforcement caused a search warrant to be issued to
investigate possible criminal activity. The Company is continuing to fully
cooperate in the investigation.

As with the Consumer and Guralnick Lawsuits, the Company cannot quantify
its ultimate liability, if any, for the payment of damages or predict the
outcome of the AG Lawsuit. The Company has agreed to the appointment of an
examiner who is charged with overseeing the remapping and burial processes at
the cemeteries. The Company has insurance policies which are intended to limit
the Company's outflows in the event of a decision adverse to the Company in the
Consumer Lawsuit, the Guralnick Lawsuit and the AG Lawsuit. If an adverse
decision in these matters exceeds the Company's insurance coverage or if the
insurance coverage is deemed not to apply to these matters, an adverse decision
could have a material adverse effect on the Company, its financial condition,
results of operations or cash flows.

7. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations is presented below:

<Table>
<Caption>
Three months ended
March 31,
----------------------
2003 2002
--------- ---------

Income (numerator):
Income before cumulative effect of accounting change - basic ...... $ 42,269 $ 46,849
After tax interest on convertible debentures .................. 3,903 4,167
--------- ---------
Income before cumulative effect of accounting change - diluted .... $ 46,172 $ 51,016
========= =========

Shares (denominator):
Shares - basic .................................................... 297,775 292,653
Stock options ................................................ 342 2,086
Convertible debentures ....................................... 50,548 50,815
--------- ---------
Shares - diluted .................................................. 348,665 345,554
========= =========

Income per share before cumulative effect of accounting change:
Basic ............................................................. $ .14 $ .16
Diluted ........................................................... $ .13 $ .15

Net income (loss) per share:
Basic ............................................................. $ .14 $ (.30)
Diluted ........................................................... $ .13 $ (.24)
</Table>

The computation of diluted earnings per share excludes outstanding stock
options and convertible debentures in certain periods because the inclusion of
such options and debentures would be antidilutive in the periods presented.
Total options and convertible debentures, along with their conversion prices,
that could impact dilutive earnings per share are as follows:

<Table>
<Caption>
Three months ended
March 31,
------------------
2003 2002
------ ------

Antidilutive options ($3.28 to $41.72) ........................... 26,130 16,321
Antidilutive convertible debentures ($15.58 to $50.00) ........... 860 948
------ ------
Total common stock equivalents excluded from computation .... 26,990 17,269
====== ======
</Table>

8. STOCKHOLDERS' EQUITY

Stock Options

The Company accounts for employee stock-based compensation expense under the
intrinsic value method. Under this method no compensation expense is recognized
on stock options if the grant price equals the market value on the date of
grant.

If the Company had elected to recognize compensation expense for its
options plans based on the fair value method, net income (loss) and per share
amounts would have changed to the pro forma amounts indicated below.

<Table>
<Caption>
March 31,
-------------------------
2003 2002
---------- ----------

Net income (loss) .................................................... $ 42,269 $ (88,711)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax expense .......................................... (2,182) (3,384)
---------- ----------
Pro forma net income ................................................. $ 40,087 $ (92,095)
========== ==========

Basic income (loss) per share:
Net income (loss) .................................................... $ .14 $ (.30)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax expense .......................................... (.01) (.01)
---------- ----------
Pro forma basic income (loss) per share .............................. $ .13 $ (.31)
========== ==========

Diluted income (loss) per share:
Net income (loss) .................................................... $ .13 $ (.24)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax expense .......................................... (.00) (.01)
---------- ----------
Pro forma diluted income (loss) per share ............................ $ .13 $ (.25)
========== ==========
</Table>

The fair value of the Company's stock options used to compute the pro forma
net income and per share disclosures is determined by calculating the estimated
fair value at grant date using the Black-Scholes option-pricing model.

Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss are as follows:

<Table>
<Caption>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment Adjustment Loss
----------- ---------- ------------

Balance at December 31, 2002 ............................ $(170,591) $ (36,555) $(207,146)
Activity in 2003 ................................... 20,153 -- 20,153
--------- --------- ---------
Balance at March 31, 2003 ............................... $(150,438) $ (36,555) $(186,993)
========= ========= =========

Balance at December 31, 2001 ............................ $(261,846) $ (29,353) $(291,199)
Activity in 2002 ................................... 1,517 -- 1,517
Reclassification adjustment for sold businesses .... 47,479 -- 47,479
--------- --------- ---------
Balance at March 31, 2002 ............................... $(212,850) $ (29,353) $(242,203)
========= ========= =========
</Table>

The components of comprehensive income (loss) are as follows.

<Table>
<Caption>
March 31,
-------------------
2003 2002
-------- --------

Comprehensive income (loss)
Net income (loss) ................... $ 42,269 $(88,711)
Total other comprehensive income .... 20,153 48,996
-------- --------
Comprehensive income (loss) ...... $ 62,422 $(39,715)
======== ========
</Table>

9. IMPAIRMENT LOSSES AND OTHER OPERATING EXPENSES

As the Company incurs impairment losses from the disposition of assets in the
normal course of business, such impairment losses will be recorded in the income
statement line item Impairment losses and other operating expenses.

The Company has recorded impairment losses and other operating expenses,
previously disclosed as restructuring and non-recurring charges, in 2002, 2001,
2000 and 1999. Included in these original charge amounts are severance costs
related to cost rationalization programs and terminated contractual
relationships of former employees and executive officers, planned divestitures
of certain North America and international funeral service and cemetery
businesses, reductions in carrying values of equity investments, adjustments to
market values of certain options associated with the Company's senior notes and
relieving certain individuals from their consulting and/or
covenant-not-to-compete contractual obligations.

The remaining balance at March 31, 2003 of these original charge amounts
related to severance costs and terminated consulting and/or
covenant-not-to-compete contractual obligations, the majority of which will be
paid by 2012. Of the $64,327 remaining liability at March 31, 2003, $18,150 is
included in Accounts payable and accrued liabilities and $46,177 is included in
Other liabilities in the consolidated balance sheet based on the expected timing
of payments. The Company continues to adjust the estimates of certain items
included in original charges, as better estimates become available or actual
divestitures occur.

The activity related to impairment losses and other operating expenses
during the three months ended March 31, 2003 was as follows:

<Table>
<Caption>
Utilization for three
months ended March 31, 2003
---------------------------
Original Balance at Balance at
charge December 31, Adjustments March 31,
amount 2002 during 2003 Cash Non-cash 2003
---------- ---------- ---------- ---------- ---------- ----------

First Quarter 1999 Charge ..... $ 89,884 $ 564 $ 122 $ 217 $ -- $ 469
Fourth Quarter 1999 Charge .... 272,544 48,254 (5,428) 1,328 12,404 29,094
Fourth Quarter 2000 Charge .... 434,415 -- 1,901 -- 1,901 --
2001 Charges .................. 663,548 3,385 -- 80 526 2,779
2002 Charges .................. 292,979 27,990 (4,021) 1,672 (9,688) 31,985
---------- ---------- ---------- ---------- ---------- ----------
Total .................... $1,753,370 $ 80,193 $ (7,426) $ 3,297 $ 5,143 $ 64,327
========== ========== ========== ========== ========== ==========
</Table>

The $7,426 net credit related to adjustments during 2003 of original charge
amounts was reduced by $2,322 recognized in the first quarter of 2003 related to
the disposition of certain Company assets in the normal course of business not
previously recognized in the original charge amounts.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The Company is the largest provider of funeral and cemetery services in the
world. As of March 31, 2003, the Company operated 2,266 funeral service
locations, 436 cemeteries and 189 crematoria located in eight countries. The
Company also has minority interest investments in funeral and cemetery
operations in certain countries outside of North America. As of March 31, 2003,
the Company's North America operations represented approximately 75% of the
Company's consolidated revenues, 82% of consolidated gross profits and 64% of
the Company's total operating locations.

The Company's funeral and cemetery operations are organized into a North
America division covering the United States and Canada, a European division
primarily responsible for the Company's French operations and an Other Foreign
division relating to operations in the Pacific Rim and South America. The
Company's operations in its North America division are segregated into Eastern
and Western operations. The Eastern and Western operations in North America are
managed by separate operational and financial management teams. Within these
Eastern and Western operations in North America, the majority of the Company's
funeral service locations and cemeteries are managed in groups called clusters.
These clusters are geographical groups of funeral service locations and
cemeteries that can share common resources such as operating personnel,
preparation services, clerical and accounting staff, limousines, hearses and
preneed sales activity.

STRATEGIC INITIATIVES

The Company's operational goals are to grow its existing base of funeral and
cemetery revenues while diligently managing its cash expenses. The Company will
also examine investment opportunities to grow its North America funeral and
cemetery operations where appropriate investment returns can be assured
primarily using its cash flows from operations. These potential growth
opportunities could include acquisitions of high-quality funeral service
locations and cemeteries in large or strategic North America markets, additional
construction of funeral service locations on Company-owned cemeteries and the
development of high-end cemetery property projects. The Company's financial
objectives in 2003 focus on generating strong cash flows, completing asset
divestitures and reducing debt to further improve the capital structure. The
Company is targeting a "BB" credit rating from Standard & Poor's and a "Ba2"
credit rating from Moody's, with general access to the capital markets.

The Company and the death care industry face certain challenges in growing
its funeral and cemetery revenues. These challenges include a lack of near-term
growth in the number of deaths, an increasing trend toward cremation which
typically has a lower average revenue and profit than a traditional funeral
service and a competitive pricing environment. Additionally, the industry has
historically

lagged in the areas of employee growth and development as well as efficient
business processes. The Company's growth strategy begins with developing the
appropriate organizational structure and a cultural environment designed to
promote teamwork, accountability and execution. In this regard, the Company has
been redesigning all compensation programs with clear, specific and definable
goals that are aligned with shareholder objectives. In the near-term there are a
number of tactical actions that the Company believes will drive improvements in
earnings and cash flow. To generate sustainable growth over the longer term, the
Company is focused on leveraging the power of its branded network of businesses
and its strong cash flows.

Tactical Actions

The Company believes the following tactical initiatives will solidify the
foundation on which to build and grow its funeral service and cemetery
operations in the future while also improving results in the near-term.

o Increasing the impact of the Company's Dignity Memorial(R) branded
funeral and cremation packages.

o Restructuring the Company's sales organization to enhance productivity
and reduce costs.

o Improving the Company's business and financial processes.

o Refining the Company's cremation strategies.

o Standardizing the Company's cemetery marketing approach and pricing
methods.

o Driving accountability and improved results through local market
action plans.

In addition to the Company's national brand name for its operations in
North America, Dignity Memorial(R) also represents a unique set of packaged
funeral and cremation plans offered exclusively through the Company's network on
an atneed and preneed basis. The Dignity Memorial(R) funeral and cremation
packages are designed to simplify customer decision-making and include products
and services which have traditionally not been available through funeral service
locations. These products include a 24-Hour Compassion Helpline, legal services
membership, bereavement travel discounts, internet memorial archive capabilities
and the Aftercare(R) Planner - an exclusive, comprehensive organizing system
that helps families manage the many business details that arise after a death
occurs. The Company's goal in 2003 is to continue to increase the customer
selection rate of the Dignity Memorial(R) packaged funeral plans, which on
average are over $2,000 higher than non-Dignity Memorial(R) sales.

The Company has recently implemented significant changes to the
organizational structure, processes and quality of its sales efforts designed to
reduce costs and improve cash flows in 2003. Examples of these changes include
eliminating ineffective lead procurement programs, incentive travel programs and
other inefficient sales activities, redesigning sales management compensation
programs to profit-based measures from revenue-based measures, reducing sales
management positions, and shifting to a compensation model for sales counselors
that is variable and directly related to the production of new business but not
solely based on commissions and is intended to result in less turnover and a
higher quality sales force.

The Company is currently in the process of improving business and financial
processes and systems that support its North America funeral and cemetery
operations with a focus on improving efficiency and eliminating unnecessary
costs and expenses. Examples of these improvements include replacing three
separate contract entry systems with one system for funeral home, cemetery and
trust administration, outsourcing certain accounting functions such as accounts
payable and payroll to third-party providers, and streamlining and standardizing
management financial reports to focus on key performance measures that are
aligned with shareholder objectives.

The Company is also refining its strategies to better serve the cremation
consumer. Examples of these initiatives include increasing sales of Dignity
Memorial(R) cremation plans, identifying new avenues for cremation
memorialization and renewing focus on existing product offerings, developing
comprehensive training programs and expanding its national brand called National
Cremation(R) specifically targeting the direct cremation consumer.

Within the Company's cemetery segment, initiatives are underway to employ a
tiered product marketing strategy that emphasizes a wide range of product
offerings with particular emphasis on building strategic high-end property
development projects. In addition, the Company is standardizing the processes of
how these products are marketed and priced. The Company has also implemented a
standardized set of operating procedures for cemeteries that address customer
satisfaction, internal controls and financial standards.

Other initiatives include the development and implementation of local
market action plans designed to grow funeral and cemetery revenues and profits.
In every funeral and cemetery operation, each local manager has identified the
strengths, weaknesses, opportunities and threats of their individual market and
developed action plans around it that include measurable objectives, necessary
resources, and a timetable for completion. These action plans provide an
important measurement tool and further drive accountability within the
organization.

Framework for Long-term Growth

In addition to the Company's tactical initiatives to improve its North America
funeral and cemetery operations in the near-term, the Company is currently
developing a framework for its long-term strategic plan with an emphasis on
three key concepts that will drive future growth in shareholder value:

o Attracting new business to existing locations.

o Expanding in large or strategic markets in North America.

o Investing in the Company's human capital.

The Company believes it must attract new customers to its existing
businesses in order to grow core funeral and cemetery profits over the
long-term. Actions by the Company to attract new customers over the long-term
include developing a more contemporary marketing model that leverages the power
of the Company's Dignity Memorial(R) national brand in North America and its
size as a national company. The Company's marketing programs will utilize
information from the more than nine million consumers in its collective
databases to determine geographic, demographic and lifestyle factors of its
consumers. In addition, the Company will continue to capitalize on its
nationwide network of providers and develop affinity relationships with
organizations containing large groups of individuals to whom the Company could
exclusively market its products and services.

The Company's long-term growth strategy also addresses plans to expand its
funeral and cemetery network in North America where investment returns in excess
of capital costs can be assured. The Company will focus future capital
deployment through acquisition or construction in the top 150 markets in the
United States. The Company is targeting these large markets because they offer
several advantages: more than 70% of the U.S. population resides in these
markets, the markets have a tendency to be more institutional and less dependent
on local heritage, they are more conducive to marketing a national brand and it
is easier to attract quality management. In smaller markets, the Company will
recruit independent funeral providers to join the Dignity Memorial(R) network in
a franchise relationship where the Company can earn a cash fee on Dignity
Memorial(R) services and products sold, but does not have its capital at risk.
At the end of 2002, the Company had a total of 180 such affiliate providers.
When combined with the Company's network capabilities, the Dignity Memorial(R)
network has the ability to provide services to approximately 73% of the U.S.
population.

The Company also believes it must invest in its human capital and
resources. Attracting, hiring, developing and retaining high quality management
and employees is critical to the success of the long-term strategic plan. In the
near term, the Company is focusing its training efforts on leadership and the
development of key field management. Over the longer term, the Company will be
developing a comprehensive training program that incorporates required specific
curriculum for each job type within the Company using a combination of
traditional classroom, web-based courses, virtual classroom and on-the-job
training for the more than 20,000 individuals that the Company employs.

CRITICAL ACCOUNTING POLICIES, ACCOUNTING CHANGES AND NEW ACCOUNTING
PRONOUNCEMENTS

The Company's consolidated financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. These critical accounting policies should be read in conjunction
with the annual report filed on Form 10-K for the year ended December 31, 2002.

USE OF ESTIMATES

In the second quarter of 2002, the Company decided to implement new information
technology systems including a new North America point of sale system and an
upgraded general ledger system. As a result of this decision, the Company
accelerated amortization of its existing capitalized systems costs beginning in
the second quarter of 2002 to reflect the remaining estimated useful lives of
these systems. The Company recognized approximately $4.6 million of additional
amortization in the first quarter of 2003 related to this change in estimate.

ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Company adopted SFAS No. 145 during the first quarter of 2003
as it relates to the classification of extinguishments of debt for all periods
presented. SFAS No. 145 eliminates the requirement that gains and losses from
the extinguishment of debt be aggregated and classified as extraordinary items
as well as certain other items. Gains and losses from early extinguishments of
debt are included in Other income in the consolidated statement of operations
for all periods presented. The Company has recorded $2,321 as gains from the
early extinguishment of debt in Other income in the first quarter of 2003 and
reclassified $946 related to the prior year period to Other income, which was
previously reported as an extraordinary gain. The other provisions of SFAS No.
145 were generally effective for transactions occurring after May 15, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No. 45),
"Guarantor's Accounting Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
No. 45 clarifies the disclosures required by a guarantor about its obligations
and it requires grantors to recognize a liability at fair value at the time of
issuance. The provisions for initial recognition and measurement are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements were effective for financial statements of periods
that end after December 15, 2002. There have been no material changes in the
guarantees related to FIN No. 45 as disclosed by the Company in its 2002 annual
report on Form 10-K.

RESULTS OF OPERATIONS

The Company has reclassified certain prior year amounts to conform to the
current period presentation with no effect on previously reported results of
operations, financial condition or cash flows.

For the quarter ended March 31, 2003, the Company reported revenues of
$580.1 million compared to $601.3 million in the same quarter of 2002. The
decrease in revenues was primarily the result of joint ventures and dispositions
of operations during 2003 and 2002 and a lower number of funeral services
performed, offset by the positive effect of the strengthening of the Euro. Gross
profit in the first quarter of 2003 was $112.5 million or 19.4% compared to
$119.2 million or 19.8% in the first quarter of 2002. For the three months ended
March 31, 2003, the Company reported net income of $42.3 million and diluted net
income per share of $.13 ($.14 basic). In the first quarter of 2002, the Company
reported income before cumulative effect of accounting change of $46.8 million,
net loss of $88.7 million, diluted income per share before cumulative effect of
accounting change of $.15 ($.16 basic) and diluted net loss per share of $.24
($.30 basic).

Results in all periods presented are representative of the Company's
comparable locations, which exclude operations that were acquired or constructed
after January 1, 2002 and divested by the Company prior to March 31, 2003.
Comparable financial results are meant to be reflective of the Company's "same
store" results of operations. The following is a discussion of the Company's
results of comparable operations for the three months ended March 31, 2003
compared to March 31, 2002.

<Table>
<Caption>
(In millions) THREE MONTHS ENDED MARCH 31, 2003
------------------------------------------------------------------------------------
COMPARABLE
------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
------- ------- ------- ------- ------- ------- ------- -------

Revenues:
Funeral ............................. $ 299.9 69.1% $ 137.2 100.0% $ 1.4 16.5% $ 438.5 75.7%
Cemetery ............................ 133.9 30.9% -- --% 7.1 83.5% 141.0 24.3%
------- ------- ------- ------- ------- ------- ------- -------
$ 433.8 100.0% $ 137.2 100.0% $ 8.5 100.0% $ 579.5 100.0%
======= ======= ======= ======= ======= ======= ======= =======
Gross profit and margin percentage:
Funeral ............................. $ 68.7 22.9% $ 19.0 13.8% $ 0.5 35.7% $ 88.2 20.1%
Cemetery ............................ 24.3 18.1% -- --% 1.3 18.3% 25.6 18.2%
------- ------- ------- ------- ------- ------- ------- -------
$ 93.0 21.4% $ 19.0 13.8% $ 1.8 21.2% $ 113.8 19.6%
======= ======= ======= ======= ======= ======= ======= =======
</Table>

<Table>
<Caption>
THREE MONTHS ENDED MARCH 31, 2002
------------------------------------------------------------------------------------
COMPARABLE
------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
------- ------- ------- ------- ------- ------- ------- -------

Revenues:
Funeral ............................. $ 309.4 69.0% $ 112.8 100.0% $ 1.9 19.8% $ 424.1 74.3%
Cemetery ............................ 138.9 31.0% -- --% 7.7 80.2% 146.6 25.7%
------- ------- ------- ------- ------- ------- ------- -------
$ 448.3 100.0% $ 112.8 100.0% $ 9.6 100.0% $ 570.7 100.0%
======= ======= ======= ======= ======= ======= ======= =======
Gross profit and margin percentage:
Funeral ............................. $ 81.5 26.3% $ 16.1 14.3% $ 0.7 36.8% $ 98.3 23.2%
Cemetery ............................ 16.5 11.9% -- --% 1.3 16.9% 17.8 12.1%
------- ------- ------- ------- ------- ------- ------- -------
$ 98.0 21.9% $ 16.1 14.3% $ 2.0 20.8% $ 116.1 20.3%
======= ======= ======= ======= ======= ======= ======= =======
</Table>

The following factors contributed to the results for the first quarter of 2003:

o Comparable North America funeral revenues decreased 3.1% in the first
quarter of 2003 compared to the same period in the prior year 2002
primarily as a result of a decline in the number of funeral services
performed.

o Comparable cemetery gross profits increased $7.8 million or 43.8% in the
first quarter of 2003 compared to the first quarter of 2002 as a result of
reductions in selling expenses from improvements made in the preneed sales
organizational structure and processes.

o The Company experienced a positive effect of foreign currency translation
of approximately $22.8 million on comparable revenues and $3.3 million on
gross profits for the three months ended March 31, 2003 compared to the
same period in 2002 as a result of the strengthening of the Euro offset by
the decline in value of the Argentine peso.

Funeral

<Table>
<Caption>
COMPARABLE FUNERAL SERVICES PERFORMED
------------------------------------------
North Other
Three months ended March 31, America Europe Foreign Total
------- ------ ------- -------

2003 ..................... 70,102 36,519 848 107,469
2002 ..................... 74,010 37,960 947 112,917
</Table>

Comparable North America funeral revenues decreased 3.1% in the first
quarter of 2003 compared to the first quarter of 2002 primarily as a result of a
decrease in the number of funeral services performed. Funeral services performed
declined 5.3% in the first quarter of 2003 compared to 2002. The Company
believes the decline in the number of funerals services performed is consistent
with trends experienced within other companies in the funeral service and casket
industries. This decline was partially offset by an increase in the average
revenue per funeral service which increased 2.6% to $4,119 in the first quarter
of 2003 compared to 2002. The increase was primarily from selling more Dignity
Memorial(R) packaged funeral plans leading to overall growth in the average
revenue per funeral service despite the increasing mix of cremation funeral
services, which typically carry a lower average revenue than a traditional
funeral service.

Comparable North America gross profits and margin percentage decreased in
the first quarter of 2003 compared to 2002 as a result of the effect of the
decrease in comparable funeral services performed on the fixed cost nature of
the Company's funeral network, partially offset by reductions in costs resulting
from strategic changes in the Company's prearranged funeral sales activities.

In the deathcare industry, there has been a growing trend in the number of
cremations performed in North America as an alternative to traditional funeral
service dispositions. The west coast of the United States and the state of
Florida have the highest concentration of cremation customers in North America.
While cremations performed by the Company in North America typically have higher
gross profit margins than traditional funeral services, cremations usually
result in lower revenues and gross profits to the Company than traditional
funeral services. In North America, for the three months ended March 31, 2003,
39.0% of comparable funeral services performed by the Company were cremation
cases, compared to 37.1% in the three months ended March 31, 2002. In recent
years, the Company has continued to expand its cremation memorialization
products and services in several North America markets, which has resulted in
higher average sales for cremation cases compared to historical levels. The
Company's cremation products and services include providing personalized
memorial services, several options in memorialization gardens built in certain
sections of the Company's cemeteries, urns and niches in mausoleums or
columbariums in which to place remains. The Company also continues to expand its
nationally branded cremation service company called National Cremation(R)
Service (NCS). NCS currently operates in fourteen states with high cremation
rates and has plans to continue to expand to eighteen states by the end of 2003.
The Company believes that the NCS consumer would not have chosen the Company's
traditional funeral service locations as an alternative to NCS and, therefore,
is considered an incremental customer to the Company.

Comparable international revenues increased in the first quarter of 2003
compared to the first quarter of 2002 as a result of the favorable effect of
foreign currency translation of $24.7 million as the Euro strengthened relative
to the U.S. dollar. Excluding the favorable effect of foreign currency
translation, the decline in the number of funeral services performed in France
of 4.2% compared to the first quarter of 2002 is offset by increases in the
average revenue per funeral service and delivery and average revenue of burial

monuments in France. The average revenue per funeral service in France excluding
currency effect is $2,337 in the first quarter of 2003 compared to $2,244 in the
first quarter of 2002.

Gross profits in the Company's international operations increased in the
first quarter of 2003 compared to 2002 as a result of the positive impact of
foreign currency of $3.4 million and increases in the average revenue per
funeral service.

Cemetery

Comparable North America cemetery revenues decreased in the first quarter
of 2003 compared to 2002 as a result of reductions in revenues from cemetery
trust fund income and delivered cemetery merchandise offset by increases in
cemetery property sales and completed cemetery development projects. Revenue on
cemetery development projects is recognized when the development projects are
completed and customer payments are at least 10% of the contract amount.

Comparable North America gross profits and margin percentage increased in
the first quarter of 2003 as a result of reductions in selling costs from the
significant changes to the Company's preneed sales structure and processes as
well as higher profits from cemetery property sales during the quarter.

Comparable international cemetery revenues and gross profits remained
stable in the first quarter of 2003 compared to the same period of 2002 despite
the negative effect of foreign currency translation of $1.9 million and $0.1
million, respectively. The negative effect of foreign currency as a result of
the devaluation of the Argentine peso to the U.S. dollar.

Other Income and Expenses

Corporate general and administrative expenses increased $5.7 million to $21.4
million in the first quarter of 2003 compared to the same period of 2002. The
increase primarily is related to the Company's decision in 2002 to implement new
information systems, including a new North America point of sale system and an
upgraded general ledger system, and a new long-term incentive compensation
program implemented in 2003. As a result of the Company's decision to implement
new information systems, the Company accelerated the amortization of existing
capitalized system costs and recorded $4.6 million of additional amortization in
the first quarter of 2003 compared to 2002.

Impairment losses and other operating expenses, previously disclosed as
Restructuring and non-recurring charges, was a net credit of $5.1 million in
2003 compared to an expense of $4.9 million in 2002. The charges in both
quarters primarily related to changes in estimates of previously recorded
charges and impaired operations as actual divestitures occur or better estimates
become available.

Interest expense decreased $6.0 million or 13.8% to $37.4 million in the
first quarter of 2003 compared to the same period of 2002. The decrease in
interest expense reflects the decline in the Company's long-term debt balance.
For the three months ended March 31, 2003, the average outstanding debt was $1.9
billion compared to $2.5 billion for the three months ended March 31, 2002.

Other income was $4.0 million in the first quarter of 2003 compared to $8.2
million in the first quarter of 2002. Other income primarily consists of
interest income from various investments, prearranged funeral sales overrides
received from insurance companies, gains on early extinguishments of debt and
transactional foreign currency gains and losses. The first quarter of 2003 is
$4.2 million below the same period of 2002 as a result of foreign currency
transactional losses related to short-term intercompany transactions.

Gains from dispositions were $4.2 million in the first quarter of 2003
compared to $2.0 in the same period of 2002. Included in gains from dispositions
are asset sales not associated with previously recognized impairment charges.

The provision for income taxes reflects an effective rate of 37% for the
three months ended March 31, 2003 compared to 28.3% in the same period of 2002.
The higher tax rate is the result of utilization in previous years of the
Company's net operating loss carry-forwards related to its French operations.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

<Table>
<Caption>
March 31, 2003 December 31, 2002
-------------- -----------------

Cash and cash equivalents $ 152.9 $ 200.6
Total debt $1,744.3 $1,984.8
</Table>

The Company continued to improve its balance sheet and liquidity in the
first quarter of 2003. The Company's total debt less cash and cash equivalents
decreased by $192.8 million or 10.8% during the quarter as a result of strong
cash flows provided by operating activities and the receipt of a tax refund of
$94.5 million.

<Table>
<Caption>
Three Months Ended March 31,
2003 2002
------- -------

Cash Flows from Operating Activities $ 183.3 $ 82.8
Capital Expenditures $ (21.2) $ (18.3)
</Table>

During the quarter, the Company generated a significant amount of operating
cash flows. Cash flows from operating activities increased $100.5 million or
121.4% in the first quarter of 2003 over the prior year period primarily as a
result of increases in cash receipts of tax refunds of approximately $72.5
million and decreases in customer receivables in the Company's North America
funeral and cemetery businesses. Capital expenditures increased $2.9 million or
15.8% over the prior year quarter. Of the total capital expenditures in the
first quarters of 2003 and 2002, the Company estimates that $17.1 million and
$13.2 million, respectively, were spent on items deemed reasonably necessary to
maintain its facilities in a condition consistent with Company standards.
Excluding unusual tax refunds in the first quarter of 2003 and 2002, cash flows
from operating activities less capital expenditures deemed reasonably necessary
to maintain the Company's facilities was $71.7 million in the first quarter of
2003 compared to $47.6 million in the prior period.

The Company's financial objectives in 2003 focus on the continued
improvement of the Company's capital structure by generating strong cash flows,
completing asset divestitures and further debt reduction. A goal of the Company
is to obtain a "BB" credit rating from Standard and Poor's and a "Ba2" credit
rating from Moody's, with general access to the capital markets.

The Company believes it currently has strong liquidity. As of March 31,
2003, the Company had a cash balance of approximately $153 million and
approximately $86 million of availability under the Company's $185 million
credit facility. The Company has no cash borrowings under this credit facility,
but has issued approximately $99 million of letters of credit under the credit
facility. At March 31, 2003, the Company had current maturities of long-term
debt of $16.9 million. Based on the Company's current cash balance, the Company
believes it has adequate means to meet its current maturities of long-term debt.

At March 31, 2003, the Company's maturity schedule for certain of its
outstanding senior public notes due in the near and intermediate term is as
follows:

<Table>
<Caption>
OUTSTANDING AT
(In millions) APRIL 30, 2003
--------------

7.375% senior notes due April 2004 ......... $111.2
8.375% senior notes due December 2004 ...... $ 50.8
6.0% senior notes due December 2005 ........ $281.7
</Table>

Based on the Company's current cash balance, its expectation of future
annual cash flows, its expectation of future asset divestiture and joint venture
proceeds of approximately $300-$400 million, and its current borrowing capacity
under its credit facility, the Company believes it has more than adequate means
to meet its near and intermediate term debt obligations as well as all of its
operating needs.

Other considerations for uses of cash in addition to meeting the debt
obligations described above include potential investment opportunities to grow
the Company's North America funeral and cemetery operations. These potential
growth opportunities could include acquisitions of high-quality funeral service
locations and cemeteries in large or strategic North America markets, additional
construction of funeral service locations on Company-owned cemeteries and the
development of high-end cemetery property projects. Certain of these possible
uses of cash are currently restricted by covenants in the Company's bank credit
facility.

Sources and Uses of Cash

Net cash provided by operating activities was $183.3 million in the first
quarter of 2003 compared to $82.8 million in the first quarter of 2002. The
increase is primarily the result of an increase in unusual tax refunds, lower
cash interest payments and improvements in working capital. Unusual cash tax
refunds were $94.5 million in 2003 compared to $22.0 million in 2002. Cash
interest payments were $16.8 million in the first quarter of 2003 compared to
$22.2 million in the same period of 2002. The improvements in working capital
are primarily the result of decreases in customer receivables. Also included in
net cash provided by operating activities is approximately $24.9 million and
$25.2 million of cash receipts from the Company's surety bonding program for the
first quarter of 2003 and 2002, respectively. See further discussion of the
Company's surety bonds in the Financial Assurances section included in this
Financial Condition, Liquidity and Capital Resources.

Net cash provided by investing activities was $5.6 million in the first
quarter of 2003 compared to $269.1 million in the same period of 2002. The
decrease in net cash provided by investing activities is principally related to
a reduction in proceeds from the Company joint venture and divestiture programs
and increases in capital expenditures and deposits of restricted funds. In the
first quarter of 2002, the Company completed the joint venture of its United
Kingdom operations which resulted in $266.7 million in proceeds. The Company's
capital expenditures have increased over the same period in 2002 because the
Company has increased capital expenditures deemed reasonably necessary to
maintain its facilities in a condition consistent with Company standards. In the
first quarter of 2003, the Company also received a dividend from its Australia
joint venture of $4.8 million.

Net cash used in financing activities was $238.0 million in the first
quarter of 2003 compared to $74.6 million in the first quarter of 2002. The
Company primarily used funds collected during these periods from tax refunds,
proceeds from sales and joint ventures of operations and its cash flow from
operations to reduce its debt.

Financial Assurances

In support of operations, the Company has entered into arrangements with certain
high quality surety companies whereby such companies agree to issue surety bonds
on behalf of the Company as financial assurance and/or as required by existing
state and local regulations. The surety bonds are used for various business
purposes; however, the majority of the surety bonds issued and outstanding have
been used to support the Company's prearranged funeral and preneed cemetery
sales activities. The underlying obligations these surety bonds assure are
recorded on the Company's consolidated balance sheet as Deferred prearranged
funeral contract revenues and Deferred preneed cemetery contract revenues. The
breakdown of bonds between funeral and cemetery prearrangements, as well as
surety bonds for other activities, is as follows:

<Table>
<Caption>
March 31, December 31,
2003 2002
------------ ------------

Prearranged funeral ................................................... $ 111.8 $ 108.3
Preneed cemetery:
Merchandise and services ......................................... 176.2 172.8
Preconstruction .................................................. 22.4 22.6
------------ ------------
Bonds supporting prearranged funeral and cemetery obligations .... 310.4 303.7
------------ ------------
Bonds supporting prearranged business permits ......................... 4.8 4.9
Other bonds ........................................................... 5.3 6.1
------------ ------------
Total bonds outstanding .......................................... $ 320.5 $ 314.7
============ ============
</Table>

As the Company sells prearranged funeral contracts and preneed cemetery
contracts, the Company intends to post surety bonds where allowed by applicable
law. The Company posts surety bonds in lieu of trusting a certain amount of
funds received from the customer. Generally, the amount of the bond posted is
determined by the total amount of the prearranged contract that would otherwise
be required to be trusted, in accordance with applicable state law. For the
three months ended March 31, 2003 and 2002, the Company had $24.9 million and
$25.2 million, respectively, of cash receipts attributable to bonded sales.
These amounts do not consider reductions associated with taxes, obtaining costs,
or other costs.

Surety bond premiums are paid annually and are automatically renewable,
unless prior notice of cancellation, until maturity of the underlying
prearranged contracts. Except for cemetery preconstruction bonds (which are
irrevocable), the surety companies generally have the right to cancel the surety
bonds at any time with appropriate notice. In the event a surety company were to
cancel a surety bond, the Company would be required to obtain replacement surety
assurance or fund a trust for an amount generally less than the posted bond
amount, unless the customer's prearranged contract has been paid in full. The
Company does not believe it will be required to fund material future amounts
related to these surety bonds.

The applicable Florida law which allows posting of surety bonds for
prearranged contracts will expire December 31, 2004. Unless the law is otherwise
amended, the Company plans to shift from bonding to either trust or insurance
funding for prearranged funeral and cemetery programs in the state of Florida in
the year 2005. Prearranged contracts entered into prior to December 31, 2004
where the Company posts surety bonds will be allowed to continue to be bonded
for the remaining life of those contracts. Of the total bonding proceeds
received by the Company for the three months ended March 31, 2003 and 2002,
approximately $18.8 million and $17.5 million, respectively, were attributable
to the state of Florida. Assuming the Company's prearranged funeral and cemetery
sales production in Florida in 2005 is consistent with production for the full
year of 2002, the pre-tax forecasted cash flow impact of shifting to trusting is
expected to be approximately $20 to $25 million lower in that year before
considering the cash flow impact of contracts going atneed. This forecast
reduction in pre-tax cash flow involves assumptions about the mix of preneed
sales among property, merchandise and services and the appropriate levels of
trusting required by Florida law. Using the same general assumptions, there
would also be expected an estimated cash flow decrease in years 2006 through
2009 of approximately $2 to $7 million per year.

PREARRANGED FUNERAL AND PRENEED CEMETERY ACTIVITIES

The Company believes an active funeral and cemetery prearrangement program can
increase future market share in the markets in which the Company operates, and
is one of the Company's important revenue growth initiatives in North America.

For purposes of discussion in this section, the use of the term
"prearranged" or "prearrangement" refers to funeral programs specifically or
funeral and cemetery programs generally. The use of the term "preneed" refers to
cemetery programs specifically. Prearrangement is a means through which a
customer contractually agrees to the terms of a funeral and/or cemetery burial
to be performed or provided in the future.

Revenues associated with prearranged contracts are deferred until such time
that the funeral or cemetery services are performed or merchandise is delivered.
Preneed sales of cemetery interment rights (cemetery burial property) are not
recognized until a minimum of 10% of the sales price has been collected and the
property has been constructed.

Compensation costs which vary with and are directly related to the
production of new trust funded prearranged funeral contracts are deferred as
selling costs and amortized over 12 years, a period representing the estimated
life of the prearranged funeral contracts. Cemetery deferred selling costs,
which also vary with and are directly related to the production of new cemetery
contracts, are amortized into expense when the corresponding revenues are
recognized. Other costs associated with the sales and marketing of prearranged
contracts - lead procurement costs, brochures and marketing materials,
advertising and administrative costs - are expensed as incurred.

When prearranged funeral services and merchandise are funded through
insurance policies purchased by customers from third party life insurance
companies, the Company earns a commission on the sale of such policies for
acting as an agent in selling such insurance contracts. Such general agency (GA)
revenues are based on a percentage per contract sold and are recognized when the
insurance purchase transaction between the customer and the third party
insurance provider has been completed. In the first quarter of 2003, the Company
began recognizing as revenues such GA revenues, previously recorded as
reductions to direct expenses. The Company has reclassified the prior year
amounts to conform to the current period presentation with no effect on
previously reported results of operations, financial condition or cash flows. GA
revenues recognized in the first quarter of 2003 and 2002 were $7.9 million and
$12.0 million, respectively. Direct expenses related to selling these insurance
policies are expensed as incurred and amounted to $5.0 million and $8.2 million
in the first quarter of 2003 and 2002, respectively. Additionally, the Company
may receive cash overrides related to life insurance policies sold as a result
of marketing agreements entered into in connection with the sale of an insurance
subsidiary in 2000. These cash overrides are recorded in Other income in the
consolidated statement of operations.

The table below details North America funeral and cemetery prearranged
production for the three months ended March 31, 2003 and 2002, and the related
deferred selling costs incurred to procure the prearrangements. Additionally,
the table reflects revenues recognized and previously deferred selling costs
recognized in the consolidated statement of operations associated with
previously prearranged production for the three months ended March 31, 2003 and
2002.

<Table>
<Caption>
North America
---------------------------------
(In millions) Funeral Cemetery
---------------- ---------------
2003 2002 2003 2002
------ ------ ------ ------

Origination:
Prearranged production ...................... $ 76.2 $104.1 $ 53.0 $ 73.7
====== ====== ====== ======

Deferred selling costs ...................... $ 3.3 $ 5.2 $ 9.6 $ 12.4
====== ====== ====== ======

Maturities:
Previously prearranged production
included in current period revenues .... $ 89.1 $ 81.2 $ 49.1 $ 54.2
====== ====== ====== ======

Amortization of deferred selling costs
in current period ...................... $ 3.7 $ 3.7 $ 7.9 $ 6.9
====== ====== ====== ======
</Table>

Generally, all or a certain portion of the funds collected for prearranged
funeral or preneed cemetery contracts funded through trusts are required to be
placed into trust accounts, pursuant to applicable law. Funds not required to be
placed into trust accounts are retained by the Company and used for working
capital purposes, generally to help alleviate the current cost of those
prearrangement programs. Realized investment earnings on funds placed into trust
accounts are generally accumulated and deferred until the maturity of each
prearranged contract. However, in certain states the Company is allowed to
distribute a portion of the realized investment earnings before the prearranged
contract matures. When a prearranged trust contract matures, the Company
receives the principal and previously undistributed trust fund income and any
remaining receivable due from the customer. In certain situations, the Company
can post a surety bond as financial assurance pursuant to applicable law in an
amount that would otherwise be required to be trusted. Funds collected on
prearranged contracts where the Company has posted a surety bond may be retained
by the Company creating a source of working capital cash flow generated from
operating activities before the prearranged contract matures. When the
prearranged contract matures, the Company receives any remaining receivable due
from the customer. Finally, funds collected from prearranged funeral contracts
can be used to pay premiums on life insurance or annuity contracts. Increasing
death benefits associated with life insurance contracts are accumulated and
deferred until the maturity of each prearranged contract. When a prearranged
insurance contract matures, the Company receives the proceeds from the third
party insurance companies consisting of the original contract amount and any
increasing death benefits.

As previously stated, deferred prearranged funeral or cemetery contract
revenue is recognized in the consolidated statement of operations at the time
the contract matures. For trust or bonded contracts, the revenue recognized is
generally greater than the cash received by the Company at the time a
prearranged contract matures, and creates a negative effect on working capital
cash flow generated from operating activities.

The cash flow activity from originating funeral production until the
maturity of a prearranged funeral contract is captured in the line item Net
effect of prearranged funeral production and maturities in the consolidated
statement of cash flows. Cash flow is provided by the amount retained from funds
collected from the customer and distributed trust fund earnings. This is reduced
by the payment of deferred selling costs and the use of funds to service matured
contracts.

The cash flow activity from originating the preneed cemetery contract until
recognition of the deferred revenue is reflected through Changes in receivables
and Changes in other assets in the consolidated statement of cash flows. Changes
in receivables is affected by cash flows provided by the amount retained from
funds collected from the customer and distributed trust earnings, reduced

by use of funds to service preneed cemetery contracts. Changes in other assets
is affected by the cash use associated with the payment of deferred selling
costs when the preneed cemetery contracts are originated, offset by the
reduction in deferred selling costs associated with recognition of the preneed
cemetery revenue.

The following table reflects the total North American backlog of deferred
prearranged contract revenues and the prearranged receivables associated with
the contracts. The difference between the amounts of Deferred prearranged
contract revenues and the prearranged receivables associated with such contracts
represents future revenues to be recognized in which the associated cash has
already been collected by the Company.

<Table>
<Caption>
North America
---------------------------------------------------------------------------------------
(In millions) Funeral Cemetery Total
--------------------------- --------------------------- ---------------------------
March 31, December 31, March 31, December 31, March 31, December 31,
2003 2002 2003 2002 2003 2002
------------ ------------ ------------ ------------ ------------ ------------

Deferred prearranged
contract revenues ...... $ 3,649.3 $ 3,638.3 $ 1,632.8 $ 1,671.6 $ 5,282.1 $ 5,309.9

Deferred selling cost ....... $ 88.4 $ 90.1 $ 203.9 $ 203.3 $ 292.3 $ 293.4

Prearranged
receivables:
Trust related
receivables ............ $ 1,001.6 $ 980.9 $ 827.9 $ 859.3 $ 1,829.5 $ 1,840.2
Third party insurance
related receivables .... $ 2,178.8 $ 2,175.5 -- -- $ 2,178.8 $ 2,175.5
</Table>

The deferred prearranged contract revenue associated with prearranged
funeral contracts and preneed cemetery contracts are reflected separately in the
consolidated balance sheet. Both funeral and cemetery deferred selling costs
(net of an estimated allowance for cancellation) are included as a component of
Deferred charges and other assets. Prearranged assets associated with
prearranged funeral contracts, which consist of amounts due from trusts,
customer receivables or third party insurance receivables (net of an estimated
allowance for cancellations), are reflected as Prearranged funeral contracts
separately in the consolidated balance sheet. Prearranged assets associated with
preneed cemetery contracts, which consist of amounts due from trusts and
customer receivables (net of an estimated allowance for cancellation), are
reflected in Current and Long term receivables in the consolidated balance
sheet.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

The statements in this Form 10-Q that are not historical facts are
forward-looking statements made in reliance on the "safe harbor" protections
provided under the Private Securities Litigation Reform Act of 1995. These
statements may be accompanied by words such as "believe," "estimate," "project,"
"expect," "anticipate" or "predict," that convey the uncertainty of future
events or outcomes. These statements are based on assumptions that the Company
believes are reasonable; however, many important factors could cause the
Company's actual results in the future to differ materially from the
forward-looking statements made herein and in any other documents or oral
presentations made by, or on behalf of, the Company. Important factors which
could cause actual results of the Company to differ materially from those in
forward-looking statements include, among others, the following:

1) Changes in general economic conditions, both domestically and
internationally, impacting financial markets (e.g., marketable security
values, as well as currency and interest rate fluctuations) that could
negatively affect the Company, particularly, but not limited to, levels
of trust fund income, interest expense and negative currency
translation effects.

2) Changes in credit relationships impacting the availability of credit
and the general availability of credit in the marketplace.

3) The Company's ability to successfully implement its strategic plan
related to producing operating improvements, strong cash flows and
further deleveraging as discussed herein and in the Company's Form 10-K
for the year ended December 31, 2002.

4) The Company's ability to successfully implement its plan to reduce
costs and increase cash flows associated with significant changes being
made to the Company's organizational structure, process and quality of
its sales efforts.

5) Changes in consumer demand and/or pricing for the Company's products
and services due to several factors, such as changes in local number of
deaths, cremation rates, competitive pressures and local economic
conditions.

6) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including potential changes
in tax, accounting and trusting policies.

7) The Company's ability to successfully access surety and insurance
markets at a reasonable cost.

8) The Company's ability to successfully exploit its substantial
purchasing power with certain of the Company's vendors.

9) The Company's ability to successfully complete its ongoing process
improvement and system implementation projects, including the Company's
replacement of its North America point-of-sale information technology
systems.

10) The outcomes of pending lawsuits against the Company involving alleged
violations of securities laws.

11) The outcomes of pending lawsuits in Florida involving certain cemetery
locations, including the possibility of criminal charges or other civil
claims being filed against the Company, its subsidiaries or its
employees.

For further information on these and other risks and uncertainties, see the
Company's 2002 Annual Report on Form 10-K. The Company assumes no obligation to
publicly update or revise any forward-looking statements made herein or any
other forward-looking statements made by the Company, whether as a result of new
information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the Company's exposure to certain market risks, see
Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the
Company's Form 10-K for the year ended December 31, 2002. There have been no
material changes to the disclosure on this matter made in such Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as
such term is defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of a date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in
the Company's periodic filings under the Exchange Act.

(b) Changes in Internal Controls Since the Evaluation Date, there have not
been any significant changes in the Company's internal controls or in
other factors that could significantly affect such controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding legal proceedings is set forth in note six to the
consolidated financial statements in Item 1 of this Form 10-Q, which information
is hereby incorporated by reference herein.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

12.1 Ratio of earnings to fixed charges for the three months ended
March 31, 2003 and 2002.

99.1 Consolidated Class Action Complaint filed September 3, 1999 in
Civil Action No. H-99-280, In re Service Corporation
International. (Incorporated by reference to Exhibit 99.1 to
Form 10-Q for the fiscal quarter ended September 30, 1999).

99.2 Defendants' Answer to the Consolidated Class Action Complaint
filed September 17, 1999 in Civil Action No. H-99-280, In re
Service Corporation International. (Incorporated by reference
to Exhibit 99.2 to Form 10-Q for the fiscal quarter ended
September 30, 1999).

99.3 Defendants' motion to Dismiss the Consolidated Class Action
Complaint filed October 8, 1999 in Civil Action No. H-99-280,
In re Service Corporation International. (Incorporated by
reference to Exhibit 99.3 to Form 10-Q for the fiscal quarter
ended September 30, 1999).

99.4 Plaintiffs' Opposition to Defendants' Motion to Dismiss the
Consolidated Class Action Complaint filed November 5, 1999 in
Civil Action No. H-99-280, In re Service Corporation
International. (Incorporated by reference to Exhibit 99.4 to
Form 10-Q for the fiscal quarter ended September 30, 1999).

99.5 Defendant's Reply to Plaintiffs' Opposition to Defendants'
Motion to Dismiss the Consolidated Class Action Complaint
filed November 24, 1999 in Civil Action No. H-99-280, In re
Service Corporation International. (Incorporated by reference
to Exhibit 99.12 to Form 10-K for the fiscal year ended
December 31, 1999).

99.6 Plaintiffs' Original Petition filed November 10, 1999 in Cause
No. 32548-99-11, James P. Hunter, III and James P.Hunter, III
Family Trust v. Service Corporation International, Robert L.
Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair
Waltrip, James M. Shelger, Wesley T. McRae and
PricewaterhouseCoopers LLP; in the Judicial District Court of
Angelina County, Texas. (Incorporated by reference to Exhibit
99.5 to Form 10-Q for the fiscal quarter ended September 30,
1999).

99.7 Defendants' Original Answer in response to the Original
Petition referred to in Exhibit 99.6. (Incorporated by
reference to Exhibit 99.14 to Form 10-K for the fiscal year
ended December 31, 1999).

99.8 Plaintiff's Original Petition filed December 28, 2000 in Cause
No. 33701-01-01, Jack D. Rottman vs. Service Corporation
International, Robert L. Waltrip, L. William Heiligbrodt,
George R. Champagne, W. Blair Waltrip, James M. Shelger,
Wesley T. McRae and PricewaterhouseCoopers LLP; in the
__________ Judicial District Court of Angelina County, Texas.
(Incorporated by reference to Exhibit 99.16 to Form 10-K for
the fiscal year ended December 31, 2000).

99.9 Defendants' Motion to Transfer Venue and Original Answer in
response to the Original Petition referred to in Exhibit 99.8.
(Incorporated by reference to Exhibit 99.17 to Form 10-K for
the fiscal year ended December 31, 2000).

99.10 Plaintiff's Original Petition filed December 15, 2000, in
Cause No. 2000-63917, Jack T. Hammer v. Service Corporation
International, Robert L. Waltrip, L. William Heiligbrodt,
George R. Champagne, W. Blair Waltrip, James M. Shelger,
Wesley T. McRae and PricewaterhouseCoopers LLP; in the 165th
Judicial District Court of Harris County, Texas. (Incorporated
by reference to Exhibit 99.18 to Form 10-K for the fiscal year
ended December 31, 2000).

99.11 Defendants' Original Answer to the Original Petition referred
to in Exhibit 99.10. (Incorporated by reference to Exhibit
99.19 to Form 10-K for the fiscal year ended December 31,
2000).

99.12 Plaintiffs' First Amended Demand for Arbitration and Complaint
for Damages filed January 24, 2003 in Cash No. 70 Y 168 00717
02, James P. Hunter, III and the James P. Hunter, III Family
Trust v. Service Corporation International, Robert L. Waltrip,
L. William Heiligbrodt, and George R. Champagne, before the
American Arbitration Association in Houston, Texas.
(Incorporated by reference to Exhibit 99.12 to Form 10-K for
the fiscal year ended December 31, 2002.)

99.13 Certification of Periodic Financial Reports by Robert L.
Waltrip in satisfaction of Section 906 of the Sarbanes-Oxley
Act of 2002.

99.14 Certification of Periodic Financial Reports by Jeffrey E.
Curtiss in satisfaction of Section 906 of the Sarbanes-Oxley
Act of 2002.

(b) Reports on Form 8-K

During the quarter ended March 31, 2003, the Company furnished a report
pursuant to Item 9 of Form 8-K dated February 28, 2003. The Form 8-K
attached as an exhibit thereto the Company's February 27, 2003 press
release regarding fourth quarter 2002 financial results.

SIGNATURE

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

May 9, 2003
SERVICE CORPORATION INTERNATIONAL

By: /s/ Jeffrey E. Curtiss
-------------------------------------
Jeffrey E. Curtiss
Senior Vice President
Chief Financial Officer and Treasurer
(Principal Financial Officer)

Service Corporation International
a Texas corporation
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification

I, Robert L. Waltrip, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Service
Corporation International, a Texas corporation (the "registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 9, 2003

/s/ Robert L. Waltrip
-------------------------
Robert L. Waltrip
Chairman of the Board and
Chief Executive Officer

Service Corporation International
a Texas corporation
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification

I, Jeffrey E. Curtiss, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Service
Corporation International, a Texas corporation (the "registrant");

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

Date: May 9, 2003

/s/ Jeffrey E. Curtiss
---------------------------
Jeffrey E. Curtiss
Senior Vice President
Chief Financial Officer and
Treasurer
(Principal Financial Officer)

EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

12.1 Ratio of earnings to fixed charges for the three months ended
March 31, 2003 and 2002.

99.11 Defendants' Original Answer to the Original Petition referred
to in Exhibit 99.10. (Incorporated by reference to Exhibit
99.19 to Form 10-K for the fiscal year ended December 31,
2000).

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

99.13 Certification of Periodic Financial Reports by Robert L.
Waltrip in satisfaction of Section 906 of the Sarbanes-Oxley
Act of 2002.

99.14 Certification of Periodic Financial Reports by Jeffrey E.
Curtiss in satisfaction of Section 906 of the Sarbanes-Oxley
Act of 2002.
</Table>