1
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 SEPTEMBER 30, 1999

[ ] 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
incorporation or organization) identification 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
--- ---

The number of shares outstanding of the registrant's common stock as of October
29, 1999, was 272,060,576 (excluding treasury shares).

SERVICE CORPORATION INTERNATIONAL

INDEX

Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income -
Three and Nine Months Ended September 30, 1999 and 1998 3

Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998 4

Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5

Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1999 6

Notes to Consolidated Financial Statements 7 - 13

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 - 27

Item 3. Quantitative and Qualitative Disclosures about Market Risk 28

Part II. Other Information

Item 1. Legal Proceedings 29

Item 5. Other Information 30

Item 6. Exhibits and Reports on Form 8-K 31

Signature 32

ITEM 1. FINANCIAL STATEMENTS

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------

Revenues.............................................................. $ 776,845 $ 712,520 $ 2,511,137 $ 2,101,594
Costs and expenses ................................................... (648,200) (538,814) (1,984,036) (1,524,070)
----------- ---------- ----------- -----------
Gross profit ......................................................... 128,645 173,706 527,101 577,524

General and administrative expenses .................................. (19,322) (15,422) (55,839) (49,681)
Restructuring charge ................................................. -- -- (89,884) --
----------- ---------- ----------- -----------
Income from operations ............................................... 109,323 158,284 381,378 527,843

Interest expense ..................................................... (59,404) (47,816) (173,613) (125,990)
Other income ......................................................... (334) 18,087 27,034 35,266
----------- ---------- ----------- -----------
(59,738) (29,729) (146,579) (90,724)
----------- ---------- ----------- -----------
Income before income taxes and extraordinary gain .................... 49,585 128,555 234,799 437,119
Provision for income taxes ........................................... (17,530) (45,342) (84,848) (154,172)
----------- ---------- ----------- -----------

Income before extraordinary gain ..................................... 32,055 83,213 149,951 282,947
Extraordinary gain on early extinguishments of debt
(net of income taxes of $1,071) ................................... -- -- 1,885 --
----------- ---------- ----------- -----------
Net income ........................................................... $ 32,055 $ 83,213 $ 151,836 $ 282,947
=========== =========== =========== ===========

Earnings per share:
Basic:
Income before extraordinary gain .................. $ .12 $ .32 $ .55 $ 1.11
Extraordinary gain on early extinguishments
of debt ........................................ -- -- .01 --
----------- ---------- ----------- -----------
Net income ........................................ $ .12 $ .32 $ .56 $ 1.11
=========== =========== =========== ===========
Diluted:
Income before extraordinary gain .................. $ .12 $ .32 $ .55 $ 1.08
Extraordinary gain on early extinguishments
of debt ........................................ -- -- .01 --
----------- ---------- ----------- -----------
Net income ........................................ $ .12 $ .32 $ .56 $ 1.08
=========== =========== =========== ===========

Dividends per share .................................................. $ .09 $ .09 $ .27 $ .27
=========== =========== =========== ===========

Basic weighted average number of shares .............................. 272,060 257,380 272,354 255,673
=========== =========== =========== ===========
Diluted weighted average number of shares ............................ 273,079 263,416 274,368 262,308
=========== =========== =========== ===========

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET

September 30, December 31,
(Dollars in thousands, except share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents .......................... $ 205,837 $ 358,210
Receivables, net of allowances ..................... 598,348 565,552
Inventories ........................................ 209,445 189,070
Other .............................................. 78,974 96,248
------------ ------------
Total current assets .......................... 1,092,604 1,209,080
------------ ------------

Investments - insurance subsidiaries ........................ 1,284,291 1,234,678
Prearranged funeral contracts ............................... 3,079,762 2,588,806
Long-term receivables, net of allowances .................... 1,587,720 1,408,076
Cemetery property, at cost .................................. 2,183,996 2,035,897
Property, plant and equipment, at cost (net) ................ 1,956,475 1,824,979
Deferred charges and other assets ........................... 1,285,766 1,151,430
Names and reputations (net) ................................. 2,501,823 1,813,212
------------ ------------
$ 14,972,437 $ 13,266,158
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........... $ 600,058 $ 452,354
Current maturities of long-term debt ............... 88,718 96,067
Income taxes ....................................... 99,551 81,904
------------ ------------
Total current liabilities ..................... 788,327 630,325
------------ ------------

Long-term debt .............................................. 4,111,305 3,764,590
Reserves and annuity benefits - insurance subsidiaries ...... 1,292,835 1,207,169
Deferred prearranged funeral contract revenues .............. 3,306,471 2,819,794
Deferred income taxes ....................................... 833,612 797,086
Other liabilities ........................................... 931,760 893,092

Stockholders' equity:
Common stock, $1 per share par value, 500,000,000
shares authorized, 272,060,576 and 259,201,104,
issued and outstanding (net of 2,796,545 and
68,373 treasury shares, at cost) .............. 272,060 259,201
Capital in excess of par value ..................... 2,156,240 1,646,765
Retained earnings .................................. 1,311,146 1,232,758
Accumulated other comprehensive (loss) income ...... (31,319) 15,378
------------ ------------
Total stockholders' equity .................... 3,708,127 3,154,102
------------ ------------
$ 14,972,437 $ 13,266,158
============ ============

(See notes to consolidated financial statements)

4
5

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS

Nine months ended
September 30,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net income ................................................................. $ 151,836 $ 282,947
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..................................... 185,092 133,880
Provision for deferred income taxes ............................... 18,082 26,762
Restructuring charge .............................................. 89,884 --
Extraordinary gain on early extinguishments of debt,
net of income taxes ............................................. (1,885) --
Gains from dispositions (net) ..................................... (15,969) (24,426)
Realized gains on sales of investments ............................ (25,495) --
Realized losses on sales of investments ........................... 24,691 --
Change in assets and liabilities, net of effects from acquisitions:
Increase in receivables ...................................... (181,753) (162,353)
Increase in other assets ..................................... (9,413) (70,405)
Increase in payables and other liabilities ................... 101,920 65,204
Other ........................................................ (9,993) 4,329
----------- -----------
Net cash provided by operating activities .................................. 326,997 255,938
----------- -----------

Cash flows from investing activities:
Capital expenditures .............................................. (160,998) (152,990)
Net effect of prearranged funeral production and
maturities ....................................................... (74,641) 53,097
Purchases of securities - insurance subsidiaries .................. (1,454,778) (768,315)
Sales of securities - insurance subsidiaries ...................... 1,306,616 759,477
Proceeds from sales of property and equipment ..................... 67,125 27,563
Acquisitions, net of cash acquired ................................ (74,064) (668,830)
Loans issued by lending subsidiary ................................ (67,429) (115,527)
Principal payments received on loans issued by
lending subsidiary ............................................... 91,190 62,631
Other ............................................................. (11,085) 1,376
----------- -----------
Net cash used in investing activities ...................................... (378,064) (801,518)
----------- -----------

Cash flows from financing activities:
Net increase in borrowings under revolving
credit agreements ................................................ 611,074 257,226
Proceeds from issuance of long-term debt .......................... -- 500,000
Payments of long-term debt ........................................ (228,142) (61,433)
Early extinguishments of long-term debt ........................... (365,936) --
Repurchase of common stock ........................................ (45,750) --
Dividends paid .................................................... (72,294) (65,156)
Bank overdrafts and other ......................................... (258) (14,954)
----------- -----------
Net cash (used in) provided by financing activities ........................ (101,306) 615,683
----------- -----------
Net (decrease) increase in cash and cash equivalents ....................... (152,373) 70,103
Cash and cash equivalents at beginning of period ........................... 358,210 46,877
----------- -----------
Cash and cash equivalents at September 30, 1999 and 1998 ................... $ 205,837 $ 116,980
=========== ===========

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Accumulated
Capital in other
Common excess Retained comprehensive
(Dollars in thousands) stock of par value earnings income (loss) Total
- --------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998 ..................... $ 259,201 $ 1,646,765 $ 1,232,758 $ 15,378 $ 3,154,102

Comprehensive income:
Net income ................................. 151,836 151,836

Other comprehensive loss:
Foreign currency translation ............ (18,727) (18,727)
Unrealized loss on securities ........... (27,970) (27,970)
-----------
Total other comprehensive loss .......... (46,697)
-----------
Comprehensive income ....................... 105,139

Common stock issued:
Acquisitions ............................... 15,506 550,325 565,831
Stock option exercises and stock grants .... 170 1,382 1,552
Debenture conversions ...................... 44 657 701

Repurchase of common stock .................... (2,861) (42,889) (45,750)

Dividends on common stock ..................... (73,448) (73,448)
----------- ----------- ----------- ----------- -----------

Balance at September 30, 1999 .................... $ 272,060 $ 2,156,240 $ 1,311,146 $ (31,319) $ 3,708,127
=========== =========== =========== =========== ===========

The Company's comprehensive income for the nine months ended September 30, 1998,
of $280,583 consisted of net income of $282,947, a foreign currency translation
adjustment of $(14,693), and an unrealized gain on securities of $12,329.

(See notes to consolidated financial statements)

6
7

SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE,
RATIO AMOUNTS AND NUMBER OF LOCATIONS)

1. NATURE OF OPERATIONS

Service Corporation International (the "Company" or "SCI") is the largest
funeral and cemetery company in the world. At September 30, 1999, the Company
operated 3,823 funeral service locations, 524 cemeteries and 198 crematoria
located in 20 countries on five continents.

The Company's operations consist of funeral homes, 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 locations and certain funeral service locations contain crematoria. The
Company sells price guaranteed prearranged funeral contracts whereby a customer
selects 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 certain merchandise including burial vaults and stone and
bronze memorials. These items are sold on an at need or preneed basis. Company
personnel at cemeteries perform interment services and provide management and
maintenance of cemetery grounds. Certain cemeteries contain crematoria. The
Company has approximately 167 combination facilities in which a funeral service
location is contained within a cemetery.

The financial services segment represents a combination of the Company's
insurance operations primarily related to the funding of prearranged funeral
contracts, prearranged funeral and cemetery trust administration, investment
management and lending activities providing capital financing for independent
funeral home and cemetery operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements for the three and
nine months ended September 30, 1999 and 1998 include the accounts of SCI 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 Securities and Exchange Commission (the "Commission") for
the year ended December 31, 1998, and should be read in conjunction therewith.
The year-end consolidated balance sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year period. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income, financial
condition or cash flows.

Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
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 financial statements and may affect the
reported amounts of revenues and expenses during the reporting period. As a
result, actual results could differ from these estimates.

3. ACQUISITIONS

In January 1999, a wholly owned subsidiary of the Company merged with Equity
Corporation International ("ECI") in a stock-for-stock transaction in which ECI
shareholders received approximately 15,501 shares of Company common stock valued
at approximately $557,000 and approximately 1,200 options to purchase Company
common stock valued at approximately $8,628. At the time of the merger, ECI
owned 359 funeral service locations and 80 cemeteries in North America.

7
8
Exclusive of the merger with ECI, the Company acquired 72 funeral service
locations, 15 cemeteries and 2 crematoria during the nine months ended September
30, 1999, for an aggregate purchase price of approximately $89,700. The Company
acquired 255 funeral service locations, 40 cemeteries and 14 crematoria during
the nine months ended September 30, 1998, for an aggregate purchase price of
approximately $606,800. Additionally in July, 1998, the Company acquired
American Memorial Life Insurance Company ("AML"), the prearranged funeral
services division of American Annuity Group, for $164,000. AML offers a variety
of prearranged and final expense life insurance and annuity products to finance
prearranged funerals.

The consideration for these acquisitions consisted of combinations of cash,
common stock of the Company and issued debt. All acquisitions have been
accounted for under the purchase method of accounting; therefore, the operating
results of these acquisitions have been included since their respective
acquisition dates.

The effect of acquisitions, net of cash acquired, on the consolidated
balance sheet at September 30, was as follows:

1999 1998
- ------------------------------------------------------------------------------------

Current assets .......................................... $ 109,570 $ 55,577
Investments - insurance subsidiaries .................... -- 622,379
Prearranged funeral contracts ........................... 309,169 47,802
Long-term receivables ................................... 44,891 74,690
Cemetery property ....................................... 201,893 163,680
Property, plant and equipment, net ...................... 160,890 84,342
Deferred charges and other assets ....................... (6,928) 138,391
Names and reputations ................................... 731,474 350,099
Current liabilities ..................................... (136,446) (65,588)
Long-term debt .......................................... (338,912) (62,907)
Reserves and annuity benefits - insurance subsidiaries... -- (594,848)
Deferred prearranged funeral contract revenues .......... (315,753) (45,870)
Deferred income taxes and other liabilities ............. (119,953) (51,160)
Stockholders' equity .................................... (565,831) (47,757)
--------- ---------
Cash used for acquisitions ......... $ 74,064 $ 668,830
========= =========

4. PREARRANGED FUNERAL ACTIVITIES

Unperformed price guaranteed prearranged funeral contracts not funded
through Company owned insurance subsidiaries are included in the consolidated
balance sheet as "Prearranged funeral contracts." This balance represents
amounts due from trust accounts, customer receivables, or third party insurance
companies. A corresponding credit is recorded to "Deferred prearranged funeral
contract revenues." Prearranged funeral contracts are recognized in funeral
revenues at the time the funeral services are performed. Trust earnings and
increasing insurance benefits from third party insurance companies are intended
to cover future increases in the cost of providing price guaranteed funeral
services and are accrued and deferred until the funeral services are performed,
at which time the funds are recognized in funeral revenues. Net obtaining costs
incurred pursuant to the sales of trust funded and third party insurance funded
prearranged funeral contracts are included in "Deferred charges and other
assets" in the consolidated balance sheet. The net obtaining costs include sales
commissions and certain other direct costs which are deferred and amortized over
a period representing the estimated life of the prearranged funeral contracts.

8
9
Prearranged funeral contracts may also be funded by insurance policies or
annuities written by the Company's wholly-owned insurance subsidiaries. These
insurance subsidiaries follow generally accepted accounting principles for life
insurance companies. As part of the funding through Company insurance
subsidiaries of prearranged funeral contracts, the insurance subsidiaries invest
cash received for such contracts in debt and marketable equity securities that
are classified as available-for-sale. These securities are included in the
consolidated balance sheet as "Investments-insurance subsidiaries" and are
included at quoted market values, if readily marketable, or at the Company's
estimated fair value if not readily marketable. Policy acquisition costs are
deferred and included in "Deferred charges and other assets" in the consolidated
balance sheet and amortized in accordance with generally accepted accounting
principles for life insurance companies.

The total value of unperformed prearranged funeral contracts includes
contracts that are to be funded by trust, third party insurance companies, or by
the Company's insurance subsidiaries. The total value represents the original
contract values plus any accumulated trust fund earnings or increasing insurance
benefits. The total value of unperformed prearranged funeral contracts that are
trust funded or funded by third party insurance companies are included in
"Deferred prearranged funeral contract revenues" in the consolidating balance
sheet. In accordance with generally accepted accounting principles for life
insurance companies, the Company records an actuarially determined amount
included in "Reserves and annuity benefits - insurance subsidiaries" in the
consolidated balance sheet representing future amounts to be funded from the
Company's insurance subsidiaries for SCI and non-SCI unperformed prearranged
funeral contracts. The total value of all SCI unperformed prearranged funeral
contracts is shown below as if the contracts funded through the Company's
insurance subsidiaries were valued at original contract values plus increasing
insurance benefits.

September 30, 1999 December 31, 1998
------------------ -----------------

Deferred prearranged funeral contract revenues $3,306,471 $2,819,794
SCI contracts funded by Company owned insurance subsidiaries 1,072,194 932,056
------------------ -----------------
Total value of unperformed prearranged funeral contracts $4,378,665 $3,751,850
================== =================

5. DEBT
Debt at September 30, 1999 and December 31, 1998 was as follows:

September 30, 1999 December 31, 1998
------------------ -----------------

Bank revolving credit agreements and commercial paper $1,269,760 $ 650,596
Fixed rate notes, interest rates ranging from 6.0% - 8.7%, due 2000
through 2020 2,725,811 2,763,137
Convertible debentures 49,278 49,979
Mortgage notes and other debt 174,152 416,833
Deferred loan costs (18,978) (19,888)
------------------ -----------------
Total debt 4,200,023 3,860,657
Less current maturities (88,718) (96,067)
------------------ -----------------
Total long-term debt $4,111,305 $3,764,590
================== =================

As of September 30, 1999, the Company's primary revolving credit agreements
provided for borrowings up to $1,800,000 and consisted of three committed
facilities - two 364-day facilities and a 5-year, multi-currency facility. On
November 2, 1999, these credit agreements were modified and the maximum
available borrowings were reduced to $1,600,000 due to the Company's reduced
credit needs. These facilities are primarily used to support commercial paper
issuance and for general corporate purposes.

One 364-day facility allows for borrowings up to $300,000. This facility
expires June 25, 2000, but the outstanding balance may be converted into a
two-year term loan at the Company's option. Interest rates are based on various
indices as

10
determined by the Company. A facility fee, which was 0.125% at September 30,
1999, is paid quarterly on the total commitment amount. On November 2, 1999,
this facility fee was increased to 0.25% and can range from 0.25% to 0.50%
depending upon the Company's senior debt ratings.

The second 364-day facility, which expired on November 2, 1999, permitted
borrowings up to $800,000 at September 30, 1999. An annual facility fee is paid
quarterly on the total commitment amount and was 0.09% at September 30, 1999. On
November 2, 1999, this facility was extended for another 364 days and now allows
for borrowings up to $600,000. On this date, the facility fee was increased to
0.25% and can range from 0.25% to 0.50% depending upon the Company's senior debt
ratings.

The 5-year facility allows for borrowings up to $700,000, including
$500,000 in various foreign currencies. This facility expires June 27, 2002.
Interest rates on this facility are based on various indices as determined by
the Company. An annual facility fee is paid quarterly and can range from 0.07%
to 0.15% based on the Company's senior debt ratings and was 0.10% on September
30, 1999. On November 2, 1999, the facility fee was increased to 0.25% and can
range from 0.25% to 0.50% depending upon the Company's senior debt ratings. At
September 30, 1999, $274,960 in various foreign currencies was outstanding under
the 5-year facility with a weighted average interest rate of 4.78%. At December
31, 1998, $217,345 was outstanding in various foreign currencies under the same
facility with a weighted average interest rate of 5.65%.

At September 30, 1999, $994,800 of commercial paper was outstanding with a
weighted average interest rate of 5.90% ($433,251 outstanding at December 31,
1998 with a weighted average interest rate of 6.68%). The Company's commercial
paper program is backed by the above facilities. The commercial paper borrowings
and revolving notes generally have maturities ranging from 1 to 180 days. Since
it is the Company's intent to refinance borrowings under these facilities with
long-term debt or equity, the Company has classified such borrowings as
long-term debt.

The credit facilities described above, as modified, contain customary
restrictive covenants requiring the Company to maintain certain financial ratios
and places limitations on guarantees, subsidiary borrowings and cash
distributions.

In March 1999, the Company repurchased two issues of debt. On March 26,
the Company repurchased $200,000 floating-rate notes, which were originally due
April 2011. These notes were to be remarketed in April 1999 as fixed-rate
notes. The Company chose to refinance with commercial paper to maintain
floating-rate exposure. The purchase price was $200,000 plus a premium of
approximately $22,185 and accrued interest resulting in an extraordinary after
tax loss of $14,148. On March 31, the Company repurchased $143,750 of ECI
convertible debentures, which were originally due December 2004. This
repurchase was effected by a change-of-control clause allowing the holders to
put the bonds back to the Company after the acquisition of ECI. The purchase
price was $143,750 plus accrued interest and resulted in an extraordinary gain
of $25, 141 ($16,033 net of tax) relating to the unamortized premium reflecting
the market valuation of the debentures at the date ECI merged with the Company.
These debentures were also refinanced with commercial paper.

6. DERIVATIVES

The Company has entered into various derivative financial instruments ("swap
agreements") with high quality financial institutions to hedge potential
exposures in interest and foreign exchange rates. The Company uses local
currency borrowings in addition to these swap agreements to hedge the Company's
net investment in foreign assets and to manage its mix of fixed and floating
rate debt. The Company has procedures in place to monitor and control the use of
derivatives and only enters into transactions with a limited group of
creditworthy financial institutions. The Company does not engage in derivative
transactions for speculative or trading purposes, nor is it a party to leveraged
derivatives.

Excluding $183,580 of debt related to the Company's lending activities, the
Company's debt outstanding at September 30, 1999 had a weighted average interest
rate of 6.50% compared to a weighted average interest rate of 6.77% at December
31, 1998. After giving consideration to the interest rate and the cross-currency
interest rate swap agreements, the weighted average interest rate at September
30, 1999 was 5.92% compared to 6.16% at December 31, 1998. The financial
instruments associated with the 5.92% weighted average interest rate at
September 30, 1999, consisted of approximately 58% of fixed interest rate debt
at a weighted average interest rate of 6.19% and approximately 42% of floating
interest rate debt at a weighted average interest rate of 5.54%. After inclusion
of the swap agreements, approximately $1,843 of the Company's indebtedness
was foreign-denominated.

10
11
The net fair value of the swap agreements at September 30, 1999, was an
asset of $101,100 ($97,944 at December 31, 1998). Fair values were obtained from
the counterparties to the agreements and represent their estimate of the amount
the Company would pay or receive to terminate the swap agreements based upon the
existing terms and current market conditions.

7. RATIO OF EARNINGS TO FIXED CHARGES

Nine months
ended September 30,
1999 1998
----------------------------------------
2.15 3.88

For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary gain; (1) less
undistributed income of equity investees which are less than 50% owned, (2) plus
the minority interest of majority-owned subsidiaries with fixed charges and (3)
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, whether capitalized or expensed, amortization of debt costs,
and one-third of rental expense which the Company considers representative of
the interest factor in the rentals. The decrease in the Company's ratio of
earnings to fixed charges in 1999 is attributable to the $89,884 pretax
restructuring charge recorded during the first quarter of 1999 (see note 10) and
increased interest expense related to additional indebtedness attributable to
business acquisitions consummated subsequent to September 30, 1998. Without the
restructuring charge, the ratio of earnings to fixed charges would have been
2.59.

8. SEGMENT REPORTING

The Company manages its operations based on service and geography. The
Company's primary reportable operating segments presented below are based on
services and include funeral, cemetery, and insurance operations. The Company's
geographic segments include North America, France, Other Europe and Other
Foreign. The Company conducts funeral operations in all geographical regions,
cemetery operations in all regions except France, and insurance operations in
North America and France.

The Company's reportable segment information was as follows:

Reportable
Funeral Cemetery Insurance Segments
- -----------------------------------------------------------------------------------------------------------------------

Revenues from external customers:
Three months ended September 30,
1999 ...................................................... $ 469,138 $ 233,837 $ 68,654 $ 771,629
1998 ...................................................... 433,276 213,369 60,570 707,215

Nine months ended September 30,
1999 ...................................................... $1,526,957 $ 742,863 $ 224,850 $2,494,670
1998 ...................................................... 1,351,603 636,138 98,888 2,086,629

- -----------------------------------------------------------------------------------------------------------------------
Gross profit:
Three months ended September 30,
1999 ...................................................... $ 64,736 $ 56,549 $ 4,891 $ 126,176
1998 ...................................................... 85,253 78,248 7,568 171,069

Nine months ended September 30,
1999 ...................................................... $ 278,531 $ 218,370 $ 22,444 $ 519,345
1998 ...................................................... 308,622 250,365 11,400 570,387
- -----------------------------------------------------------------------------------------------------------------------

12
The following table reconciles reportable segment gross profit to the
Company's consolidated income before income taxes and extraordinary gain:

Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------

Gross profit reportable segments ............................ $ 126,176 $ 171,069 $ 519,345 $ 570,387
Other financial services income from operations .... 2,469 2,637 7,756 7,137
General and administrative expenses ................ (19,322) (15,422) (55,839) (49,681)
Restructuring charge (see note 10) ................. -- -- (89,884) --
---------------------------------------------------
Income from operations ...................................... 109,323 158,284 381,378 527,843
Interest expense ................................... (59,404) (47,816) (173,613) (125,990)
Other income ....................................... (334) 18,087 27,034 35,266
---------------------------------------------------
Income before income taxes and extraordinary gain ........... $ 49,585 $ 128,555 $ 234,799 $ 437,119
===================================================

The Company's geographic segment information was as follows:

North Other Other
America France Europe Foreign Total
- ----------------------------------------------------------------------------------------------------------------------------------

Revenues from external customers:
Three months ended September 30,
1999 ............................................ $ 534,991 $ 122,645 $ 69,673 $ 49,536 $ 776,845
1998 ............................................ 471,295 147,970 62,018 31,237 712,520
Nine months ended September 30,
1999 ............................................ $1,721,566 $ 432,553 $ 230,538 $ 126,480 $2,511,137
1998 ............................................ 1,387,985 446,063 188,032 79,514 2,101,594
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations before restructuring
charge (see note 10):
Three months ended September 30,
1999 ............................................ $ 81,356 $ 8,363 $ 4,587 $ 15,017 $ 109,323
1998 ............................................ 123,072 21,324 2,857 11,031 158,284
Nine months ended September 30,
1999 ............................................ $ 366,532 $ 44,087 $ 26,920 $ 33,723 $ 471,262
1998 ............................................ 432,031 52,206 22,287 21,319 527,843
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations:
Three months ended September 30,
1999 ............................................ $ 81,356 $ 8,363 $ 4,587 $ 15,017 $ 109,323
1998 ............................................ 123,072 21,324 2,857 11,031 158,284
Nine months ended September 30,
1999 ............................................ $ 313,467 $ 23,220 $ 13,758 $ 30,933 $ 381,378
1998 ............................................ 432,031 52,206 22,287 21,319 527,843
- ----------------------------------------------------------------------------------------------------------------------------------
Operating locations at September 30:
1999 ............................................ 2,292 1,236 835 182 4,545
1998 ............................................ 1,837 1,200 782 161 3,980
- ----------------------------------------------------------------------------------------------------------------------------------

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

Revenues from external customers ........................... $ 515,700 $ 452,365 $1,661,179 $1,328,336
Income from operations before restructuring charge.......... $ 78,204 $ 119,173 $ 353,654 $ 417,327
Income from operations ..................................... $ 78,204 $ 119,173 $ 301,546 $ 417,327
Operating locations ........................................ -- -- 2,141 1,680
=====================================================================================================================

9. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations are presented below:

Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------

Income (numerator):
Income before extraordinary gain - basic ........... $ 32,055 $ 83,213 $149,951 $282,947
After tax interest on convertible debentures ....... 82 392 408 1,162
-------- -------- -------- --------
Income before extraordinary gain - diluted ......... $ 32,137 $ 83,605 $150,359 $284,109
- ---------------------------------------------------------------------------------------------------------------
Shares (denominator):
Shares - basic ..................................... 272,060 257,380 272,354 255,673
Stock options and warrants .................. 267 3,959 897 4,515
Convertible debentures ...................... 752 2,077 1,117 2,120
-------- -------- -------- --------
Shares - diluted ................................... 273,079 263,416 274,368 262,308
- ---------------------------------------------------------------------------------------------------------------
Earnings per share before extraordinary gain:
Basic .............................................. $ .12 $ .32 $ .55 $ 1.11
Diluted ............................................ $ .12 $ .32 $ .55 $ 1.08
- ---------------------------------------------------------------------------------------------------------------

10. RESTRUCTURING CHARGE
During the first quarter of 1999, the Company recorded a pretax restructuring
charge of $89,884, related to a cost rationalization program initiated in 1999.
The $89,884 charge relates to the following: (1) severance costs of $56,757; (2)
a charge of $19,123 for terminated projects representing costs associated with
certain construction projects that have been cancelled ($2,153) and costs
associated with acquisition due diligence which will no longer be pursued
($16,970); (3) a $7,245 charge for business and facility closures, primarily in
the Company's European operations; and (4) a remaining charge of $6,759
consisting of various other cost initiatives.

The $56,757 for severance costs is related to the termination of five
executive contractual relationships and the involuntary termination of
approximately 100 employees in North America (of which approximately 20 were
located in the corporate office), 600 employees in France, 85 employees in Other
European operations and 10 employees in other foreign operations. The positions
terminated were both operational and administrative in nature and the severance
costs are expected to be paid out over the next 6 to 12 months. The severance
costs related to the executive contractual relationships will be paid out
according to the terms of the respective agreements and will extend through
2005.

At September 30, 1999, approximately $24,867 remained in accrued
liabilities, of which $23,838 related to severance costs and $1,029 related to
cancellation fees and remaining non-cancellable payments on operating leases.
During the three months ended September 30, 1999, the Company made payments
totaling $3,345 relating to severance and $519 relating to cancellation fees and
non-cancellable leases.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES,
PER SHARE AMOUNTS, AND NUMBER OF LOCATIONS)

OVERVIEW:

The Company is the largest funeral and cemetery Company in the world conducting
funeral services and cemetery operations in 20 countries on five continents. The
Company's largest markets are North America and France, which when combined,
represent approximately 78% of the Company's total operating locations, and
approximately 86% of the Company's total revenues.

The majority of the Company's funeral service locations and cemeteries are
managed in groups called clusters. Clusters are established primarily in
metropolitan areas to take advantage of operational efficiencies, particularly
the sharing of service personnel, vehicles, preparation services, clerical staff
and certain building facility costs. Personnel costs, the largest operating
expense for the Company, is the cost component most beneficially affected by
clustering. The sharing of employees, as well as the other costs mentioned,
allow the Company to more efficiently utilize its operating facilities.

The funeral service locations and cemetery operations consist of the
Company's funeral homes, cemeteries, crematoria and related businesses. Both
funeral service locations and cemeteries can contain crematoria facilities. The
Company has approximately 167 combination facilities in which a funeral service
location is contained within a cemetery.

RESULTS OF OPERATIONS:

The following is a discussion of the Company's results of operations for the
three and nine month periods ended September 30, 1999 and 1998. For purposes of
this discussion, funeral homes, cemeteries and crematoria owned and operated
before January 1, 1998, are referred to as comparable operations.
Correspondingly, operations acquired or opened after January 1, 1998, are
referred to as acquired operations.

THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998

For the quarter ended September 30, 1999, the Company reported revenues of
$776,845, representing a 9.0% increase compared to $712,520 for the third
quarter of 1998. Gross profit in the third quarter of 1999 decreased 25.9% to
$128,645, compared to $173,706 in the same period of 1998. For the three months
ended September 30, 1999 the Company reported net income of $32,055 and diluted
earnings per share of $.12 ($.12 basic). The Company reported net income of
$83,213 and diluted earnings per share of $.32 ($.32 basic) for the third
quarter of 1998.

Results for the Company's three lines of business were as follows:

Three months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
------------------------------------------------------------------

Revenues:
Funeral .................... $469,138 $433,276 $ 35,862 8.3%
Cemetery ................... 233,837 213,369 20,468 9.6
Financial services ......... 73,870 65,875 7,995 12.1
-------- -------- --------
$776,845 $712,520 $ 64,325 9.0%
======== ======== ========

Gross profit and margin percentage:
Funeral .................... $ 64,736 13.8% $ 85,253 19.7% $(20,517) (24.1)%
Cemetery ................... 56,549 24.2 78,248 36.7 (21,699) (27.7)
Financial services ......... 7,360 10.0 10,205 15.5 (2,845) (27.9)
-------- -------- --------
$128,645 16.6% $173,706 24.4% $(45,061) (25.9)%
======== ======== ========

THE FOLLOWING FACTORS CONTRIBUTED TO THE RESULTS FOR THE THIRD QUARTER OF 1999:

o Comparable funeral services performed by the Company's worldwide
funeral service locations were 1.2% below comparable funeral services
performed in the third quarter of 1998 primarily related to weakened
death rates in France and United Kingdom. Comparable funeral services
performed in the Company's North American funeral service locations in
the third quarter of 1999 were equivalent to the comparable funeral
services performed in the third quarter of 1998.

o The average revenue per funeral service for all funeral service
locations in North America was equivalent to the average revenue per
funeral service in the third quarter of 1998. On a comparable location
basis, the average revenue per funeral service in North America
decreased approximately 1.0% when compared to the third quarter of
1998. In their respective local currencies, the average revenue per
funeral service at comparable locations increased 3% in France and
remained unchanged in the United Kingdom when compared to the third
quarter of 1998.

o Funeral service gross profit decreased 24.1% to $64.7 million in the
third quarter of 1999 related to a 2.1% worldwide decrease in
comparable funeral revenue, lower margins from acquired businesses in
North America, increased infrastructure costs in areas of technology
spending, higher personnel costs and higher amortization of deferred
prearranged funeral acquisition costs.

o Cemetery revenues increased 9.6% to $233.8 million primarily as a
result of total North America preneed cemetery revenues increasing
approximately $11.5 million to $126.5 million. Increases in preneed
cemetery revenues in North America are primarily attributable to
acquired cemetery properties. In comparable cemetery locations in North
America, total preneed and atneed revenues decreased approximately 4%
compared to the third quarter of 1998.

o Cemetery gross profit decreased approximately 28% in the third quarter
of 1999 related to weakened death rates, inclement weather conditions
in the southeastern United States and the Company's continued strategic
initiative to concentrate on the sale of heritage cemetery property.

o Realized investment earnings and capital gains related to cemetery
trust funds were $20,285 in the third quarter of 1999 compared to
$17,236 for the same period of 1998.

15
16

FUNERAL
Funeral revenues by geographic segment were as follows:

Three months ended
September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
---------------------------------------------

North America ................. $270,199 $234,880 $ 35,319 15.0%
France ........................ 114,248 126,312 (12,064) (9.6)
Other European ................ 61,921 56,629 5,292 9.3
Other Foreign ................. 22,770 15,455 7,315 4.7
-------- -------- --------
Total funeral revenues..... $469,138 $433,276 $ 35,862 8.3%
======== ======== ========

The increase in North American funeral revenues was primarily due to the
January 1999 merger with ECI as well as revenues from other acquired locations.
Revenues from acquired funeral service locations in the third quarter of 1999
were $48,435 compared to $8,154 in the third quarter of 1998.

The decrease in French funeral revenue was primarily the result of a
$10,484 decrease, or 9.1%, in revenues from comparable locations. The number of
funeral services performed at comparable locations in France in the third
quarter of 1999 decreased 2.8% compared to the same period of 1998, which the
Company believes is primarily mortality driven as the Company's market share in
France remained unchanged during the third quarter of 1999.

The increase in Other European funeral revenue was the result of a $1,023
increase, or 2.2%, in revenues from comparable locations and a $4,124 increase
in revenues from acquired locations. The increase in revenue from acquired
locations reflects the Company's 1998 acquisitions growth in Continental Europe.

The increase in Other Foreign funeral revenue is primarily the result of a
$4,116 increase in acquired funeral operations in South America.

Funeral gross profit and margin percentage were as follows:

Three months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------

North America ..................... $ 50,212 18.6% $59,254 25.3% $(9,042) (15.3)%
France ............................ 4,949 4.3 17,609 13.9 (12,660) (71.9)
Other European .................... 4,513 7.3 3,710 6.5 803 21.6
Other Foreign .................... 5,062 22.2 4,680 30.3 382 8.2
-------- ------- --------
Total gross profit and margin.. $ 64,736 13.8% $85,253 19.7% $(20,517) (24.1)%
======== ======= ========

The decrease in North American funeral gross profit and margin percentage
was primarily the result of increases in operating expenses, coupled with flat
comparable volumes and a slight decrease, 1.0%, in the average revenue per
funeral service at comparable locations.

The decrease in French funeral gross profit and margin percentage was
primarily the result of decreased funeral services performed causing reduced
profit due to the Company's fixed cost structure compounded by a delay of
anticipated reengineering cost saving measures which are now expected to be
fully implemented in early 2000.

The increase in Other European gross profit and margin percentage is
primarily due to acquired funeral service locations in Continental Europe.

16
17
CEMETERY

Cemetery revenues by geographic segment were as follows:

Three months ended
September 30,
1999 1998 Increase % Increase
---------------------------------------------------

North America .................. $199,319 $192,198 $ 7,121 3.7%
Other European ................. 7,752 5,389 2,363 43.8
Other Foreign .................. 26,766 15,782 10,984 69.6
-------- -------- --------
Total cemetery revenues..... $233,837 $213,369 $ 20,468 9.6%
======== ======== ========

The increase in North American cemetery revenues was primarily the result
of a $22,079 increase in revenues from acquired locations and an increase of
$3,049 in realized investment earnings and capital gains from cemetery trust
funds, partially offset by a decrease of $16,600 of cemetery revenues from
comparable North American operations (which consists of preneed and atneed sales
and proceeds from the sale of undeveloped cemetery property).

The increase in Other European cemetery revenues is primarily due to a
$1,882 increase in revenues from acquired locations.

The increase in Other Foreign cemetery revenues was primarily the result of
revenue increases from the Company's acquired South American cemetery
operations.

Cemetery gross profit and margin percentage were as follows:

Three months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------

North America ........................ $44,909 22.5% $ 70,481 36.7% $(25,572) (36.3)%
Other European ....................... 1,685 21.7 1,416 26.3 269 19.0
Other Foreign ........................ 9,955 37.2 6,351 40.2 3,604 36.2
------- -------- --------
Total gross profit and margin.. $56,549 24.2% $ 78,248 36.7% $(21,699) (27.7)%
======= ======== ========

The decrease in North American cemetery gross profit and margin percentage
was primarily the result of weakened death rates, inclement weather conditions
in the southeastern United States, and increased property costs and commissions
expenses related to strategic initiatives to concentrate on the sale of heritage
cemetery property. The Company believes the sale of heritage cemetery property
such as lots, lawn crypts, and mausoleums spaces will assist in increasing
market share in its cemetery operations. Heritage sales are cemetery contracts,
including interment spaces, with new property owners which can usually be
expected to lead to additional future merchandise sales, additional new property
sales based on referrals, and sales of prearranged and atneed funerals,
especially at funeral and cemetery combination operations.

The increase in Other Foreign cemetery gross profit was primarily the
result of increases in gross profit from the Company's acquired South American
cemetery operations.

FINANCIAL SERVICES

Financial services revenues were as follows:

Three months ended
September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
--------------------------------------------------------

Insurance:
North America ....................... $ 60,257 $ 38,912 $ 21,345 54.9%
France .............................. 8,397 21,658 (13,261) (61.2)
-------- -------- --------
Total insurance .......................... 68,654 60,570 8,084 13.3
Lending subsidiary ....................... 5,216 5,305 (89) (1.7)
-------- -------- --------
Total financial services revenues ... $ 73,870 $ 65,875 $ 7,995 12.1%
======== ======== =======

Financial services gross profit and margin percentage were as follows:

Three months ended September 30,
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------

Insurance:
North America.................. $ 1,478 2.5% $ 3,853 9.9% $(2,375) (61.6)%
France......................... 3,413 40.6 3,715 17.2 (302) (8.1)
--------- ------- -------
Total insurance .................. 4,891 7.1 7,568 12.5 (2,677) (35.4)
Lending subsidiary ............... 2,469 47.3 2,637 49.7 (168) (6.4)
--------- ------- -------
Total gross profit and margin.. $ 7,360 10.0% $10,205 15.5% $(2,845) (27.9)%
========= ======= =======

The increase in North American insurance revenues is primarily due to the
growth of AML since its acquisition by the Company, effective July 1998. This
growth is attributed to the Company's initiative of funding prearranged funeral
contracts, to the extent possible, through AML. The decrease in gross profit and
margin percentage is the result of increased costs from information technology
and overhead costs related to the increased utilization of AML by the Company to
fund prearranged funeral contracts.

The decrease in French insurance revenues is primarily due to a realized
loss from a repositioning of the investment portfolio during the quarter. The
gross profit and margin percentage for French insurance was only slightly
impacted due to French regulatory requirements providing a related significant
decrease in costs.

The Company's lending subsidiary reported a gross profit of $2,469 for the
three months ended September 30, 1999, compared to $2,637 for the same period in
1998. The average outstanding loan portfolio during the current period increased
to $244,571 compared to $229,408 in 1998, however, the average interest rate
spread decreased to 2.4%, compared to 3.3% in 1998.

OTHER INCOME AND EXPENSES

General and administrative expenses increased $3,900 to $19,322, compared to in
the third quarter of 1998. The increase was related to increased professional
fees related to ongoing cost rationalization programs and information technology
costs related to the Company's year 2000 preparation. Expressed as a percentage
of revenues, general and administrative expenses were 2.5% for the three months
ended September 30, 1999, compared to 2.2% for the comparable period in 1998.

Interest expense increased $11,588 or 24.2% in the third quarter of 1999
compared to the same period of 1998. The increased interest expense primarily
reflects the Company's funding of acquisitions with debt subsequent to the third
quarter of 1998.

Other income primarily consists of gains and losses from the sales of
businesses that are disposed of for strategic or government mandated purposes.
In the third quarter of 1999, the Company recorded an approximate $7.1 million
loss related to the sale of cemetery operations in the state of Wisconsin as a
result of a judicial interpretation of state law. The Company recorded net gains
from the sales of business of approximately $14.6 million in the third quarter
of 1998.

The provision for income taxes reflected a 35.4% effective tax rate for the
three months ended September 30, 1999, compared to a 35.3% effective tax rate
for the comparable period in 1998. The slight increase in the effective tax rate
is due primarily to the non-deductibility of increased names and reputations
associated with the Company's merger with ECI.

NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998

Results for the Company's three lines of business were as follows:

Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-------------------------------------------------------------------------

Revenues:
Funeral..................... $1,526,957 $1,351,603 $175,354 13.0%
Cemetery.................... 742,863 636,138 106,725 16.8
Financial services.......... 241,317 113,853 127,464 112.0
---------- ---------- --------
$2,511,137 $2,101,594 $409,543 19.5%
========== ========== ========
Gross profit and margin percentage:
Funeral..................... $ 278,531 18.2% $ 308,622 22.8% $(30,091) (9.8)%
Cemetery.................... 218,370 29.4 250,365 39.4 (31,995) (12.8)
Financial services.......... 30,200 12.5 18,537 16.3 11,663 62.9
---------- ---------- --------
$ 527,101 21.0% $ 577,524 27.5% $(50,423) (8.7)%
========== ========== ========

FUNERAL

Funeral revenues by geographic segment were as follows:

Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-----------------------------------------------------------------

North America ..................... $ 887,937 $ 752,150 $135,787 18.0%
France .......................... 378,306 386,087 (7,781) (2.0)
Other European .................... 204,527 170,411 34,116 20.0
Other Foreign ..................... 56,187 42,955 13,232 30.8
---------- ---------- --------
Total funeral revenues.... $1,526,957 $1,351,603 $175,354 13.0%
========== ========== ========

The increase in North American funeral revenues was the result of increased
revenues from acquired locations, primarily due to the January 1999 merger with
ECI. Funeral revenues from comparable locations in North America of $721,975 was
equivalent to comparable funeral revenues in the same period of 1998 primarily
due to flat funeral services performed period over period.

The decrease in French funeral revenues was the result of a slight
decrease in the number of funerals performed in France and a negative impact of
approximately $6,000 related to the French franc to US dollar currency exchange
rate.

The increase in Other European funeral revenues was the result of a $8,411,
or 5.6%, increase in revenues from comparable locations and a $26,070 increase
in revenues from acquired locations. The growth in comparable revenue is
primarily due to a 6.6% increase in comparable revenue reported by the Company's
United Kingdom funeral operations. The growth in revenues reported by acquired
locations is primarily the result of acquisitions in Continental Europe.

The increase in Other Foreign funeral revenues was the result of a $9,843
increase in revenues at acquired locations. The increase in revenues at acquired
locations was primarily due to an increase in the number of funerals performed
at the

Company's South American funeral service locations coupled with increases in
comparable funeral revenues in the Pacific Rim.

Funeral gross profit and margin percentage were as follows:

Nine months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
--------------------------------------------------------------------------

North America ............................. $210,381 23.7% $231,706 30.8% $(21,325) (9.2)%
France..................................... 33,845 8.9 44,659 11.6 (10,814) (24.2)
Other European ............................ 24,263 11.9 22,457 13.1 1,806 8.0
Other Foreign ............................. 10,042 17.9 9,800 22.8 242 2.5
-------- -------- --------
Total gross profit and margin.......... $278,531 18.2% $308,622 22.8% $(30,091) (9.8)%
======== ======== ========

The decrease in North American funeral gross profit and margin
percentage was primarily the result of increases in operating expenses at both
comparable and acquired locations. Comparable locations experienced increases in
operating expenses, coupled with flat funeral service volumes and average
revenue per funeral service. The decline in comparable funeral gross profit was
partially offset by acquired locations added in the January 1999 merger with
ECI.
The decrease in French funeral gross profit and margin percentage was
primarily the result of decreased funeral services performed causing reduced
profit due to the Company's fixed cost structure compounded by a delay of
anticipated reengineering cost saving measures in the third quarter of 1999
which are now expected to be fully implemented in early 2000.

CEMETERY

Cemetery revenues by geographic segment were as follows:

Nine months ended September 30,
1999 1998 Increase % Increase
-----------------------------------------------------------------

North America ..................... $646,559 $581,958 $ 64,601 11.1%
Other European .................... 26,011 17,621 8,390 47.6
Other Foreign,..................... 70,293 36,559 33,734 92.3
-------- -------- --------
Total cemetery revenues......... $742,863 $636,138 $106,725 16.8%
======== ======== ========

The increase in North American cemetery revenues was the result of a
$12,527 increase in revenues from comparable locations (which consists of
preneed and atneed sales and sales of undeveloped cemetery property) and a
$65,970 increase in revenues from acquired locations primarily due to the merger
in January 1999 with ECI. Partially offsetting these increases was a $11,057
reduction in realized investment earnings and capital gains from cemetery trust
funds.

Other European cemetery revenues increased due to continued growth in
Continental Europe. Revenues from the Company's Belgium and Netherlands cemetery
operations increased $4,412 in 1999, primarily as a result of acquisitions.

The increase in Other Foreign cemetery revenues was primarily the result of
revenue increases from additional South America cemetery operations acquired in
December 1998.

20
21

Cemetery gross profit and margin percentage were as follows:

Nine months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
--------------------------------------------------------------------------

North America ............................ $186,668 28.9% $232,972 40.0% $(46,304) (19.9)%
Other European ........................... 8,021 30.8 5,874 33.3 2,147 36.6
Other Foreign............................. 23,681 33.7 11,519 31.5 12,162 105.6
-------- -------- --------
Total gross profit and margin....... $218,370 29.4% $250,365 39.3% $(31,995) (12.8)%
======== ======== ========

The decrease in North American cemetery gross profit and margin percentage
was primarily the result of increases in property costs and commission expenses
as a result of heritage cemetery property sales initiatives and reductions in
realized investment earnings and capital gains from cemetery trust funds.

The increase in Other Foreign cemetery gross profit and margin percentage
was primarily the result of increases in gross profit from the Company's
acquired South America cemetery operations.

FINANCIAL SERVICES

Financial services revenues were as follows:

Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-----------------------------------------------------------------

Insurance:
North America ....................... $170,603 $ 38,912 $131,691 338.4%
France............................... 54,247 59,976 (5,729) (9.6)
-------- -------- --------
Total insurance......................... 224,850 98,888 125,962 127.4
Lending subsidiary ..................... 16,467 14,965 1,502 10.0
-------- -------- --------
Total financial services revenues.. $241,317 $113,853 $127,464 112.0%
======== ======== ========

Financial services gross profit and margin percentage were as follows:

Nine months ended September 30,
1999 % of Revenue 1998 % of Revenue Increase % Increase
-------------------------------------------------------------------------------

Insurance:
North America .................. $ 12,202 7.2% $ 3,853 9.9% $ 8,349 216.7%
France ......................... 10,242 18.9 7,547 12.6 2,695 35.7
-------- ------- -------
Total insurance ................... 22,444 10.0 11,400 11.5 11,044 96.9
Lending subsidiary ................ 7,756 47.1 7,137 47.7 619 8.7
-------- ------- -------
Total gross profit and margin.. $ 30,200 12.5% $18,537 16.3% $11,663 62.9%
======== ======= =======

The increase in North American insurance revenues and gross profit is
primarily due to the acquisition of AML effective July 1998.

The decrease in French insurance revenues is due to decreased investment
income related to a repositioning of the investment portfolio. The gross profit
and margin percentage for French insurance did not experience similar losses due
to French regulatory requirements providing a related significant decrease in
costs.

The Company's third party lending subsidiary reported a gross profit of
$7,756 for the nine months ended September 30, 1999, compared to $7,137 for the
same period in 1998. The average outstanding loan portfolio during the current
period increased to $267,705 compared to $218,475 in 1998, however, the average
interest rate spread decreased to 2.6%, compared to 3.2% in 1998.

OTHER INCOME AND EXPENSES

General and administrative expenses increased $6,158 to $55,839, compared to the
nine months ended September 30, 1998. The increase primarily relates to
increased professional expenses related to ongoing cost rationalization programs
and information technology costs related to the Company's Year 2000 preparation.
Expressed as a percentage of revenues general and administrative expenses were
2.2% for the nine months ended September 30, 1999, compared to 2.4% for the
comparable period in 1998.

Interest expense increased 37.8% or $47,623 in the nine months ended
September 30, 1999, compared to the same period of 1998. The increased interest
expense primarily reflects the Company's funding of acquisitions with debt
subsequent to the third quarter 1998.

Other income primarily consist of gains and losses from the sales of
businesses that are disposed of for strategic or government mandated purposes.
In the third quarter of 1999, the Company recorded an approximate $7.1 million
loss related to the sale of cemetery operations in the state of Wisconsin as
result of a judicial interpretation of state law.

The provision for income taxes reflected a 36.1% effective tax rate for the
nine months ended September 30, 1999, compared to a 35.3% effective tax rate for
the comparable period in 1998. The increase in the effective tax rate is due
primarily to the non-deductibility of increased names and reputations associated
with the Company's merger with ECI.

During the first quarter 1999, the Company recorded a pretax
restructuring charge of $89,884, related to a cost rationalization program
initiated in 1999. At September 30, 1999, approximately $24,867 remained in
accrued liabilities, of which $23,838 related to severance costs and $1,029
related to cancellation fees and remaining non-cancelable payments on operating
leases. Payments of these accrued liabilities will occur through 2005. The
Company does not expect these payments will have a significant effect on its
liquidity or financial position. The effect of the cost rationalization program,
coupled with other cost reduction initiatives, is expected to produce future
annualized cost savings of at least $60,000, on a pretax basis, primarily
through the reduction of personnel and facility costs.

FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1999:

General

The Company is currently pursuing a strategy to reduce debt, improve cash flows
and generate improved returns on invested capital. Key initiatives include (i)
operational improvement resulting from strategic revenue and marketing
initiatives combined with cost-improvement programs through business
reengineering; (ii) working capital improvement through accelerated cash
receipts expected from the Company's recently announced consumer financing
program related to the Company's atneed funeral and atneed and preneed cemetery
activities; (iii) disposition of selected operating businesses and certain
non-core assets; (iv) limiting the Company's acquisition program; (v) reduction
of capital expenditures; and (vi) suspension of the cash dividend on the
Company's common stock. Management believes that these initiatives will improve
cash flows and result in debt reduction in the range of $200,000 to $400,000 by
the end of 2000.

Historically, the Company had funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper. Funding
required for the Company's acquisition program has been generated through public
and private offerings of debt and the issuance of equity securities supplemented
by the Company's revolving credit agreements and additional securities
registered with the Securities and Exchange Commission.

In January 1999, the Company merged with ECI in a stock-for-stock
transaction in which ECI shareholders received approximately 15,501 shares of
Company common stock valued at approximately $557,000 and approximately 1,200
options to purchase Company common stock valued at approximately $8,628. In
connection with the merger, the Company assumed approximately $310,000 of ECI
indebtedness. The ECI merger added 359 funeral homes and 80 cemeteries in North
America.

Excluding the ECI transaction, for the nine-month period ended September
30, 1999, the Company acquired 72 funeral service locations, 15 cemeteries and 2
crematoria for an aggregate purchase price of approximately $89,700. As of
October 21, 1999, the Company had received signed letters of intent to acquire
an additional 3 funeral service locations for an aggregate purchase price of
approximately $12,400. Combined, these businesses are expected to produce
approximately

$56,700 in annualized revenues. The Company has significantly limited its
acquisition program and is concentrating instead on key initiatives described
above to replace operating profit growth historically generated through
acquisitions without the outlay of significant additional capital.

At September 30, 1999, the Company had net working capital of $304,277 and
a current ratio of 1.39:1, compared to working capital of $578,755 and a current
ratio of 1.92:1 at December 31, 1998.

SOURCES AND USES OF CASH

Cash flows from operating activities: Net cash provided by operating activities
was $326,997 for the nine months ended September 30, 1999, compared to $255,938
for the same period in 1998, an increase of $71,059. Significant components of
cash flow provided by operating activities for the nine months ended September
30, 1999 included: (1) net income adjusted for non-cash items, (2) the original
$89,884 pretax restructuring provision (of which $24,867 remains at September
30, 1999, and the decrease is reflected through the change in payables and other
liabilities), partially offset by (3) an increase in receivables of $181,753
primarily attributed to the sales of preneed cemetery products and services
($396,700 in North America for the nine months ended September 30, 1999) which
are usually financed on an installment basis in excess of 12 months. In
reference to the increase in receivables, the Company entered into a consumer
financing agreement subsequent to the third quarter of 1999. The consumer
financing program has been designed to be consumer-friendly to the Company's
client families and is non-recourse to the Company. After national
implementation of the consumer financing program in the United States, the
program is expected to improve cash flows from funeral and cemetery operations.

Cash flows from investing activities: Net cash used in investing activities
was $378,064 for the nine months ended September 30, 1999, compared to $801,518
for the same period in 1998, a decrease in the use of cash of $423,454.
Significant components of cash used in investing activities for the nine months
ended September 30, 1999 included $160,998 in capital expenditures and
approximately $148,162 of purchases in excess of sales of securities at the
Company's insurance subsidiaries. One of the subsidiaries had an approximate
$80,000 cash position at December 31, 1998, in which a significant portion of
the excess cash was used to purchase securities.

Cash flows from financing activities: Net cash used in financing activities
was $101,306 for the nine months ended September 30, 1999, compared to net cash
provided by financing activities of $615,683 for the same period in 1998. The
$615,683 includes $500,000 of proceeds from the issuance of long-term debt.
Significant components of cash used in financing activities for the nine months
ended September 30, 1999, included $365,936 for the early extinguishment of
certain floating rate debt and the ECI convertible debentures, as well as
$160,254 to repay other debt assumed in connection with the ECI merger.

As of September 30, 1999, the Company's debt to capitalization ratio was
53% compared to 55% at December 31, 1998 (52% and 54%, respectively, excluding
the Company's third party lending subsidiary). The interest coverage ratio for
the nine months ended September 30, 1999, was 2.78:1 (excluding the 1999
restructuring charge of $89,884), compared to 4.29:1 for the same period in
1998.

The Company expects adequate sources of funds to be available to conduct
its future operations through internally generated funds, borrowings under
credit facilities and the issuance of securities. As of September 30, 1999, the
Company had approximately $530,000 of available borrowings under its primary
revolving credit agreements. As of November 2, 1999, following the renewal and
modification of the revolving credit agreements, the Company had approximately
$239,000 of available borrowings under these facilities. As of September 30,
1999, the Company also had the ability to issue $900,000 in securities
registered with the Commission under a shelf registration. In addition, 12,870
shares of common stock and a total of $187,000 of guaranteed promissory notes
and convertible debentures are registered with the Commission under a separate
shelf registration to be used exclusively for future acquisitions.

23
24

PREARRANGED FUNERAL ACTIVITIES

The Company sells price guaranteed prearranged funeral contracts through various
programs providing for future funeral services at prices prevailing when the
contracts are signed. Payments under these contracts are placed into trust
accounts or are used to pay premiums on life insurance or annuity contracts.
Trust earnings and increasing insurance benefits are accrued and deferred until
funeral services are performed, at which time, all funds are recognized in
funeral revenue. Trust earnings and increasing insurance benefits are intended
to cover future increases in the cost of providing a price guaranteed funeral
service.

The total value of unperformed prearranged funeral contracts includes
contracts that are to be funded by trust, third party insurance companies, or
the Company's insurance subsidiaries. The total value represents the original
contract values plus any accumulated trust fund earnings or increasing insurance
benefits. At September 30, 1999, the total value of unperformed prearranged
funeral revenues expected to be recognized in future periods was $4,378,665
which is an approximate 17% increase over the December 31, 1998, balance of
$3,751,850. Approximately 8% of the increase from December 31, 1998, relates to
acquisitions and 16% of the increase relates to additional prearranged funeral
contract sales, accumulated trust fund earnings and increasing insurance
benefits. Such increases are offset primarily by maturities, which accounts for
approximately 6%, as well as unfavorable foreign currency fluctuations of 1%.

The Company's investment program targets a real return in excess of the
amount necessary to cover future increases in the cost of providing a price
guaranteed funeral services. The investment portfolio is allocated to the
appropriate investments that more accurately match the anticipated maturity of
the contracts. The Company's current asset allocation in its investment
portfolio is approximately 50% equity and 37% fixed income with the remainder
held in cash, cash equivalents and other investments.

The sales of prearranged funeral contracts afford the Company the
opportunity to protect both current market share as well as expand market share
in certain markets. On a comparable basis, prearranged funeral services
fulfilled as a percent of North American funerals performed was 28.7% for the
nine months ended September 30, 1999, (26.3% for the nine months ended September
30, 1998) and is expected to increase over time.

OTHER MATTERS:

Year 2000 Issue
- ---------------

The Year 2000 issue, also known as "Y2K," refers to the inability of some
computer programs and computer-based microprocessors to correctly interpret the
century from a date in which the year is represented by only two digits (e.g.,
98). As a result, on or before January 1, 2000, computer systems used by
companies throughout the world may experience operating difficulties unless they
are modified or upgraded to properly process date related information. The Y2K
issue can arise at any point in a company's supply, manufacturing, processing,
distribution, or financial chains.

The Company has established Y2K program offices at its corporate offices in
Houston, Texas and Birmingham, England. These program offices, under the
direction of senior management, are responsible for advising and monitoring the
numerous facets of the Company's Y2K preparations. The Company is utilizing
internal personnel, contract programmers and testers, as well as other third
party vendors, to identify Y2K issues, test and implement the chosen solutions.

In order to adequately address the Y2K issue, efforts have been directed to
the following categories: production systems, networks, desktops, user developed
applications, vendor supplied software, facilities and telecommunications, and
the Company's supply chain. The following phases are common to all of these
categories: inventory and determination of criticality; discovery to determine
Y2K problems; and analysis to determine corrective action, correction, testing,
and implementation. In addition to these activities, promotion of Y2K awareness
and development of contingency plans are part of the Company's Y2K preparation
effort.

State of Readiness

The majority of the Company's internal Y2K exposure exists at the corporate
office locations where the accounting and processing of the Company's business
transactions takes place. Individual operating locations (primarily funeral
homes and cemeteries) are substantially technologically independent and thus
face few Y2K risks from internal systems.

24
25

Production systems: All of the Company's critical production systems have
been assessed for Y2K readiness. Of these, six systems have not progressed
through all phases that the Company requires for Y2K readiness.

During the third quarter of 1999, the Company determined that the full
deployment of the newly developed proprietary funeral home and cemetery
production systems to all of its North American operations could not feasibly be
completed by December 31, 1999. Thus, interim Y2K compliant patches to the
existing system have been developed and tested, and are being implemented at the
remaining locations beginning November 15. Full implementation of the interim
patches is expected to be completed by the middle of December.

Testing of the Company's Y2K-ready payroll system in France is also nearing
completion. However, production use of the new system will not begin until
January 2000, as the existing system will be used for year-end 1999 tax
reporting requirements.

Four less critical systems are nearing the end of the correction, testing,
and implementation phases and will be implemented by the middle of December
1999.

Networks: All of the Company's critical computer networks have been
assessed for Y2K readiness. Upgrades and replacements are substantially complete
in North America and Australia. Critical networks for the Company's European
operations are in the process of being upgraded or consolidated with the
Company's North American infrastructure. All critical networks are expected to
be Y2K ready by the end of November 1999.

Desktops: Testing has been conducted to determine the extent to which the
Y2K problem associated with desktops will affect the Company's ability to
conduct business. As none of the Company's critical computer systems directly
access date information from the desktop's real time clock, it has been
determined that very few desktops will pose a critical Y2K issue. As part of
ongoing technology refresh programs and new production systems' deployment,
desktops are being upgraded, as needed, to better meet the Company's business
needs. As part of contingency planning, personnel have been instructed on how to
verify each desktop's date, and reset if necessary, after January 1, 2000.

User developed applications: Inventory and discovery for items in this
category have been achieved. Very few critical applications were found to have
date dependencies. Those that have date dependencies continue to be tested to
ensure no problems arise because of Y2K issues. As these applications often work
in tandem with the Company's production systems, final testing and
implementation has/will coincide with those systems.

Vendor supplied software: It is the policy of the Company to query each
manufacturer of critical "off-the-shelf" software to ascertain the vendor's
statement regarding the Y2K readiness of their products. Once the vendor's
statement is obtained, upgrades, replacements and testing are conducted to
minimize the risk of Y2K issues arising from the software. The Company will
continue to apply new software patches from third party vendors as they are
reported necessary until November 1999, when all systems will be frozen from
further modifications (unless currently unknown critical software patches are
received) to prepare for the transition to the year 2000.

Facilities and telecommunications: The Company recognizes the potential for
Y2K issues to arise from embedded technology systems which may be in use at its
numerous facilities. Telecommunications equipment has proven the most
vulnerable, however, replacements and/or upgrades have been completed as
necessary.

Supply chain: Due to the Company's geographically dispersed locations and
methods of operation, assessing the Y2K readiness of the Company's supply chain
must occur at both the corporate level (for core supply chain relationships) and
the local level (for those relationships unique to a location). Inventory and
discovery have been completed at a number of operating locations and is
completed at the Company's headquarters. Activities were undertaken to assign
criticality to both corporate and local supply relationships and additional
efforts have been made to ascertain the Y2K readiness of critical suppliers.
Where the assessment raised concern about a critical supplier's Year 2000
preparations, contingency plans have been created.

Costs

The aggregate costs for the Company to achieve Y2K readiness are not expected to
exceed $33 million of which $3.8 million represents lease payments which will be
incurred from 2000-2002. All costs associated with Y2K readiness are expected to
be funded from cash flows from operations. The Company's actual costs incurred
associated with Y2K readiness through September 30, 1999, are estimated at $22.6
million, of which approximately $9.1 million has been expensed and approximately
$13.5 million has been capitalized. Approximately $6.8 million of the estimated
remaining expenditures will be expensed and

26
approximately $3.6 million will be capitalized. The capitalized expenditures
represent new hardware and new enterprise software that introduces new
functionality to the Company.

In an effort to report material costs related to the Company's Y2K effort,
the Company has adopted a policy of capturing all contractor expenses and
internal costs for dedicated resources (those working exclusively on Y2K
issues). As such, the Company acknowledges that there are many internal
resources working part-time on Y2K-related issues for which no payroll or
overhead costs are being reported.

Risks and Contingency Plans:

The majority of the Company's internal Y2K exposure exists at its corporate
offices where the Company's production systems operate. The failure to correct a
material Y2K problem at these locations could result in an interruption of
certain normal corporate business activities. Such a failure would not, however,
render the Company's various operating locations unable to deliver goods and
services.

The Company believes that the greatest risks continue to arise from the
uncertainty of the Y2K readiness of critical third party suppliers, both private
businesses and government entities, especially in the Company's international
markets. The possible consequences of critical third party suppliers not being
Y2K ready by January 1, 2000 could include temporary location closings, delays
in the delivery of goods and services, delays in the receipt of goods and
invoice and collection errors. Efforts made by the Company to ascertain the Y2K
status of critical third party suppliers is expected to significantly reduce the
Company's level of uncertainty in this arena and, through the use of contingency
planning, the possibility of significant interruptions in normal operations
should be reduced. At this time, the Company has no substantiated reason to
believe that one or more key third party suppliers will not be able to meet
their obligations to the Company after January 1, 2000.

With respect to the systems controlled by the Company, the Company believes
that the greatest risks exist with the two critical production systems that are
not yet fully Y2K ready. If the interim Y2K compliant patches to the existing
North American funeral home and cemetery production systems are not implemented
at all locations that require them by December 15, 1999, contingency plans will
be invoked. Under these plans, locations unable to process their own
transactions will forward their data to another location with input capability.

Because the first payroll processing date under the new system in France
does not occur until the third week of January, the Company is confident that it
will be able to identify and correct any significant items noted in its final
testing during November and December. Should difficulties arise in the first
payroll processing, contingency plans will be invoked to ensure that all French
employees are adequately compensated.

Because of the many uncertainties that exist, it is part of the Company's
Y2K preparation that contingency plans be established for critical systems in
each of the categories outlined above. Contingency planning is being approached
both from an information technology perspective and from a business perspective.
Information technology plans encompass each critical system and outline a course
of action should a date related problem occur. Business plans encompass each
critical business function and outline a course of action should a supporting
computer system or infrastructure item not be available (i.e., electricity,
phone service, etc.). Although these contingency plans are at different stages
at the Company's various locations, contingency plans for all critical
production systems and for all individual operating locations are in place or
are expected to be in place by the end of December 1999.

In addition to contingency plans, the Company has developed preliminary
transition plans aimed at detailing operations immediately before and after the
date change to 2000. These transition plans include procedures for establishing
a Y2K Transition Command Center, backing-up critical files, shutting down
non-essential processing, staffing, and emergency communications during the
transition time period. These transition plans will be continuously updated and
reviewed through the end of December 1999.

Recent Accounting Pronouncements
- --------------------------------

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133."

SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No. 137 during
the first quarter of the year ended December 31, 2001.

Cautionary Statement on Forward-looking Statements
- --------------------------------------------------

The statements contained in this filing on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of 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, especially the Company's anticipated
cemetery trust revenues.

2) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including tax and
accounting policies. Changes in regulations may impact the Company's
ability to enter or expand new markets.

3) Changes in consumer demand and/or pricing for the Company's products
and services caused by several factors, such as changes in local death
rates, cremation rates, competitive pressures and local economic
conditions.

4) The Company's ability to sell preneed heritage cemetery property which
is usually associated with new customers to the Company's cemeteries.

5) The Company's ability to successfully integrate acquisitions into the
Company's business and to realize expected cost savings in connection
with such acquisitions.

6) The Company's ability to successfully implement certain cost reduction
initiatives, including the cost reduction initiatives previously
announced, as well as changes in domestic and international political
and/or regulatory environments which could negatively effect the
implementation of the Company's cost initiatives.

7) The Company's ability to successfully implement certain strategic
revenue and marketing initiatives resulting in increased volume
through its existing facilities and the Company's ability to
successfully implement certain strategic cash flow initiatives,
including the presently announced funeral and cemetery consumer
financing program, which could improve or generate cash flow for the
Company.

8) The Company's ability to successfully complete the disposition of
selected operating businesses and certain non-core assets in order for
the proceeds from such dispositions to assist in the reduction of the
Company's debt.

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

10) The ability of the Company, or its critical third-party suppliers, to
adequately complete "Y2K" preparation efforts. "Y2K" refers to the
inability of some computer programs and computer-based microprocessors
to correctly interpret the century from a date in which the year is
represented by only two digits.

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.

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 Annual Report on Form 10-K for the year ended December 31, 1998.
Except as noted below, there have been no material changes to the disclosure on
this matter made in such Form 10-K.

Cemetery Merchandise Trust Funds

The cost and market value associated with the assets held in cemetery
merchandise trust funds are stated below as of December 31, 1998, and September
30, 1999. The Company records a receivable due from cemetery merchandise trust
funds which is included at cost in current and long-term receivables in the
Company's consolidated balance sheet. The Company does not believe the
unrealized loss at September 30, 1999, associated with the assets held in the
cemetery merchandise trust funds is permanent in nature and therefore does not
believe a related provision for impairment is necessary.

December 31, 1998 September 30, 1999
------------------------ ------------------------

Cost Market Cost Market
-------- -------- -------- --------

$662,564 $656,408 $795,518 $751,527

29
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Previously Reported Litigation. The following discussion describes
certain litigation as of November 11, 1999, which was previously
reported:

Civil Action H-99-0280; In Re Service Corporation International; In the
United States District Court for the Southern District of Texas,
Houston Division ("the Consolidated Lawsuit"). The Consolidated Lawsuit
is pending before Judge Lynn N. Hughes and includes all 21 class action
lawsuits that were filed in the Southern District of Texas and two
class action lawsuits that were originally brought in the United States
District Court for the Eastern District of Texas, Lufkin Division. The
Consolidated Lawsuit names as defendants the Company and three of the
Company's current or former executive officers or directors: Robert L.
Waltrip, L. William Heiligbrodt and George R. Champagne (the
"Individual Defendants"). The plaintiffs have filed a Consolidated
Class Action Complaint in the Consolidated Lawsuit alleging that
defendants violated federal securities laws by making materially false
and misleading statements and failing to disclose material information
concerning SCI's preneed funeral business. The Consolidated Lawsuit
seeks to recover an unspecified amount of monetary damages. Since the
litigation is in its very preliminary stages, no discovery has
occurred, and the Company cannot quantify its ultimate liability, if
any, for the payment of damages. However, the Company believes that the
allegations in the Consolidated Lawsuit do not provide a basis for the
recovery of damages because the Company has made all required
disclosures on a timely basis. The Company and the Individual
Defendants have filed an Answer to the Consolidated Class Action
Complaint, and the Company intends to aggressively defend this lawsuit.

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 Company into Equity Corporation
International ("ECI"); (ii) purchased shares of Company common stock
during the period 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;
and (vi) held Company employee stock options granted during the Class
Period. Excluded from the foregoing 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. Judge Hughes
has certified the Consolidated Lawsuit as a class action.

29
30
The Company and the Individual Defendants have filed a Motion to
Dismiss the Consolidated Lawsuit, and the plaintiffs have filed their
Opposition to Defendants' Motion to Dismiss the Consolidated Lawsuit.
The Company and the Individual Defendants intend to file promptly a
pleading in response to the plaintiffs' most recent filing. The
foregoing pleadings will be considered by Judge Hughes in due course.

Copies of the complaint in the Consolidated Lawsuit and the pleadings
that have been filed in response thereto and that are referred to
herein are filed as exhibits to this Quarterly Report on Form 10-Q.

9-99-CV58; Charles Fredrick v. Service Corporation International; In
the United States District Court for the Eastern District of Texas,
Lufkin Division. This additional securities fraud case has been brought
against the Company by a former shareholder of ECI alleging causes of
action exclusively under Texas statutory and common law. The Company
has requested that the case be transferred to the Southern District of
Texas to be consolidated with the Consolidated Lawsuit.

Additional Litigation. On November 10, 1999, James P. Hunter, III and a
related family trust filed a lawsuit against the Company, the
Individual Defendants, two other officers, an employee of the Company
and PricewaterhouseCoopers LLP, the Company's auditors, in state
District Court in Angelina County, Texas ("State Litigation"). The
plaintiffs allege, among other things, violations of Texas securities
law and statutory and common law fraud, and seek unspecified
compensatory and exemplary damages. Mr. Hunter is currently an employee
of the Company and was Chairman, President and Chief Executive Officer
of ECI at the time of its merger with a wholly-owned subsidiary of the
Company. Since the litigation has only been recently initiated and no
discovery has occurred, the Company cannot quantify its ultimate
liability, if any, for the payment of damages. However, the Company
believes that the allegations in the State Litigation, like those in
the Consolidated Lawsuit, do not provide a basis for the recovery of
damages because all required disclosures were made in a timely basis.
The Company intends to aggressively defend this litigation.

A copy of the Plaintiff's Original Petition in the State Litigation is
filed as an exhibit to this Quarterly Report on Form 10-Q.

Item 5. OTHER INFORMATION

On November 11, 1999, the Company amended its Bylaws to add a new
section, Section 10 of Article I, providing for advance notice of certain
shareholder proposals to bring business before a shareholder meeting. Any
shareholder desiring to bring business before the Company's 2000 Annual Meeting
of Shareholders scheduled to be held on May 1, 2000 in a form other than a
shareholder proposal in accordance with Rule 14a-8 of the rules and regulations
of the Commission must give written notice that is received by the Company,
addressed to the Secretary, no earlier than January 14, 2000, and no later than
February 3, 2000.

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31
A shareholder must also comply with other requirements as set forth in such
advance notice provision. Any such notice should be addressed to the Secretary
of the Company, 1929 Allen Parkway, P.O. Box 130548, Houston, Texas 77219-0548.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Bylaws, as amended.
12.1 Ratio of earnings to fixed charges for the nine months
ended September 30, 1999 and 1998.
27.1 Financial data schedule.
99.1 Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International.
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.
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.
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.
99.5 Plaintiff's Original Petition filed November 10, 1999
in Cause No. __________, 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, L.L.P.; in the __________
Judicial District Court of Angelina County, Texas.

(b) Reports on Form 8-K
There were no reports on Form 8-K during the quarter ended
September 30, 1999.

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.

November 12, 1999 SERVICE CORPORATION INTERNATIONAL

By: /s/ George R. Champagne
----------------------------------
George R. Champagne
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)

32
33
INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Bylaws, as amended.
12.1 Ratio of earnings to fixed charges for the nine months
ended September 30, 1999 and 1998.
27.1 Financial data schedule.
99.1 Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International.
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.
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.
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.
99.5 Plaintiff's Original Petition filed November 10, 1999
in Cause No. __________, 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, L.L.P.; in the __________ Judicial
District Court of Angelina County, Texas.