Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction
Death care businesses in the United States traditionally have been relatively small, family-owned enterprises that have been passed down through successive generations within a family. During the last decade, however, the industry in the United States, and in certain foreign countries, has undergone a transition in which family-owned firms were consolidating with larger organizations, such as the Company. This trend began to change in late fiscal year 1999. As industry conditions reduced the number of major consolidators participating in the acquisition market, those that remained generally applied significantly tighter pricing criteria, and many potential sellers withdrew their business from the market rather than pursuing transactions at lower prices.

During the first quarter of 1999, Service Corporation International, one of the Company's primary competitors for acquisitions, announced plans to significantly reduce the level of its acquisition activity. The Loewen Group Inc., previously a primary competitor for acquisitions, entered into bankruptcy proceedings on June 1, 1999, after announcing that it had terminated its acquisition activity and was offering a number of its own properties for sale. In addition, the fourth largest public death care company and another of the Company's competitors for acquisitions, Equity Corporation International, merged with Service Corporation International.

Throughout fiscal year 1999, the Company continually reduced its target acquisition multiples. There were some regional consolidators, however, who continued to pay the old, higher prices. In the third quarter of fiscal year 1999, the Company's acquisition activity began to decrease substantially from prior quarters, as many potential sellers were not willing to sell their businesses at the lower prices. The Company believes that many non-price factors continue to exist that make selling a business to a public consolidator very attractive to independents, such as the desire of owners to address management succession and estate planning issues and to achieve liquidity and diversification of their investments. Accordingly, while the Company believes that it may be able to consummate acquisitions in the future at lower multiples than it has paid historically, there can be no assurance that this will be the case, and the lower prices are likely to continue to cause some potential sellers to refrain from selling their businesses, at least for some period of time. As a result, the Company's growth expectations for fiscal year 2000 and beyond include no acquisitions. Although the Company's historical growth has been primarily from acquisitions, the Company is currently focusing on growth through internal strategies.

Two other trends affecting the death care industry are the expected increase in the number of deaths and the average age of the population. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1 percent per year from 2.4 million in 1999 to 2.6 million in 2010. In addition, industry studies indicate that while the death rate is declining slightly, the average age of the population in the United States is increasing. The aging of the population, particularly the "baby boomers" who have recently begun to turn 50, represents a significant opportunity for firms such as the Company to expand their customer base and secure a portion of their future market share by actively marketing prearranged property, merchandise and services. According to the Bureau of the Census, the United States population over 50 years of age will increase from 74.2 million in 1999 to 96.4 million in 2010. The Company's principal target market for sales of prearranged cemetery property, merchandise and services is customers who are age 50 and above.

Certain statements made herein that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions about future events and therefore are inherently uncertain; actual results may differ materially from those projected. See "Cautionary Statements." The discussion herein should be read in conjunction with the Company's consolidated financial statements and the notes thereto.

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