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

Year Ended October 31, 1999 Compared to Year Ended October 31, 1998
Funeral Segment

Funeral revenue increased $80.3 million, or 22 percent, for the year ended October 31, 1999, compared to the corresponding period in 1998. The Company experienced an $11.8 million, or 4 percent, increase in revenue from Existing Operations as a result of an increase in sales of certain prearranged funeral merchandise, coupled with a 0.7 percent increase in the average revenue per domestic funeral service performed by Existing Operations (3.1 percent increase worldwide, excluding the effect of foreign currency translation), primarily due to price increases and improved merchandising. Partially offsetting this increase was a 2.2 percent (1,306 events) decrease in the number of domestic funeral services performed by Existing Operations (2.5 percent (2,358 events) decrease worldwide).

Funeral profit margin from Existing Operations increased from 31.5 percent in 1998 to 32.3 percent in 1999. This improvement resulted primarily from the increase in funeral revenue from Existing Operations discussed above, coupled with increased cost control measures, including contract negotiations with certain vendors and the Company's centralization and standardization of certain financial and administrative functions through its Shared Services Center.

The increase in revenue and costs from Acquired Operations resulted primarily from the Company's acquisition of funeral homes during fiscal year 1999 which is not reflected in the 1998 period presented above.

The Company believes that at-need funeral revenues in some key markets were negatively affected in fiscal year 1999 by (1) intense and growing price competition from low-cost funeral providers and casket stores in some markets, (2) the continuing and accelerating trend toward cremation, and (3) a shift by customers to lower-priced services and merchandise.

The Company plans to respond to these trends by (1) reducing prices where appropriate in order to gain market share, (2) reducing costs by moving to smaller funeral buildings and consolidating funeral facilities where appropriate, and (3) transitioning some of its funeral businesses to emphasize alternative services. The Company is testing new marketing and merchandising programs to enhance revenues without raising prices. In addition to focusing on increasing margins at existing businesses, the Company is also focusing on increasing revenues and profits from internal growth strategies such as increasing operating partnerships with third parties, increasing alternative service firms, and building new funeral homes on the Company's cemetery properties.

Historically, one of the Company's goals has been to achieve a 5 percent to 7 percent increase annually in the average revenue per funeral service performed by Existing Operations through a combination of price increases and improvements in merchandising. For the year ended October 31, 1999, the average revenue per funeral service performed by existing funeral homes increased 0.7 percent domestically and 3.1 percent worldwide, excluding the effect of foreign currency translation, which were below this objective. Because of intense and growing competition from low-cost funeral service and merchandise providers in certain key markets, the Company has revised its goals for increases in the average revenue per funeral service performed worldwide to 2 to 3 percent annually. See "Forward-Looking Statements."