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

Change in Accounting Principles
Effective November 1, 1996, the Company changed accounting principles for prearranged funeral and cemetery sales as follows: (i) the Company now defers a portion of the earnings realized by irrevocable prearranged funeral trust funds and escrow accounts in order to offset the estimated effects of inflation on the future cost of performing prearranged funeral services; (ii) the Company now records all revenues and costs attributable to prearranged sales
of cemetery interment rights and related products at the time the contract is signed; and (iii) the Company now records revenue and related costs attributable to cemetery burial site openings and closings at the time of sale. The accounting changes were made principally to provide a better matching of revenues and expenses in the appropriate periods and to more accurately reflect the Company's operations. See Note 3 to the consolidated financial statements.

These changes generally will result in reduced near-term funeral revenue and gross profit, due to the deferral of a portion of the earnings from funeral trust funds and escrow accounts until the funeral is performed. These changes also will result in higher near-term cemetery revenue and gross profit, due to the recognition under the accrual basis of accounting of certain cemetery sales. The net effect is expected to result in increased revenues and gross profit from amounts that would have been reported under the Company's previous accounting methods.