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

Quantitative and Qualitative - Marketable Equity Securities - Foreign Currency - Interest

Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in the Company's market risk sensitive instruments and positions is the potential change arising from increases or decreases in the prices of marketable equity securities, foreign currency exchange rates, and interest rates as discussed below. Generally, the Company's market risk sensitive instruments and positions are characterized as "other than trading." The Company's exposure to market risk as discussed below includes "forward-looking statements" and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in equity markets, foreign currency exchange rates or interest rates. The Company's views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based upon actual fluctuations in equity markets, foreign currency exchange rates, interest rates and the timing of transactions.

Quantitative and Qualitative - Marketable Equity Securities - Foreign Currency - Interest

Marketable Equity Securities
As of October 31, 1998, the Company held marketable equity securities, consisting principally of investments in its prearranged funeral, merchandise and perpetual care trust and escrow accounts, with a fair value of $308.5 million determined using final sale prices quoted on stock exchanges. Each 10% change in the average market prices of the equity securities held in such accounts would result in a change of approximately $30.9 million in the fair value of such accounts.

The Company's prearranged funeral, merchandise and perpetual care trust funds and escrow accounts are detailed in Notes 5 and 6 to the Company's consolidated financial statements. Generally, the Company's wholly owned subsidiary, Investors Trust, Inc. ("ITI") serves as investment adviser on these trust and escrow accounts. ITI manages the mix of equities and fixed-income securities in accordance with an investment policy established by the Investment Committee of the Company's Board of Directors with the assistance of third-party professional financial consultants. The policy emphasizes conservation, diversification and preservation of principal while seeking appropriate levels of current income and capital appreciation. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Quantitative and Qualitative - Marketable Equity Securities - Foreign Currency - Interest

Foreign Currency
The Company's foreign subsidiaries receive revenues and pay expenses in a number of foreign currencies. For the fiscal year ended October 31, 1998, each 10% change in the average exchange rate between such currencies and the U.S. dollar would result in a change of approximately $2.7 million in the Company's pretax earnings.

The Company does not currently hedge its investments in foreign subsidiaries; however, the Company continually monitors the exchange rates of its foreign currencies and may, if deemed appropriate, enter into hedging transactions.

Quantitative and Qualitative - Marketable Equity Securities - Foreign Currency - Interest

Interest
The Company has entered into various fixed- and variable-rate debt obligations, which are detailed in Note 11 to the Company's consolidated financial statements.

As of October 31, 1998, the carrying value of the Company's long-term fixed-rate debt, including accrued interest and the unamortized portion of the ROARS option premium, was approximately $445.2 million, compared to fair value of $447.7 million. Fair value was determined using quoted market prices, where applicable, or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Each 0.5% change in average interest rates applicable to such debt would result in a change of approximately $7.5 million in the fair value of these instruments. If these instruments are held to maturity, no change in fair value will be realized.

As of October 31, 1998, the Company had $492.0 million in variable-rate debt. Each 0.5% change in average interest rates applicable to such debt would result in a change of approximately $1.2 million in the Company's pretax earnings.

The Company monitors its mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under its variable-rate revolving credit facilities with fixed-rate debt, or by entering into interest rate swaps or other interest rate hedging transactions.

As of October 31, 1998, the Company held fixed-income securities with aggregate quoted market values of $267.6 million, consisting principally of investments in our prearranged funeral, merchandise and perpetual care trust and escrow accounts. Each 10% change in interest rates on these fixed-income securities would result in a change of approximately $8.0 million in the fair value of such securities based on discounted expected future cash flows. If these securities are held to maturity, no change in fair value will be realized.

As of October 31, 1998, the Company owned money market and other short-term investments with a fair value of $323.9 million. Each 0.5% change in average interest rates applicable to such investments would result in a change of approximately $1.4 million in the Company's pretax earnings.

The fixed-income securities, money market and other short-term investments owned by the Company are principally invested in its prearranged funeral, merchandise and perpetual care trust and escrow accounts which are managed by ITI. ITI operates pursuant to a formal investment policy as discussed above.