(a) Principles of Consolidation
The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(c) Fair Value of Financial Instruments
Estimated fair value amounts have been determined using available market information and the valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts the Company could realize in a current market. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

The carrying amounts of cash and cash equivalents and current receivables approximate fair value due to the short-term nature of these instruments. The carrying amount of receivables due beyond one year approximates fair value because they bear interest at rates currently offered by the Company for receivables with similar terms and maturities. The carrying amounts of marketable securities and long-term investments are stated at fair value as they are classified as available for sale under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The fair value of the Company’s long-term floating rate debt is estimated using future cash flows discounted at market rates for similar types of borrowing arrangements. The fair value of the Company’s long-term fixed-rate debt is estimated using quoted market prices, where applicable, or future cash flows discounted at rates for similar types of borrowing arrangements. See Note 11.

(d) Inventories
Inventories are stated at the lower of cost (specific identification and first-in, first-out methods) or net realizable value. The portion of developed cemetery property that management estimates will be used in the next twelve months is included in inventories.

(e) Depreciation and Amortization
Buildings and equipment are depreciated over their estimated useful lives, ranging from 19 to 45 years and from 3 to 10 years, respectively, primarily using the straight-line method. For the fiscal years ended October 31, 2000, 1999 and 1998, depreciation expense totaled approximately $28,938, $25,418 and $21,094, respectively.

Goodwill, or costs in excess of net assets of companies acquired, totaled approximately $667,128 and $669,790 as of October 31, 2000 and 1999, respectively, and is amortized principally over 40 years using the straight-line method. The Company continually evaluates the recoverability of this intangible asset by assessing whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted expected future cash flows. Other intangible assets are amortized over five years using the straight-line method. Accumulated amortization was $82,944 and $63,300 as of October 31, 2000 and 1999, respectively.

(f) Foreign Currency Translation
In accordance with SFAS No. 52, “Foreign Currency Translation,” all assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period, and revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of shareholders’ equity.

During fiscal year 1998, the Company reported translation adjustments for its Mexican operations under the method prescribed for highly inflationary economies. Under that method, foreign currency translation adjustments are reflected in results of operations, instead of in shareholders’ equity. This change did not have a material effect on the Company’s results of operations for fiscal year 1998.

As of January 1, 1999, the Mexican economy was no longer considered highly inflationary according to the SEC staff. Accordingly, subsequent to January 1, 1999, gains and losses resulting from translation of the financial statements of the Company’s Mexican operations are reflected in shareholders’ equity and the functional currency used by our Mexican operations returned to the Mexican peso. These changes did not have a material effect on the Company’s results of operations for fiscal years 2000, 1999 and 1998.

(g) Funeral Revenue
The Company sells prearranged funeral services and merchandise under contracts that provide for delivery of the services and merchandise at the time of death. Prearranged funeral services are recorded as funeral revenue in the period the funeral is performed. Prearranged funeral merchandise is recognized as revenue upon delivery in jurisdictions where such sales are included in funeral and insurance contracts. The Company considers prearranged funeral contracts to be investments in future funeral revenue made to retain and expand future market share. Accordingly, the cash flow item related to prearranged funeral contracts, “changes in prearranged funeral activity, net,” has been classified as cash flows from investing activities.

Commissions and direct marketing costs relating to prearranged funeral services and prearranged funeral merchandise sales are accounted for in the same manner as the revenue to which they relate. Where revenue is deferred, the related commissions and direct marketing costs are deferred and amortized as the funeral contracts are delivered. Conversely, where revenues are recognized currently, the related costs are expensed as incurred. Indirect costs of marketing prearranged funeral services are expensed in the period in which incurred.

Prearranged funeral services and merchandise generally are funded either through trust funds or escrow accounts established by the Company or through insurance. Principal amounts deposited in the trust funds or escrow accounts are available to the Company as funeral services and merchandise are delivered and are refundable to the customer in those situations where state law provides for the return of those amounts under the purchaser’s option to cancel the contract. Certain jurisdictions provide for non-refundable trust funds or escrow accounts where the Company receives such amounts upon cancellation by the customer. Earnings are withdrawn only as funeral services and merchandise are delivered or contracts are cancelled, except in jurisdictions that permit earnings to be withdrawn currently and in unregulated jurisdictions where escrow accounts are used. When prearranged funeral services and merchandise are funded through insurance policies purchased by customers from third-party insurance companies, the Company earns a commission on the sale of the policies. Insurance commissions, net of related expenses, are recognized at the point at which the commission is no longer subject to refund. Policy proceeds are available to the Company as funeral services and merchandise are delivered.

Effective November 1, 1998, the Company changed its method of accounting for prearranged funeral trust earnings. See Note 3.

Funeral services sold at the time of need are recorded as funeral revenue in the period the funeral is performed.

(h) Cemetery Revenue
The Company recognizes income currently from the sale of unconstructed mausoleum crypts to the extent it has available inventory. Costs of mausoleum and lawn crypts sold but not yet constructed are based upon management’s estimated cost to construct those items.

In certain jurisdictions in which the Company operates, local law or contracts with customers generally require that a portion of the sale price of prearranged cemetery merchandise be placed in trust funds or escrow accounts. The Company recognizes as revenue on a current basis all dividends and interest earned, and net capital gains realized, by prearranged merchandise trust funds or escrow accounts. At the same time, the liability for the estimated cost to deliver merchandise is adjusted through a charge to earnings to reflect inflationary merchandise cost increases. Principal and earnings are withdrawn only as the merchandise is delivered or contracts are cancelled.

Pursuant to perpetual care contracts and laws, a portion, generally 10 percent, of the proceeds from cemetery property sales is deposited into perpetual care trust funds. The income from these funds, which have been established in most jurisdictions in which the Company operates cemeteries, is used for maintenance of those cemeteries, but principal, including in some jurisdictions net realized capital gains, must generally be held in perpetuity. Accordingly, the trust fund corpus is not reflected in the consolidated financial statements. The Company recognizes and withdraws currently all dividend and interest income earned and, where permitted, capital gains realized by perpetual care funds.

Some of the Company’s sales of cemetery property and merchandise are made under installment contracts bearing interest at prevailing rates. Finance charges are recognized as cemetery revenue under the effective interest method over the terms of the related installment receivables.

(i) Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities. The Company has not provided for possible United States federal income taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely.

(j) Earnings Per Common Share
Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential common shares (in this case, exercise of the Company’s time-vest stock options) had been issued during each period. See Note 12. The Company’s share and per share amounts have been adjusted for a two-for-one common stock split effective April 24, 1998.

(k) Recent Accounting Standards
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards for derivative instruments. SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” are amendments to the accounting and reporting standards of SFAS No. 133 and must be adopted concurrently with SFAS No. 133. SFAS No. 133 is required to be implemented in the first quarter of the Company’s fiscal year 2001. The Company has begun its analysis of the impact of SFAS Nos. 133, 137 and 138 on its consolidated financial condition and results of operations, and the pronouncements are not expected to have an impact on the Company’s consolidated statement of earnings. It is estimated that the adoption of the new standards will result in an increase in shareholders’ equity of approximately $4,693. This estimate is based on market information and the fair value of the Company’s three-year interest rate swap as of October 31, 2000. The actual effect on the Company’s financial statements will depend on the fair value of the swap at the date of adoption.

The Company and other industry participants continue to discuss directly with the staff of the Securities and Exchange Commission (“SEC”) the application of its recently issued Staff Accounting Bulletin No. 101—“Revenue Recognition in Financial Statements” (“SAB 101”) as it relates to prearranged sales activities. SAB 101, which applies to all companies and was not directed at the death care industry, emphasizes among other matters the importance of physical delivery of a product or service to justify the recognition of revenue. Based on currently available information, the Company believes that the implementation of SAB 101 will require a deferral of previously recorded revenue associated with prearranged sales. The amounts deferred will be recognized in future years as the products and services that have been bought and paid for are ultimately delivered.

Based on the tentative agreement with the SEC staff, the Company estimates that although there will be no negative impact on cash flow, had it adopted SAB 101 in fiscal year 2000, before adjusting for the cumulative effect, the implementation would have reduced earnings by a range of $0.09 to $0.13 per share. The Company also estimates that had SAB 101 been adopted in fiscal year 2000, it would have resulted in a nonrecurring, noncash $250,000 to $275,000 after-tax charge for the cumulative effect of the changes. This would have resulted in an additional backlog that would have produced approximately $1 billion of revenue in the future as these prepaid products and services are delivered. Based on what the Company currently knows, the implementation of SAB 101 should not cause a violation of any financial covenants in its debt agreements. The SEC and the industry have not reached a final resolution of these discussions, but the Company anticipates that they will be finalized shortly. The Company is not required to implement the new accounting guidance until the fourth fiscal quarter of 2001 but may choose to implement the guidance earlier.

Effective November 1, 1999, the Company implemented Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities,” (“SOP 98-5”) which requires costs of start-up activities and organization costs to be expensed as incurred. The implementation of SOP 98-5 did not have a material impact on the Company’s financial condition or results of operations.

(l) Reclassifications
Certain reclassifications have been made to the 1998 and 1999 consolidated financial statements to conform with the presentation used in the 2000 consolidated financial statements. These reclassifications had no effect on net earnings or shareholders’ equity.