SERVICE CORPORATION INTERNATIONAL, 10-Q, 2000-05-15

SERVICE CORPORATION INTERNATIONAL
10-Q, 2000-05-15
PERSONAL SERVICES

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<PAGE> 1

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO
-------- --------

COMMISSION FILE NUMBER 1-6402-1

--------------------

SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)

TEXAS 74-1488375
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)

1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)

(713) 522-5141
(Registrant's telephone number, including area code)

--------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days.

YES X NO
--- ---

The number of shares outstanding of the registrant's common stock as of May 10,
2000 was 272,099,441 (excluding treasury shares).

<PAGE> 2

SERVICE CORPORATION INTERNATIONAL

INDEX

Page
<S> <C> <C>

Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income -
Three Months Ended March 31, 2000 and 1999 3

Consolidated Balance Sheet -
March 31, 2000 and December 31, 1999 4

Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5

Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 2000 6

Notes to Consolidated Financial Statements 7 - 15

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 24

Item 3. Quantitative and Qualitative Disclosures about Market Risk 24

Part II. Other Information

Item 1. Legal Proceedings 25 - 26

Item 6. Exhibits and Reports on Form 8-K 26 - 27

Signature 27
</TABLE>

<PAGE> 3

ITEM 1. FINANCIAL STATEMENTS

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME

Three Months Ended
March 31,
(In thousands, except share and per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues ........................................................ $ 869,466 $ 904,056
Costs and expenses .............................................. (675,853) (685,185)
---------- ----------
Gross profit .................................................... 193,613 218,871

General and administrative expenses ............................. (20,113) (19,710)
Restructuring charges ........................................... -- (89,884)
---------- ----------
Income from operations .......................................... 173,500 109,277

Interest expense ................................................ (69,549) (57,448)
Other income .................................................... 3,515 14,588
---------- ----------
(66,034) (42,860)
---------- ----------
Income before income taxes and extraordinary gain ............... 107,466 66,417
Provision for income taxes ...................................... (39,225) (24,534)
---------- ----------

Net income before extraordinary gain ............................ 68,241 41,883
Extraordinary gain on early extinguishments of debt
(net of income taxes of $3,785 and $1,071, respectively) ....... 6,585 1,885
---------- ----------
Net income ...................................................... $ 74,826 $ 43,768
========== ==========
Earnings per share:
Basic:
Income before extraordinary gain ....................... $ .25 $ .15
Extraordinary gain on early extinguishments of debt .... .02 .01
---------- ----------
Net income ............................................. $ .27 $ .16
========== ==========
Diluted:
Income before extraordinary gain ....................... $ .25 $ .15
Extraordinary gain on early extinguishments of debt .... .02 .01
---------- ----------
Net income ............................................. $ .27 $ .16
========== ==========

Basic weighted average number of shares ......................... 272,063 272,990
========== ==========
Diluted weighted average number of shares ....................... 273,501 275,442
========== ==========
</TABLE>

(See notes to consolidated financial statements)

<PAGE> 4

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET

March 31, December 31,
(Dollars in thousands, except share amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 147,158 $ 88,221
Receivables, net of allowances ....................................... 561,836 605,127
Inventories .......................................................... 186,204 190,343
Other ................................................................ 87,676 112,460
------------ ------------
Total current assets ............................................... 982,874 996,151
------------ ------------

Investments - insurance operations ........................................ 1,355,230 1,318,635
Prearranged funeral contracts ............................................. 2,884,107 2,898,139
Long-term receivables, net of allowances .................................. 1,597,320 1,562,418
Cemetery property, at cost ................................................ 2,175,018 2,182,410
Property, plant and equipment, at cost (net) .............................. 1,852,631 1,881,525
Deferred charges and other assets ......................................... 1,198,774 1,286,967
Names and reputations (net) ............................................... 2,431,581 2,475,356
------------ ------------
$ 14,477,535 $ 14,601,601
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................. $ 547,102 $ 589,847
Current maturities of long-term debt ................................. 369,832 423,949
Income taxes ......................................................... 117,941 44,069
------------ ------------
Total current liabilities .......................................... 1,034,875 1,057,865
------------ ------------

Long-term debt ............................................................ 3,568,304 3,636,067
Reserves and annuity benefits - insurance operations ...................... 1,336,272 1,313,328
Deferred prearranged funeral contract revenues ............................ 3,161,407 3,186,081
Deferred income taxes ..................................................... 829,791 873,023
Other liabilities ......................................................... 1,025,533 1,039,964
Stockholders' equity:
Common stock, $1 per share par value, 500,000,000 shares authorized,
272,045,778 and 272,064,618, issued and outstanding
(net of 2,811,343 and 2,792,503 treasury shares, at par) ........... 272,046 272,064
Capital in excess of par value ....................................... 2,156,264 2,156,301
Retained earnings .................................................... 1,201,724 1,126,898
Accumulated other comprehensive loss ................................. (108,681) (59,990)
------------ ------------
Total stockholders' equity ........................................... 3,521,353 3,495,273
------------ ------------
$ 14,477,535 $ 14,601,601
============ ============
</TABLE>

(See notes to consolidated financial statements)

<PAGE> 5

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS

Three months ended
March 31,
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 74,826 $ 43,768
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................... 62,356 55,904
Provision for deferred income taxes ............................. 14,055 6,802
Restructuring charges ........................................... -- 89,884
Payments on restructuring charges ............................... (16,149) (23,511)
Net effect of interest rate component of swap terminations ...... (32,840) --
Extraordinary gain on early extinguishments of debt,
net of income taxes ........................................... (6,585) (1,885)
Gains from dispositions (net) ................................... (1,577) (10,641)
Realized gains on sales of investments .......................... (7,383) (1,728)
Realized losses on sales of investments ......................... 2,288 --
Change in assets and liabilities, net of effects from
acquisitions:
Increase in receivables ....................................... (33,418) (86,940)
(Increase) decrease in other assets ........................... (9,356) 26,021
Increase in payables and other liabilities .................... 99,645 68,579
Other ......................................................... (16,634) 6,048
---------- ----------
Net cash provided by operating activities ............................ 129,228 172,301
---------- ----------

Cash flows from investing activities:
Capital expenditures ............................................ (20,574) (57,718)
Net effect of prearranged funeral production and
maturities ..................................................... (27,769) (28,074)
Purchases of securities - insurance operations .................. (236,391) (676,287)
Sales of securities - insurance operations ...................... 175,438 570,969
Proceeds from sales of property and equipment ................... 4,516 16,282
Acquisitions, net of cash acquired .............................. -- (24,344)
Loans issued by lending subsidiary .............................. (1,196) (23,125)
Principal payments received on loans issued by
lending subsidiary ............................................. 13,715 5,807
Deposit of restricted funds ..................................... (21,054) --
Other ........................................................... 2,067 (1,298)
---------- ----------
Net cash used in investing activities ................................ (111,248) (217,788)
---------- ----------

Cash flows from financing activities:
Net (decrease) increase in borrowings under revolving
credit agreements .............................................. (3,699) 489,337
Payments of long-term debt ...................................... (15,604) (186,160)
Early extinguishments of long-term debt ......................... (84,030) (365,936)
Net effect of cross-currency component of swap terminations ..... 143,498 --
Repurchase of common stock ...................................... (55) (45,669)
Dividends paid .................................................. -- (23,331)
Bank overdrafts and other ....................................... 2,438 7,657
---------- ----------
Net cash provided by (used in) financing activities .................. 42,548 (124,102)
---------- ----------
Effect of foreign currency ........................................... (1,591) (6,937)
---------- ----------
Net increase (decrease) in cash and cash equivalents ................. 58,937 (176,526)
Cash and cash equivalents at beginning of period ..................... 88,221 358,210
---------- ----------
Cash and cash equivalents at March 31, 2000 and 1999 ................. $ 147,158 $ 181,684
========== ==========
</TABLE>

(See notes to consolidated financial statements)

<PAGE> 6

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Accumulated
Capital in other
Common excess Retained comprehensive
(Dollars in thousands) stock of par value earnings income (loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ..................... $ 272,064 $ 2,156,301 $ 1,126,898 $ (59,990) $ 3,495,273

Comprehensive income:
Net income .................................... 74,826 74,826

Other comprehensive loss:
Foreign currency translation ............... (52,744) (52,744)
Unrealized gain on securities .............. 4,053 4,053
------------
Total other comprehensive loss ........ (48,691)
------------
Comprehensive income .......................... 26,135
Repurchase of common stock ..................... (18) (37) (55)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2000 ........................ $ 272,046 $ 2,156,264 $ 1,201,724 $ (108,681) $ 3,521,353
============ ============ ============ ============ ============
</TABLE>

The Company's comprehensive income for the three months ended March 31, 1999, of
$33,419 consisted of net income of $43,768, a foreign currency translation
adjustment of $337, and an unrealized loss on securities of ($10,686).

(See notes to consolidated financial statements)

<PAGE> 7

SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE, RATIO AMOUNTS AND NUMBER OF LOCATIONS)

1. NATURE OF OPERATIONS

Service Corporation International (the Company or SCI) is the largest provider
of funeral and cemetery services in the world. At March 31, 2000, the Company
operated 3,821 funeral service locations, 525 cemeteries and 198 crematoria
located in 20 countries on five continents.

The Company's funeral service locations and cemetery operations consist of
funeral homes, cemeteries, crematoria and related businesses. Company personnel
at the funeral service locations provide all professional services relating to
funerals, including the use of funeral facilities and motor vehicles. Funeral
related merchandise is sold at funeral locations and certain funeral service
locations contain crematoria. The Company sells prearranged funeral services
whereby a customer contractually agrees to the terms of a funeral to be
performed in the future. The Company's cemeteries provide cemetery interment
rights (including mausoleum spaces, lots, and lawn crypts) and sell cemetery
related merchandise. Cemetery items are sold on an atneed or preneed basis.
Company personnel at cemeteries perform interment services and provide
management and maintenance of cemetery grounds. Certain cemeteries contain
crematoria. The Company has approximately 200 combination facilities in which a
funeral service location is contained within a cemetery.

The financial services operations represent a combination of the Company's
insurance operations primarily related to the funding of prearranged funeral
contracts and a lending subsidiary which provided capital financing for
independent funeral home and cemetery operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements for the three
months ended March 31, 2000 and 1999 include the accounts of the Company and all
majority-owned subsidiaries and are unaudited but include all adjustments,
consisting of normal recurring accruals and any other adjustments which
management considers necessary for a fair presentation of the results for these
periods. These consolidated financial statements have been prepared in a manner
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission (the Commission) for the
year ended December 31, 1999, and should be read in conjunction therewith. The
year-end consolidated balance sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year period. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income, financial
condition or cash flows.

Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that may effect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and may effect the
reported amounts of revenues and expenses during the reporting period. As a
result, actual results could differ from these estimates.

Recent Accounting Pronouncements: In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company
plans to adopt SFAS No. 133 during the first quarter of the year ended
December 31, 2001.

7
<PAGE> 8

with the Company's existing credit agreements, but may have a material impact on
the Company's consolidated financial statements and on the manner in which the
Company records preneed sales activities. The deferral of income, if any, that
might occur as a result of finalizing the issues associated with SAB No. 101,
will be recognized in the consolidated statement of income in future periods.

3. ACQUISITIONS

During the three months ended March 31, 2000, the Company did not acquire any
funeral service locations, cemeteries, crematoria or insurance operations.

In January 1999, a wholly owned subsidiary of the Company merged with Equity
Corporation International (ECI) in a stock-for-stock transaction in which ECI
shareholders received approximately 15,501 shares of Company common stock valued
at approximately $557,000 and approximately 1,200 options to purchase Company
common stock valued at approximately $8,628. At the time of the merger, ECI
owned 359 funeral service locations and 80 cemeteries in North America.

Exclusive of the merger with ECI, the Company acquired 29 funeral service
locations, 6 cemeteries and 2 crematoria during the three months ended March 31,
1999, for an aggregate purchase price of approximately $49,400. The
consideration for these acquisitions consisted of combinations of cash, common
stock of the Company and issued debt. All acquisitions have been accounted for
under the purchase method of accounting; therefore, the operating results of
these acquisitions have been included since their respective acquisition dates.

The effect of acquisitions, net of cash acquired, on the consolidated
balance sheet at March 31, 1999 was as follows:

<TABLE>
<CAPTION>
1999
- --------------------------------------------------------------
<S> <C>
Current assets ................................... $ 94,030
Prearranged funeral contracts .................... 307,468
Long-term receivables ............................ 42,810
Cemetery property ................................ 136,763
Property, plant and equipment, net ............... 147,600
Deferred charges and other assets ................ 28,749
Names and reputations ............................ 662,629
Current liabilities .............................. (93,950)
Long-term debt ................................... (346,729)
Deferred prearranged funeral contract revenues ... (315,536)
Deferred income taxes and other liabilities ...... (73,660)
Stockholders' equity ............................. (565,830)
---------
Cash used for acquisitions ............. $ 24,344
=========
</TABLE>

4. PREARRANGED FUNERAL ACTIVITIES

The Company sells price guaranteed prearranged funeral contracts through various
programs providing for future funeral services at prices prevailing when the
agreements are signed. Payments under these contracts are placed into trust
accounts (pursuant to applicable law) or are used to pay premiums on life
insurance or annuity contracts.

Unperformed price guaranteed prearranged funeral contracts that are not
funded through Company insurance operations are included in the consolidated
balance sheet as Prearranged funeral contracts. This balance represents amounts
due from trust funds, customer receivables, or third party insurance companies.
A corresponding credit is recorded to Deferred prearranged funeral contract
revenues. Funeral revenue is recognized on prearranged funeral contracts at the
time the funeral services are performed. Trust earnings and increasing insurance
benefits are accrued and deferred until the funeral services are performed, at
which time the funds are also recognized in funeral revenues. Such amounts are
intended to cover future increases in the cost of providing a price guaranteed
funeral service. Net obtaining costs incurred pursuant to the sales of trust
funded and third party insurance funded

8
<PAGE> 9

prearranged funeral contracts are included in Deferred charges and other assets
in the consolidated balance sheet. These obtaining costs include sales
commissions and certain other direct costs which are deferred and amortized over
20 years, a period representing the estimated life of the prearranged funeral
contracts.

Prearranged funeral contracts may also be funded by insurance policies or
annuities written by the Company's insurance operations. Policy acquisition
costs incurred by the Company's insurance operations are deferred and included
in Deferred charges and other assets in the consolidated balance sheet and
amortized in accordance with generally accepted accounting principles for life
insurance companies.

The total value of unperformed prearranged funeral contracts consists of two
components: (i) contracts funded by trust or third party insurance companies,
and (ii) contracts funded by the Company's insurance operations. The total value
represents the original contract values plus any accumulated trust fund earnings
or increasing insurance benefits. The value of unperformed prearranged funeral
contracts to be funded by trust or third party insurance companies are included
in Deferred prearranged funeral contract revenues in the consolidated balance
sheet. In accordance with generally accepted accounting principles for life
insurance companies, the Company records an actuarially determined portion of
the unperformed prearranged funeral contracts to be funded by the Company's
insurance operations in Reserves and annuity benefits - insurance operations in
the consolidated balance sheet. The remaining component of Reserves and annuity
benefits - insurance operations represents the actuarially determined amounts to
be funded for non-SCI unperformed prearranged funeral contracts. The total value
of all SCI unperformed prearranged funeral contracts is shown below as if the
contracts funded through the Company's insurance operations were valued at
original contract values plus increasing insurance benefits.

March 31, 2000 December 31, 1999
---------- ----------
<S> <C> <C>
Deferred prearranged funeral contract revenues ............... $3,161,407 $3,186,081
SCI contracts funded by Company owned insurance operations ... 1,142,666 1,101,371
---------- ----------
Total value of unperformed prearranged funeral contracts ..... $4,304,073 $4,287,452
========== ==========
</TABLE>

<PAGE> 10

5. DEBT

Debt at March 31, 2000 and December 31, 1999 was as follows:

March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Bank revolving credit agreements and commercial paper ..................... $ 1,170,141 $ 1,179,704
6.375% notes due 2000 ..................................................... 91,050 150,000
6.75% notes due 2001 ...................................................... 123,000 150,000
8.72% amortizing notes due 2002 ........................................... 63,161 71,174
8.375% notes due 2004 ..................................................... 51,840 51,840
7.375% notes due 2004 ..................................................... 250,000 250,000
6.0% notes due 2005 ....................................................... 591,550 600,000
7.2% notes due 2006 ....................................................... 150,000 150,000
6.875% notes due 2007 ..................................................... 150,000 150,000
6.5% notes due 2008 ....................................................... 200,000 200,000
7.7% notes due 2009 ....................................................... 200,000 200,000
6.95% amortizing notes due 2010 ........................................... 51,739 52,557
7.875% debentures due 2013 ................................................ 55,627 55,627
7.0% notes due 2015 (putable 2002) ........................................ 300,000 300,000
6.3% notes due 2020 (putable 2003) ........................................ 300,000 300,000
Medium-term notes, maturities through 2019, fixed average interest
rate of 9.32% .......................................................... 35,720 35,720
Convertible debentures, maturities through 2008, fixed interest rates
from 4.75% to 5.5%, conversion prices from $11.25 to $50.00 ............ 49,213 49,213
Mortgage notes and other debt, maturities through 2050 .................... 125,384 136,368
Deferred loan costs ....................................................... (20,289) (22,187)
------------ ------------
Total debt ........................................................... 3,938,136 4,060,016
Less current maturities ................................................... (369,832) (423,949)
------------ ------------
Total long-term debt ...................................................... $ 3,568,304 $ 3,636,067
============ ============
</TABLE>

As of March 31, 2000, the Company's primary revolving credit agreements
provided for borrowings up to $1,600,000 and consisted of three committed
facilities - two 364-day facilities and a 5-year, multi-currency facility. These
facilities are primarily used to support the previous issuance of commercial
paper and for general corporate purposes.

One 364-day facility which expires June 25, 2000 allows for borrowings up to
$300,000 and contains provisions that permit the Company to convert the
outstanding balance into a two-year term loan upon maturity. The second 364-day
facility allows for borrowings up to $600,000 and expires November 1, 2000. The
5-year facility allows for borrowings up to $700,000, including $500,000 in
various foreign currencies and expires June 27, 2002.

Interest rates on these facilities are based on various indices as
determined by the Company. For each facility, a fee is paid quarterly on the
total commitment amount ranging from 0.25% to 0.50% based on the Company's
senior debt ratings. The facility fee was 0.50% in the first quarter of 2000 and
0.25% at December 31, 1999. Furthermore, these credit facilities have financial
compliance provisions, as defined, including a maximum debt-to-capitalization
ratio of 60%, a minimum EBITDA to interest expense ratio of 2.75, a minimum net
worth requirement defined in the facility agreements, and limitations on cash
distributions, subsidiary borrowings, liens and guarantees.

Approximately $1,151,841 was outstanding under the above facilities at March
31, 2000, with a weighted average interest rate of 7.33% ($870,545 at December
31, 1999, with a weighted average interest rate of 6.97%). Approximately
$286,841 of these borrowings was denominated in various foreign currencies under
the 5-year facility at March 31, 2000 ($295,545 at December 31, 1999).

10
<PAGE> 11

The Company's commercial paper program is backed by the above facilities.
Although the Company's downgraded credit ratings have rendered it unable to
access the commercial paper market for new issuances, $18,300 of previously
issued commercial paper remained outstanding with a weighted average interest
rate of 6.68% at March 31, 2000 ($309,159 with a weighted average interest rate
of 6.58% at December 31, 1999). The commercial paper borrowings and revolving
notes generally have maturities ranging from 1 to 180 days.

The Company has $21,054 deposited in restricted accounts as security for
various credit instruments, which is included in the consolidated balance sheet
as deferred charges and other assets at March 31, 2000. Approximately $13,664
was related to two embedded options associated with the Company's 6.30% notes
due 2020 (putable 2003). The remaining $7,390 was used to secure other
obligations.

During the three months ended March 31, 2000, the Company repurchased
certain bonds in the open market with an aggregate face value of $94,400 as
follows: $58,950 of the 6.375% notes due 2000, $27,000 of the 6.75% notes due
2001, and $8,450 of the 6.00% notes due 2005. The repurchase resulted in an
extraordinary gain on early extinguishment of debt totaling $6,585 (net of tax
of $3,785). Subsequent to the first quarter of 2000, the Company repurchased
certain bonds in the open market with an aggregate face value of $116,800 which
will result in an extraordinary gain in the second quarter 2000.

6. DERIVATIVES

The Company has entered into various derivative financial instruments, which are
primarily interest rate and cross-currency swap agreements, with high quality
financial institutions to hedge potential exposures in interest and foreign
exchange rates changes. The Company uses local currency borrowings in
conjunction with these swap agreements to hedge the Company's net investment in
foreign assets and to manage its mix of fixed and floating rate debt. The
Company has procedures in place to monitor and control the use of derivatives
and only enters into transactions with a limited group of creditworthy financial
institutions. The Company does not engage in derivative transactions for
speculative or trading purposes, nor is it a party to leveraged derivatives.

During the first quarter of 2000, the Company materially modified its
participation in derivative transactions by terminating or assigning away
certain interest rate swaps and all cross-currency interest rate swaps, thereby
removing the Company's hedges of foreign exchange rate exposure. A total
notional value of $2,860,327 was eliminated in this process. The net proceeds
from these terminations and assignments totaled $110,658, which was primarily
used to extinguish debt. These proceeds have been classified according to the
following components: $21,849 was due to the Company as accrued interest
receivable, $143,498 resulted from foreign exchange rate gains, and $54,689
resulted from interest rate losses. The amount associated with the foreign
exchange rate gains reduced the corresponding amount due from counterparties
recorded in Deferred charges and other assets. The amount associated with the
interest rate losses will be amortized into interest expense over the remaining
term of the swap agreements and $3,175 was amortized into interest expense
during the first quarter of 2000.

Excluding $171,590 of borrowings related to the Company's lending
activities, the Company's debt outstanding at March 31, 2000 had a weighted
average interest rate of 6.95% compared to a weighted average interest rate of
6.83% at December 31, 1999. After giving consideration to the Company's
remaining interest rate swap agreements, the weighted average interest rate at
March 31, 2000 was 6.78% compared to 6.41% at December 31, 1999. The financial
instruments associated with the 6.78% weighted average interest rate at March
31, 2000, consisted of approximately 53% of fixed interest rate debt at a
weighted average interest rate of 6.76% and approximately 47% of floating
interest rate debt at a weighted average interest rate of 6.80%.

The fair market value of the Company's remaining interest rate swap
agreements at March 31, 2000, was a net liability of $12,659 (a net asset of
$122,581 at December 31, 1999). This change was primarily due to the
above-mentioned termination or assigning away of certain interest rate swaps and
all cross-currency interest rate swaps during the first quarter of 2000. Fair
values were obtained from the counterparties to the agreements and represent
their estimate of the amount the Company would pay or receive to terminate the
swap agreements based upon the existing terms and current market conditions.

11
<PAGE> 12

7. RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
Three months
ended March 31,
2000 1999
---- ----
<S> <C>
2.33 1.95
</TABLE>

For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary gains; (1) less
undistributed income of equity investees which are less than 50% owned; (2) plus
the minority interest of majority-owned subsidiaries with fixed charges and (3)
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, whether capitalized or expensed, amortization of debt costs,
and one-third of rental expense which the Company considers representative of
the interest factor in the rentals. The increase in the Company's ratio of
earnings to fixed charges is attributable to the $89,884 pretax restructuring
charge recorded during the first quarter of 1999 (see note 10).

8. SEGMENT REPORTING

Due to the Company's operations being product based and geographically based,
the Company's primary reportable operating segments presented below are based on
products or services and include funeral, cemetery and insurance operations. The
Company's geographic segments include North America, Europe and Other foreign.
The Company conducts funeral and cemetery operations in all geographical regions
and insurance operations in North America and Europe.

The Company's reportable segment information was as follows:

Reportable
Funeral Cemetery Insurance segments
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers:
Three months ended March 31,
2000 .............................. $ 542,565 $ 218,851 $ 103,716 $ 865,132
1999 .............................. 574,641 251,858 71,796 898,295
---------- ---------- ---------- ----------
Gross profit:
Three months ended March 31,
2000 .............................. $ 123,634 $ 60,384 $ 8,835 $ 192,853
1999 .............................. 131,020 77,800 7,301 216,121
---------- ---------- ---------- ----------
</TABLE>

The following table reconciles reportable segment gross profit to the Company's
consolidated income before income taxes and extraordinary gain:

Three months ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Gross profit from reportable segments ................. $ 192,853 $ 216,121
Lending subsidiary income from operations ........ 760 2,750
General and administrative expenses .............. (20,113) (19,710)
Restructuring charge (see note 10) ............... -- (89,884)
---------- ----------
Income from operations ................................ 173,500 109,277
Interest expense ................................. (69,549) (57,448)
Other income ..................................... 3,515 14,588
---------- ----------
Income before income taxes and extraordinary gain ..... $ 107,466 $ 66,417
========== ==========
</TABLE>

12
<PAGE> 13

The Company's geographic segment information was as follows:

North Other
America Europe foreign Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external customers:
Three months ended March 31,
2000 ............................................................ $596,521 $234,068 $ 38,877 $869,466
1999 ............................................................ 612,318 257,310 34,428 904,056
-------- -------- -------- --------
Income from operations before restructuring charge (see note 10):
Three months ended March 31,
2000 ............................................................ $126,518 $ 39,712 $ 7,270 $173,500
1999 ............................................................ 156,301 36,289 6,571 199,161
-------- -------- -------- --------
Income from operations:
Three months ended March 31,
2000 ............................................................ $126,518 $ 39,712 $ 7,270 $173,500
1999 ............................................................ 106,083 584 2,610 109,277
-------- -------- -------- --------
Depreciation and amortization:
Three months ended March 31,
2000 ............................................................ $ 44,127 $ 14,710 $ 3,519 $ 62,356
1999 ............................................................ 42,091 11,864 1,949 55,904
-------- -------- -------- --------
Operating locations at March 31:
2000 ............................................................ 2,288 2,070 186 4,544
1999 ............................................................ 2,293 2,058 175 4,526
-------- -------- -------- --------
</TABLE>

Included in the North America figures above are the following United States
amounts:

Three months ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
Revenues from external customers ...................... $573,660 $590,290
Income from operations before restructuring charge .... $120,770 $149,744
Income from operations ................................ $120,770 $ 99,682
Depreciation and amortization ......................... $ 40,506 $ 38,339
Operating locations ................................... 2,134 2,136
</TABLE>

Included in the European figures above are the following French amounts:

Three months ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenues from external customers ...................... $ 145,371 $ 168,578
Income from operations before restructuring charge .... $ 20,634 $ 20,747
Income (loss) from operations ......................... $ 20,634 $ (63)
Depreciation and amortization ......................... $ 5,426 $ 4,160
Operating locations ................................... 1,236 1,220
---------- ----------
</TABLE>

13
<PAGE> 14

9. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations are presented below:

Three months ended
March 31,
2000 1999
--------- ---------
<S> <C> <C>
Income (numerator):
Income before extraordinary gain - basic ......... $ 68,241 $ 41,883
After tax interest on convertible debentures ..... 190 132
--------- ---------
Income before extraordinary gain - diluted ....... $ 68,431 $ 42,015
--------- ---------
Shares (denominator):
Shares - basic ................................... 272,063 272,990
Stock options and warrants .................. 42 1,299
Convertible debentures ...................... 1,396 1,153
--------- ---------
Shares - diluted ................................. 273,501 275,442
--------- ---------

Earnings per share before extraordinary gain:
Basic ............................................ $ .25 $ .15
Diluted .......................................... $ .25 $ .15
--------- ---------
</TABLE>

10. NONRECURRING CHARGES

The Company recorded restructuring and nonrecurring charges in the first quarter
(First Quarter Charge) and the fourth quarter (Fourth Quarter Charge) of 1999.

The First Quarter Charge totaled $89,884 relating to a cost rationalization
program initiated in 1999 and consisted of the following: (1) severance costs of
$56,757; (2) a charge of $19,123 for terminated projects representing costs
associated with certain construction projects that have been cancelled ($2,153)
and costs associated with acquisition due diligence which will no longer be
pursued ($16,970); (3) a $7,245 charge for business and facility closures,
primarily in the Company's European operations; and (4) a remaining charge of
$6,759 consisting of various other cost initiatives. The $56,757 for severance
costs is related to the termination of five executive contractual relationships
and the involuntary termination of approximately 800 employees throughout the
Company's global operations. The remaining severance costs related to the
executive contractual relationships will be paid out according to the terms of
the respective agreements and will extend through 2005. The remaining severance
related to the 800 employees is expected to be paid out in 2000.

The Fourth Quarter Charge totaled $272,544 relating to additional cost
rationalization programs, as well as initiatives required to enhance cash flow
and reduce debt. The Fourth Quarter Charge consisted of the following: (1)
severance costs of $150,675; (2) asset impairment of $73,728 associated with
assets held for sale which were written down to estimated fair value; (3) asset
impairment of $18,245 associated with loans made by the Company's lending
subsidiary held for sale which were written down to estimated fair value; (4)
$12,719 of informational technology costs associated with projects that will no
longer be pursued by the Company; (5) $6,554 of costs to terminate certain lease
obligations related to facility closures; and (6) $10,623 of various other
items.

The $150,675 of severance costs is related to the involuntary termination
of 1,141 employees throughout the Company's global operations, including eight
executive officers of the Company. Included in this total are 316 individuals
that were former owners of independent funeral homes and cemeteries that were
purchased by the Company and represent approximately $92,180 of the $150,675 of
severance costs. Such individuals will continue to be paid by the Company
pursuant to the terms of their contracts, the majority of which will be paid by
2007. The remaining severance costs are expected to be paid out through 2001.
The severance costs associated with the executive officers will be paid in
accordance with the terms of the respective agreements and will extend through
2005.

14
<PAGE> 15

The utilization of the First Quarter Charge and the Fourth Quarter Charge was as
follows:

Utilization for three

Original charge Balance at months ended March 31, 2000 Balance at
---------------------------
amount December 31, 1999 Cash Non-cash March 31, 2000
--------- ----------------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
First Quarter Charge .... $ 89,884 $ 25,245 $ 5,020 $ 9,652 $ 10,573
Fourth Quarter Charge ... 272,544 135,944 11,129 4,885 119,930
--------- --------- --------- --------- ---------
Total ............. $ 362,428 $ 161,189 $ 16,149 $ 14,537 $ 130,503
========= ========= ========= ========= =========
</TABLE>

Of the remaining total restructuring accrual balance of $130,503, approximately
$8,274 and $113,527 related to severance costs for the First Quarter Charge and
the Fourth Quarter Charge, respectively.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE
SALES PRICES, PER SHARE AMOUNTS,
NUMBER OF FUNERAL SERVICES PERFORMED AND NUMBER OF LOCATIONS)

OVERVIEW:

The Company is the largest provider of death care services in the world
conducting funeral services and cemetery operations in 20 countries on five
continents. The Company's largest markets are North America and France, which
when combined, represent approximately 78% of the Company's total operating
locations, and approximately 85% of the Company's total revenues.

The funeral and cemetery operations are organized into a North American
division covering the United States and Canada and an international division
responsible for all operations in Europe, the Pacific Rim and South America. The
majority of these operations are managed in groups called clusters. Clusters are
geographical groups of funeral service locations and cemeteries that lower their
individual overhead costs by sharing common resources such as operating
personnel, preparation services, clerical staff, limousines, hearses and preneed
sales personnel. Personnel costs, the largest of the operating expenses for the
Company, are the cost components most beneficially affected by clustering. The
sharing of employees, as well as the other costs mentioned, allow the Company to
more efficiently utilize its operating facilities. In the first quarter of 2000,
the Company initiated the implementation of Central Processing Centers
throughout North America and Business Units across Europe in order to further
assist in the efficiencies of accounting and back-office functions. These
Central Processing Centers and Business Units will take further advantage of
this clustering concept in order to reduce personnel costs.

The funeral service locations and cemetery operations consist of the
Company's funeral homes, cemeteries, crematoria and related businesses. Both
funeral service locations and cemeteries can contain crematoria facilities. The
Company has approximately 200 combination facilities in which a funeral service
location is contained within a cemetery.

The financial services operations represent a combination of the Company's
insurance operations primarily related to the funding of prearranged funeral
contracts and a lending subsidiary, which previously provided capital financing
for independent funeral home and cemetery operations.

RESULTS OF OPERATIONS:

The following is a discussion of the Company's results of operations for the
three months ended March 31, 2000 and 1999. For purposes of this discussion,
funeral homes, cemeteries and crematoria owned and operated before January 1,
1999, are referred to as comparable operations. Correspondingly, operations
acquired or opened after January 1, 1999, are referred to as acquired
operations.

15
<PAGE> 16

THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THREE MONTHS ENDED MARCH 31, 1999

For the quarter ended March 31, 2000, the Company reported revenues of $869,466,
representing a 3.8% decrease compared to $904,056 for the first quarter of 1999.
Gross profit in the first quarter of 2000 decreased 11.5% to $193,613 compared
to $218,871 in the same period of 1999. Gross margin percentage decreased to
22.3% for the first quarter of 2000 compared to 24.2% in the same period of
1999. For the three months ended March 31, 2000 the Company reported net income
of $74,826 and diluted earnings per share of $.27 ($.27 basic). The Company
reported net income of $43,768 and diluted earnings per share of $.16 ($.16
basic) for the first quarter of 1999.

During the quarter ended March 31, 1999, the Company recorded non-recurring
items relating to the Company's cost rationalization program and early
extinguishments of debt of $89,884 and $1,885, net of tax, respectively. In the
first quarter of 2000, the Company recorded further gains from the early
extinguishment of debt in the amount of $6,585, net of tax.

Results for the Company's three lines of business were as follows:

Three months ended March 31,
2000 % of revenue 1999 % of revenue
---------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues:
Funeral ........................... $ 542,565 $ 574,641
Cemetery .......................... 218,851 251,858
Financial services ................ 108,050 77,557
---------- ----------
$ 869,466 $ 904,056
========== ==========

Gross profit and margin percentage:
Funeral ........................... $ 123,634 22.8% $ 131,020 22.8%
Cemetery .......................... 60,384 27.6% 77,800 30.9%
Financial services ................ 9,595 8.9% 10,051 13.0%
---------- ---------- ---------- ----------
$ 193,613 22.3% $ 218,871 24.2%
========== ========== ========== ==========
</TABLE>

THE FOLLOWING FACTORS CONTRIBUTED TO THE RESULTS FOR THE FIRST QUARTER OF 2000:

o The Company experienced a negative effect of foreign currency translations
of approximately $24 million on funeral revenues and approximately $4
million on funeral gross profits as a result of the weakened Euro relative
to the U.S. dollar in the first quarter of 2000 compared to the first
quarter of 1999.

o Total funeral services performed by the Company's worldwide funeral service
locations were 0.9% below total funeral services performed in the first
quarter of 1999 primarily due to the strong volume of funeral services
performed by the Company in the first quarter of 1999.

o The average revenue per funeral service for all funeral service locations in
North America declined 1.4% compared to the average revenue per funeral
service in the first quarter of 1999. However, in their respective local
currencies, the average revenue per funeral service increased 3.8% in Europe
when compared to the first quarter of 1999.

o Funeral service gross profit remained stable at 22.8% worldwide primarily
related to European cost initiatives and package pricing.

o Cemetery revenues decreased 13.1% to $218.9 million and cemetery gross
profit decreased approximately 22.4% in the first quarter of 2000 primarily
as a result of (a) lower total North America preneed cemetery sales due to
changes in cemetery sales compensation plans and (b) anticipated decreases
in realized investment earnings and capital gains related to cemetery trust
funds to $12,548 in the first quarter of 2000 from $18,202 for the same
period of 1999.

16
<PAGE> 17

FUNERAL

Funeral revenues by geographic segment were as follows:

Three months ended March 31,
% Increase
2000 1999 (% decrease)
---------- ---------- ------------
<S> <C> <C> <C>
North America ..................... $ 323,359 $ 333,198 (3.0)%
Europe ............................ 201,639 225,943 (10.8)%
Other foreign ..................... 17,567 15,500 13.3 %
---------- ---------- ----------
Total funeral revenues ....... $ 542,565 $ 574,641 (5.6)%
========== ========== ==========
</TABLE>

The decrease in North American funeral revenues was primarily the result of
a decrease in volume coupled with lower average sales prices. In the first
quarter of 2000, total volume declined approximately 1.6% compared to the first
quarter of 1999. This decrease was anticipated due to the strong volume
experienced in the first quarter of 1999. The average revenue per funeral
service decreased 1.4% from the first quarter of 1999 to $3,823 in the first
quarter of 2000. This decline is primarily due to continuing changes in the
sales mix resulting from the number of prearranged funeral contracts becoming
atneed and the number of cremations performed, which typically carry lower
average sales prices than traditional atneed funeral sales. Of the total mix of
funeral services performed in the first quarter of 2000, 28.4% were previously
prearranged funeral contracts compared to 26.9% in the first quarter of 1999,
while 35.2% of total services performed in the first quarter of 2000 were
cremation services compared to 33.0% in the first quarter of 1999.

The decrease in European funeral revenue is primarily related to a negative
foreign currency translation effect of $24,222. This negative effect is the
result of the Euro weakening relative to the U.S. dollar in the first quarter of
2000 compared to the same period of 1999. Further, the number of European
funeral services performed declined approximately 0.9% to approximately 81,400
in the first quarter of 2000 compared to the first quarter of 1999. These
negative variances were partially offset by an increase of approximately 3.8% in
the average local currency sales price per funeral service. This increase was
primarily the result of package pricing programs instituted in several major
markets during the latter part of 1999.

The increase in Other foreign funeral revenue is primarily the result of an
increase in volume related to acquired funeral locations in Australia and South
America.

Funeral gross profit and margin percentage were as follows:

Three months ended March 31,
2000 % of revenue 1999 % of revenue
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
North America .................................... $ 89,720 27.7% $ 97,378 29.2%
Europe ........................................... 32,038 15.9% 31,384 13.9%
Other foreign .................................... 1,876 10.7% 2,258 14.6%
-------- -------- -------- --------
Total funeral gross profit and margin
percentage ................................ $123,634 22.8% $131,020 22.8%
======== ======== ======== ========
</TABLE>

The decrease in North American funeral gross profit and margin percentage
was due to a total revenue decline of 3.0% coupled with no change in total
funeral cost of services. Increases in personnel costs, the largest component of
the Company's relatively fixed cost structure, was offset by head count
reductions due to the restructuring implemented in 1999.

The increase in European funeral gross profit and margin percentage is the
result of package pricing programs which carry slightly higher average sales
prices per funeral service than traditional funeral sales.

The decrease in Other foreign funeral gross profit and margin percentage is
the result of increased costs in Australia.

17
<PAGE> 18

CEMETERY

Cemetery revenues by geographic segment were as follows:

Three months ended March 31,
% Increase
2000 1999 (% decrease)
-------- -------- --------
<S> <C> <C> <C>
North America .................... $187,297 $223,077 (16.0)%
Europe ........................... 10,244 9,853 4.0 %
Other foreign .................... 21,310 18,928 12.6 %
-------- -------- --------
Total cemetery revenues ..... $218,851 $251,858 (13.1)%
======== ======== ========
</TABLE>

The decrease in North American cemetery revenues was primarily the result of
lower preneed sales and lower anticipated cemetery trust income in the first
quarter of 2000 compared to the first quarter of 1999. The lower preneed sales
were the combined result of the initial negative impact from changes in cemetery
sales compensation plans and the expected decline from comparing the first
quarter of 2000 to the first quarter of 1999, which was one of the Company's
best quarters in terms of preneed cemetery sales. The Company has changed
cemetery compensation plans to align its sales management compensation with
gross profits of the cemetery sales instead of being only revenue based.
Cemetery trust income, which includes realized investment earnings and capital
gains, was $12,548 in the first quarter of 2000 compared to $18,202 in the first
quarter of 1999.

The increase in European cemetery sales was the result of increased revenue
from the United Kingdom.

The increase in Other foreign cemetery sales was the result of strong sales
in South America resulting from the maturing of the Company's operational, sales
and marketing initiatives implemented at both comparable and acquired locations.

Cemetery gross profit and margin percentage were as follows:

Three months ended March 31,
2000 % of revenue 1999 % of revenue
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
North America .................................... $ 50,465 26.9% $ 69,330 31.1%
Europe .......................................... 4,525 44.2% 4,157 42.2%
Other foreign .................................... 5,394 25.3% 4,313 22.8%
--------- --------- --------- ---------
Total cemetery gross profit and margin
percentage ................................ $ 60,384 27.6% $ 77,800 30.9%
========= ========= ========= =========
</TABLE>

The decrease in North American cemetery gross profit and margin percentage
was primarily the result of lower realized investment earnings which has a
direct impact on gross profit and margin percentage. Further, the decrease in
cemetery sales was greater than the corresponding decrease in cost of sales due
to normal inflationary increases in the fixed cost component of the cemetery
segment. These negative impacts to the gross profit and margin percentage were,
however, partially offset by the positive reduction in selling costs and
commissions in the first quarter of 2000 compared to the first quarter of 1999.

The increase in European cemetery gross profit and margin percentage was
primarily the result of increased revenue coupled with cost reduction strategies
in the United Kingdom.

The increase in Other foreign cemetery gross profit and margin percentage
was primarily the result of initiatives implemented in South America.

18
<PAGE> 19

FINANCIAL SERVICES

Financial services revenues were as follows:

Three months ended March 31,
% Increase
2000 1999 (% decrease)
-------- -------- ------------
<S> <C> <C> <C>
Insurance:
North America .......................... $ 81,531 $ 50,282 62.1 %
France ................................. 22,185 21,514 3.1 %
-------- -------- -----
Total insurance ............................. 103,716 71,796 44.5 %
Lending subsidiary .......................... 4,334 5,761 (24.8)%
-------- -------- ------
Total financial services revenues ...... $108,050 $ 77,557 39.3 %
======== ======== ======
</TABLE>

Financial services gross profit and margin percentage were as follows:

Three months ended March 31,
2000 % of revenue 1999 % of revenue
------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Insurance:
North America ................................... $ 4,862 6.0% $ 4,167 8.3%
France .......................................... 3,973 17.9% 3,134 14.6%
------- ------- ------- -------
Total insurance ...................................... 8,835 8.5% 7,301 10.2%
Lending subsidiary ................................... 760 17.5% 2,750 47.7%
------- ------- ------- -------
Total gross profit and margin percentage ........ $ 9,595 8.9% $10,051 13.0%
======= ======= ======= =======
</TABLE>

The increase in North American insurance revenues is primarily due to the
Company's initiative to fund prearranged funeral contracts, to the extent
possible, through the Company's insurance operations. The decrease in gross
profit and margin percentage is the result of increased costs related to this
initiative which initially increases actuarially determined benefits and
expenses more than revenues.

As part of the cost rationalization programs initiated in 1999, the Company
decided, except for existing commitments, to indefinitely suspend the operations
of its lending subsidiary. The Company is in the process of selling a portion of
the loan portfolio and has determined non-accrual status for loans totaling
$61,315 with the intent of acquiring by deed in lieu of foreclosure the
collateral underlying these loans. As a result, the revenues and gross profit
were adversely affected in the first quarter of 2000 compared to the first
quarter of 1999 by a decrease in the average outstanding loan portfolio
($187,789 versus $286,885) generating revenue and a decrease in the average
interest rate spread (1.7% versus 2.9%) due to the non-accrual status of the
loans discussed above.

OTHER INCOME AND EXPENSES

General and administrative expenses increased $403 to $20,113 compared to the
first quarter of 1999. The increase was related to anticipated increases in
information technology costs associated with moving the Company's North American
proprietary point of sale system into production as well as the initial roll-out
of Central Processing Centers in the Company's realigned operating clusters,
offset by the reduction of administrative expenses principally resulting from
the restructuring initiative begun in 1999. Expressed as a percentage of
revenues, general and administrative expenses were 2.3% for the three months
ended March 31, 2000, compared to 2.2% for the comparable period in 1999.

Interest expense increased $12,101 or 21.1% to $69,549 in the first quarter
of 2000 compared to the same period of 1999. The increased interest expense
primarily reflects the higher financing costs associated with the downgrade of
the Company's credit rating subsequent to the first quarter of 1999.

19
<PAGE> 20

Other income primarily consists of gains and losses from the sales of
businesses that are disposed of for strategic or government mandated purposes.

The provision for income taxes reflected a 36.5% effective tax rate for the
three months ended March 31, 2000, compared to a 36.9% effective tax rate for
the comparable period in 1999.

FINANCIAL CONDITION AND LIQUIDITY AT MARCH 31, 2000:

General

Historically, the Company had funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper. Funding
required for the Company's acquisition program has been generated through public
and private offerings of debt and the issuance of equity securities supplemented
by the Company's revolving credit agreements and commercial paper.

During 1999, the Company's liquidity needs and capital funding requirements
changed as the Company transitioned away from an acquisition company to an
operating company focused on increasing cash flow, reducing overhead costs and
paying down debt. The Company developed a series of cash flow initiatives in
1999 related to (i) ongoing operations of the Company, (ii) the sale of certain
assets and non-core businesses and (iii) sources of cash flow from providing
third party financing to consumers. These cash flow initiatives were developed
in late 1999 and the implementation of these initiatives is expected to improve
the Company's cash flow in 2000 and beyond.

Cash flow initiatives related to the ongoing operations of the Company
include: (i) suspension of the acquisition program; (ii) reduction of capital
expenditures compared to historical levels, (iii) suspension of the quarterly
cash dividend; (iv) more efficient retrieval of funds available from trusts
utilized by the Company; and (v) realignment of preneed cemetery and prearranged
funeral sales structures to become more cash flow positive. The Company believes
that the above cash flow initiatives, coupled with other working capital
initiatives, will produce Operating Free Cash Flow on an after tax basis in the
range of $100,000 to $200,000 in 2000. The Company defines Operating Free Cash
Flow as adjusted cash flow from operating activities, less capital expenditures,
dividends paid, and the net effect of prearranged funeral production and
maturities. Adjusted cash flow from operating activities includes cash flow
provided by operating activities as reflected in the consolidated statement of
cash flow adjusted for (i) cash flow provided by operating activities of the
Company's insurance operations, (ii) cash payments associated with the Company's
first and fourth quarter restructuring charges, and (iii) other proceeds or
payments (included in cash flow provided by operating activities) which are of a
non-recurring operational nature.

The Company developed cash flow initiatives in 1999 to sell certain assets
and non-core businesses that are either not meeting the Company's criteria for
returns on invested capital or are more valuable to parties outside the Company.
The Company expects after-tax proceeds of $200,000 to $300,000 from these sales
of non-core financial or operational assets in 2000.

The above cash flow initiatives developed in 1999 are expected to produce
approximately $300,000 to $500,000 of funds in 2000 available for reducing debt
on an after tax basis. This projection does not include net cash outflows in
2000 associated with the Company's 1999 restructuring charges (expected to be
$75,000 for the year), nor does it consider the possible effect on cash flows
associated with the development of a consumer financing program in North America
for the Company's atneed funeral and cemetery and preneed cemetery client
families, which could improve or generate cash flow for the Company and enhance
the Company's ability to further pay down debt.

20
<PAGE> 21
The Company's progress towards its 2000 cash flow benchmarks are calculated
below:

Three Months Ended Year 2000
March 31, 2000 Benchmark
----------------- --------------------
<S> <C> <C>
Consolidated cash flow provided by operating activities ........ $ 129,228
Amount pertaining to insurance operations ...................... (48,963)
Payments on restructuring charges .............................. 16,149
Effect of swap agreement terminations .......................... 32,840
---------
Adjusted cash flow from operating activities ............ 129,254
Capital expenditures ........................................... (20,574)
Dividends paid ................................................. --
Net effect of prearranged funeral production and maturities .... (27,769)
---------
Operating Free Cash Flow ................................. 80,911 $100,000 to $200,000
Estimated after tax proceeds from sales of non-core assets ..... 73,443 $200,000 to $300,000
--------- --------------------
Cash flow available ............................................ $ 154,354 $300,000 to $500,000
========= ====================
</TABLE>

The Company's objective is to reduce total debt to a target level of between
$3,600,000 and $3,800,000 by the end of 2000. At March 31, 2000 the Company had
total debt of $3,938,136, compared to $4,060,016 at December 31, 1999. The
largest component of this debt relates to the Company's primary revolving credit
agreements. The Company's primary revolving credit agreements provide for
borrowings up to $1,600,000 and consists of two 364-day facilities and a
five-year, multi-currency facility due in 2002. One 364-day facility, which
expires June 25, 2000, allows for borrowings up to $300,000 and contains
provisions that permit the Company to convert the outstanding balance into a
two-year term loan upon maturity. The second 364-day facility allows for
borrowings up to $600,000 and expires November 1, 2000. The five-year facility
allows for borrowings up to $700,000, including $500,000 in various foreign
currencies and expires June 27, 2002. These facilities have financial compliance
provisions, as defined, including a maximum debt-to-capitalization ratio of 60%,
a minimum EBITDA to interest expense ratio of 2.75, a minimum net worth
requirement defined in the facility agreements, and limitations on cash
distributions, subsidiary borrowings, liens and guarantees. Additionally, the
revolving credit agreements contain provisions whereby in the event the Company
is required to change accounting principles currently utilized, the Company has
the option of (i) agreeing to an amendment to the credit agreements which shall
have the same economic effect of the original financial compliance provisions
after taking into account the required change in accounting principles or (ii)
perform the calculations of the financial compliance provisions in accordance
with accounting principles utilized before the required change. As of March 31,
2000 the Company is in compliance with the financial compliance provisions and
has approximately $429,859 available under these three facilities.

As of March 31, 2000, the Company had a total of $369,832 in current
maturities of long-term debt. As mentioned above, the Company believes it will
generate funds available for reducing debt on an after tax basis of $300,000 to
$500,000, excluding the projected net cash outflow of $75,000 related to the
Company's 1999 restructuring charges. Based on the funds available, coupled with
banking relationships which the Company characterizes as positive, the Company
believes it will meet all of its financial obligations and requirements in 2000.

SOURCES AND USES OF CASH

Cash flows from operating activities: Net cash provided by operating activities
was $129,228 for the three months ended March 31, 2000, compared to $172,301 for
the same period in 1999, a decrease of $43,073. Significant components of cash
flow provided by operating activities for the three months ended March 31, 2000
included net income of $74,826 adjusted for the net effect of the interest rate
component of the swap terminations totaling $32,840, and non-cash items such as
$62,356 of depreciation and amortization, an increase in receivables of $33,418,
and an increase in payables and other liabilities of $99,645. The Company's
decision to terminate certain interest rate swaps and all cross-currency swaps
generated cash proceeds of $110,658 and consists of three components (see note 6
to the consolidated financial statements in Item 1 of this Form 10-Q). The
collection of accrued interest receivable of $21,849 offset by the interest rate
losses of $54,689 have been classified as part of cash flows from operating
activities,

21
<PAGE> 22

while the foreign exchange rate gains of $143,498 has been classified as part of
cash flows from financing activities (see below). The receivables increase
primarily results from sales of preneed cemetery products and services, which
are usually financed on an installment basis in excess of twelve months, and
undistributed cemetery trust fund income. In reference to the increase in
receivables, the Company is in the process of developing a consumer finance
program in North America for the Company's atneed funeral and cemetery and
preneed cemetery client families, which could improve or generate cash flows for
the Company. The payables and other liabilities increase is primarily due to the
increase in income taxes payable and the actuarial increase in reserves and
annuity benefits associated with the Company's insurance operations.

Cash flows from investing activities: Net cash used in investing activities
was $111,248 for the three months ended March 31, 2000, compared to $217,788 for
the same period in 1999, a decrease in the use of cash of $106,540. Significant
components of cash used in investing activities for the three months ended March
31, 2000 included $20,574 in capital expenditures, $27,769 related to the net
effect of prearranged funeral production and maturities and approximately
$60,953 of purchases in excess of sales of securities at the Company's insurance
operations. The net effect of prearranged funeral production and maturities line
item consists primarily of several items: (1) the effect of originating sales
and maturities of trust funded prearranged funeral contacts, (2) the effect of
net obtaining costs incurred pursuant to the sales of prearranged funeral
contracts and (3) the distribution of excess trust funds. The increase relates
to net obtaining costs incurred during the period of $19,147 and the higher
increase in maturities over origination related to trust funded prearranged
funeral sales. As the Company has shifted to funding prearranged contracts, to
the extent possible, through its insurance operations, the initial positive cash
flow effects of originating production using trusts (i.e. retainage) will
continue to diminish.

Cash flows from financing activities: Net cash provided by financing
activities was $42,548 for the three months ended March 31, 2000, compared to
cash used of $124,102 for the same period in 1999, a net improvement in cash of
$166,650. The significant component of cash provided by financing activities for
the three months ended March 31, 2000, was the net effect of the cross-currency
component of the swap terminations totaling $143,498, partially offset by cash
uses, primarily the $84,030 for the repurchase of certain bonds in the open
market. The bonds had an aggregate face value of $94,400 and the repurchase
resulted in an extraordinary gain on early extinguishment of debt.

At March 31, 2000, the Company had a working capital deficit of $52,001 and
a current ratio of 0.95:1, compared to a working capital deficit of $61,714 and
a current ratio of 0.94:1 at December 31, 1999. The working capital deficits in
both periods are primarily a result of the current liability related to the
Company's 1999 restructuring charges as well as current maturities of long-term
debt. Certain balances outstanding on the revolving credit facilities cannot be
classified as long-term due to the Company's current lack of access to the
capital markets.

As of March 31, 2000, the Company's debt to capitalization ratio was 52.8%
compared to 53.7% at December 31, 1999. The Company also had the ability to
issue $900,000 in securities registered with the Commission under a shelf
registration. Due to the Company's senior debt rating downgrade and current lack
of access to the capital markets, it is unlikely the shelf registration will be
utilized in the near future. In addition, 12,865 shares of common stock and a
total of $187,000 of guaranteed promissory notes and convertible debentures are
registered with the Commission under a separate shelf registration to be used
exclusively for future acquisitions. The Company has suspended its acquisition
program and does not anticipate its acquisition shelf registration to be drawn
upon in the near future.

PREARRANGED FUNERAL ACTIVITIES

The Company sells prearranged funeral contracts in most of its service markets,
including its major foreign markets. The Company has a marketing program to sell
price guaranteed prearranged funeral contracts at prices prevailing when the
contracts are signed. Payments under these contracts are placed into trust funds
or are used to pay premiums on life insurance or annuity contracts. Earnings on
trust funds and increasing insurance benefits are accrued and deferred until
funeral services are performed, at which time, all funds are recognized in
funeral revenue. Direct costs incurred with a sale of prearranged funeral
contracts are a current use of cash which is partially offset with cash
retained, pursuant to state laws, from amounts trusted and certain general
agency commissions earned by the Company for sales of insurance products.

22
<PAGE> 23

The total value of unperformed prearranged funeral contracts includes both
trust funded and insurance funded contracts and represents the original contract
value plus any accumulated trust fund earnings or increasing insurance benefits.
The total value of unperformed prearranged funeral revenues expected to be
recognized in future periods was $4,304,073 at March 31, 2000 and $4,287,452 at
December 31, 1999. The slight increase in the value is attributable to an
increase of 3.5% related to prearranged funeral contract sales and 1.2% related
to accumulated trust fund earnings and increasing insurance benefits. Such
increases are offset primarily by maturities, of approximately 2.3%, as well as
unfavorable foreign currency fluctuations of 1.1%.

The Company's investment program targets a real return in excess of the
amount necessary to cover future increases in the cost of providing price
guaranteed funeral services as well as any selling costs. This is accomplished
by allocating the portfolio mix to investments that match the anticipated
maturity of the contracts. The Company generally targets an allocation for
prearranged funeral trusts of approximately 60% equity, 30% fixed income and 10%
alternative investments.

The sales of prearranged funeral contracts afford the Company the
opportunity to protect both current market share as well as expand market share
in certain markets. On a comparable basis, prearranged funeral services
fulfilled as a percent of North American funerals performed was 28.4% and 26.9%
for the three months ended March 31, 2000 and 1999, respectively, and is
expected to increase over time.

Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No. 133 during
the first quarter of the year ended December 31, 2001.

In December 1999, the Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB No. 101). SAB No. 101, as
amended, is required to be implemented in the Company's second quarter of 2000.
The Company, together with other members of the death care industry, are
currently discussing the application of SAB No. 101 directly with the
Commission. Final resolution of the discussions will not have an impact on the
Company's consolidated cash flows or compliance with the Company's existing
credit agreements, but may have a material impact on the Company's consolidated
financial condition and on the manner in which the Company records preneed sales
activities. The deferral of income, if any, that might occur as a result of
finalizing the issues associated with SAB No. 101, will be recognized in the
consolidated statement of income in future periods.

Cautionary Statement on Forward-Looking Statements

The statements contained in this quarterly report on Form 10-Q that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements may be
accompanied by words such as "believe", "estimate", "project", "expect",
"anticipate" or "predict", that convey the uncertainty of future events or
outcomes. These statements are based on assumptions that the Company believes
are reasonable; however, many important factors could cause the Company's actual
results in the future to differ materially from the forward-looking statements
made herein and in any other documents or oral presentations made by, or on
behalf of, the Company. Important factors which could cause actual results of
the Company to differ materially from those in forward-looking statements
include, among others, the following:

1) Changes in general economic conditions, both domestically and
internationally, impacting financial markets (e.g. marketable security values,
as well as currency and interest rate fluctuations) that could negatively affect
the Company, particularly but not limited to, the Company's cemetery trust
revenues and levels of interest expense.

2) Changes in the Company's credit relationships impacting the availability
of credit.

3) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including tax and accounting
policies.

4) Changes in consumer demand and/or pricing for the Company's products and
services caused by several factors, such as

23
<PAGE> 24

changes in local death rates, cremation rates, competitive pressures and local
economic conditions.

5) The Company's ability to sell preneed heritage cemetery property which is
usually associated with new customers of the Company's cemeteries.

6) The Company's ability to successfully integrate prior acquisitions into
the Company's business and to realize expected cost savings in connection with
such acquisitions.

7) The Company's ability to successfully implement ongoing cost reduction
initiatives, as well as changes in domestic and international economic,
political and/or regulatory environments, which could negatively effect the
implementation of the Company's cost reduction initiatives.

8) The Company's ability to successfully realize the estimated savings
associated with the Company's cost reduction initiatives announced in 1999.

9) The Company's ability to successfully implement certain strategic revenue
and marketing initiatives resulting in increased volume through its existing
facilities.

10) The Company's ability to successfully implement certain strategic cash
flow initiatives, including but not limited to the sale of non-core assets, the
previously announced funeral and cemetery consumer financing program, which
could improve or generate cash flow for the Company and enhance the Company's
ability to reduce debt.

11) The Company's ability to successfully exploit its substantial purchasing
power with certain of the Company's vendors.

The Company assumes no obligation to publicly update or revise any
forward-looking statements made herein or any other forward-looking statements
made by the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the Company's exposure to certain market risks, see
Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the
Company's Form 10-K for the year ended December 31, 1999. Except as noted below,
there have been no material changes to the disclosure on this matter made in
such Form 10-K.

During the first quarter of 2000, the Company materially modified its
participation in derivative transactions by terminating or assigning away
certain interest rate swaps and all cross-currency interest rate swaps as
mentioned in note six to the consolidated financial statements in Item 1 of this
Form 10-Q, thereby removing the Company's hedges of foreign exchange rate
exposure and changing the Company's diversification of floating interest rate
exposure. As a result, 10% of the Company's total debt at March 31, 2000 was
based in foreign markets versus 52% at December 31, 1999. Also at March 31,
2000, 18% of the Company's floating interest rate debt and 4% of the Company's
fixed interest rate debt was based in foreign markets versus 28% and 67%,
respectively, at December 31, 1999. Approximately 27% of the Company's total
investment and 34% of its income from operations are denominated in foreign
currencies at March 31, 2000 versus 32% at December 31, 1999 for both the
Company's total investment and income from operations. Due to foreign local
borrowings, approximately 22% of the Company's net assets and approximately 26%
of the Company's income from operations are subject to translation risk at March
31, 2000 versus 13% and 16%, respectively, at December 31, 1999.

24
<PAGE> 25

SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Previously Reported Litigation. The following discussion describes
certain litigation as of May 12, 2000, which was previously reported:

Civil Action H-99-0280; In Re Service Corporation International; In the
United States District Court for the Southern District of Texas,
Houston Division (the Consolidated Lawsuit). The Consolidated Lawsuit
is pending before Judge Lynn N. Hughes and includes all 21 class action
lawsuits that were filed in the Southern District of Texas and two
class action lawsuits that were originally brought in the United States
District Court for the Eastern District of Texas, Lufkin Division. The
Consolidated Lawsuit names as defendants the Company and three of the
Company's current or former executive officers or directors: Robert L.
Waltrip, L. William Heiligbrodt and George R. Champagne (the Individual
Defendants). The plaintiffs have filed a Consolidated Class Action
Complaint in the Consolidated Lawsuit alleging that defendants violated
federal securities laws by making materially false and misleading
statements and failing to disclose material information concerning the
Company's prearranged funeral business. The Consolidated Lawsuit seeks
to recover an unspecified amount of monetary damages. Since the
litigation is in its preliminary stages, no discovery has occurred, and
the Company cannot quantify its ultimate liability, if any, for the
payment of damages. However, the Company believes that the allegations
in the Consolidated Lawsuit do not provide a basis for the recovery of
damages because the Company has made all required disclosures on a
timely basis. The Company and the Individual Defendants have filed an
Answer to the Consolidated Class Action Complaint, and the Company
intends to aggressively defend this lawsuit.

The Consolidated Lawsuit has been brought on behalf of all persons and
entities who (i) acquired shares of Company common stock in the merger
of a wholly owned subsidiary of Company into Equity Corporation
International (ECI); (ii) purchased shares of Company common stock in
the open market during the period from July 17, 1998, through January
26, 1999 (the Class Period); (iii) purchased Company call options in
the open market during the Class Period; (iv) sold Company put options
in the open market during the Class Period; (v) held employee stock
options in ECI that became options to purchase Company common stock
pursuant to the merger; and (vi) held Company employee stock options to
purchase Company common stock under a stock plan during the Class
Period. Excluded from the foregoing categories are the Individual
Defendants, the members of their immediate families and all other
persons who were directors or executive officers of the Company or its
affiliated entities at any time during the Class Period. Judge Hughes
has certified the Consolidated Lawsuit as a class action. On May 10,
2000, Judge Hughes signed an order amending the class definition to
include James P. Hunter, III as a class member. Mr. Hunter was
Chairman, President and Chief Executive Officer of ECI at the time of
its merger with a wholly-owned subsidiary of the Company.

The Company and the Individual Defendants have filed a Motion to
Dismiss the Consolidated Lawsuit; the plaintiffs have filed their
Opposition to Defendants' Motion to Dismiss the Consolidated Lawsuit;
and the Company and the Individual Defendants have filed a Reply to
Plaintiffs' Opposition to Defendants' Motion to Dismiss the
Consolidated Lawsuit. The foregoing pleadings will be considered by
Judge Hughes in due course.

Copies of the complaint in the Consolidated Lawsuit and the pleadings
that have been filed in response thereto and that are referred to
herein are filed as exhibits to this Quarterly Report on Form 10-Q.

Civil Action H-00-0250; Jack Treadwell v. Service Corporation
International, et al; In the United States District Court for the
Southern District of Texas, Houston Division (Treadwell Litigation).
This securities fraud case has been brought by a Macon, Georgia man who
sold his funeral home to the Company in June 1998. The factual
allegations contained in Plaintiff's Complaint

25
<PAGE> 26

are taken verbatim from the Consolidated Lawsuit. This lawsuit names as
defendants the Company and 16 of the Company's current and former
officers and directors. A trial date has been set for October 2001.

Cause No. 31,820-99-2; Charles Frederick v. Service Corp.
International; In the ________ Judicial District Court of Angelina
County, Texas (Fredrick Litigation). This additional securities fraud
case has been brought against the Company by a former shareholder of
ECI alleging causes of action exclusively under Texas statutory and
common law. This case was recently remanded to state court by United
States District Court Judge Howell Cobb of the Eastern District of
Texas.

Cause No. 32548-99-11, James P. Hunter, III et al v. Service
Corporation International et al; In the __________________ Judicial
District Court of Angelina County, Texas, on November 10, 1999, James
P. Hunter, III and a related family trust filed a lawsuit against the
Company, the Individual Defendants, two other officers, an employee of
the Company and PricewaterhouseCoopers LLP, the Company's independent
accountants, in state District Court in Angelina County, Texas (Hunter
Litigation). The plaintiffs allege, among other things, violations of
Texas securities law and statutory and common law fraud, and seek
unspecified compensatory and exemplary damages. The Company and the
other defendants filed an answer in the Hunter Litigation denying the
plaintiffs' allegations. Since the litigation is in its very
preliminary stages, the Company cannot quantify its ultimate liability,
if any, for the payment of damages. However, the Company believes that
the allegations in the Hunter Litigation, like those in the
Consolidated Lawsuit, do not provide a basis for the recovery of
damages because all required disclosures were made in a timely basis.
The Company intends to aggressively defend this litigation.

On May 10, 2000, Judge Hughes signed orders compelling the litigants in
the Fredrick Litigation and the Hunter Litigation to pursue their
claims exclusively in the class action case pending in his court.
Additionally, Judge Hughes indicated from the bench that the Treadwell
Litigation should be handled in a similar manner.

A copy of the Plaintiff's Original Petition in the Hunter Litigation
and the Defendants' original answer in that proceeding are filed as
exhibits to this Quarterly Report on Form 10-Q.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits

12.1 Ratio of earnings to fixed charges for the three months
ended March 31, 2000 and 1999.

27.1 Financial data schedule.

99.1 Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International. (Incorporated by reference to
Exhibit 99.1 to Form 10-Q for the fiscal quarter ended
September 30, 1999.)

99.2 Defendants' Answer to the Consolidated Class Action
Complaint filed September 17, 1999 in Civil Action No.
H-99-280, In Re Service Corporation International.
(Incorporated by reference to Exhibit 99.2 to Form 10-Q
for the fiscal quarter ended September 30, 1999.)

99.3 Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed October 8, 1999 in Civil Action No.
H-99-280, In re Service Corporation International.
(Incorporated by reference to Exhibit 99.3 to Form 10-Q
for the fiscal quarter ended September 30, 1999.)

99.4 Plaintiffs' Opposition to Defendants' Motion to Dismiss
the Consolidated Class Action Complaint filed November 5,
1999 in Civil Action No. H-99- 280, In Re Service
Corporation International. (Incorporated by reference to
Exhibit 99.4 to Form 10-Q for the fiscal quarter ended
September 30, 1999.)

26
<PAGE> 27

99.5 Defendants' Reply to Plaintiffs' Opposition to
Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed November 24, 1999 in Civil Action
No. H-99-280, In re Service Corporation International.
(Incorporated by reference to Exhibit 99.12 to Form 10-K
for the fiscal year ended December 31, 1999.)

99.6 Plaintiff's Original Petition filed November 10, 1999 in
Cause No. 32548-99-11, James P. Hunter, III and James P.
Hunter, III Family Trust v. Service Corporation
International, Robert L. Waltrip, L. William Heiligbrodt,
George R. Champagne, W. Blair Waltrip, James M. Shelger,
Wesley T. McRae and PricewaterhouseCoopers, LLP; in the
__________ Judicial District Court of Angelina County,
Texas. (Incorporated by reference to Exhibit 99.5 to Form
10-Q for the fiscal quarter ended September 30, 1999.)

99.7 Defendants' Original Answer in response to the Original
Petition referred to in Exhibit 99.6. (Incorporated by
reference to Exhibit 99.14 to Form 10-K for the fiscal
year ended December 31, 1999.)

(b) Reports on Form 8-K

There were no reports on Form 8-K during the quarter ended March
31, 2000.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

May 15, 2000 SERVICE CORPORATION INTERNATIONAL

By: /s/ Jeffrey E. Curtiss
----------------------------------------
Jeffrey E. Curtiss
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)

<PAGE> 1

Exhibit 12.1

SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES

Three Months Ended March 31,
2000 1999
- -------------------------------------------------------------------------------------
(Thousands, except ratio amounts)
<S> <C> <C>
Pretax income from continuing operations ................... $ 107,466 $ 66,417

Undistributed income of less than 50% owned equity
investees ................................................. (716) (2,389)
Minority interest in income of majority owned subsidiaries
with fixed charges ........................................ 207 205
Add fixed charges as adjusted (from below) ................. 80,364 66,844
--------- ---------
$ 187,321 $ 131,077
--------- ---------
Fixed charges:
Interest expense:
Corporate ......................................... $ 67,829 $ 57,626
Financial services ................................ 3,384 2,968
Capitalized ....................................... (1) 495
Amortization of debt costs ................................ 1,720 (177)
1/3 of rental expense ..................................... 7,431 6,427
--------- ---------
Fixed charges .............................................. 80,363 67,339
Less: Capitalized interest ................................. 1 (495)
--------- ---------
Fixed charges as adjusted .................................. $ 80,364 $ 66,844
========= =========

Ratio (earnings divided by fixed charges) .................. 2.33 1.95
========= =========
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF MARCH 31,
2000 AND THE RELATED STATEMENT OF INCOME FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 147,158
<SECURITIES> 1,305,677
<RECEIVABLES> 2,301,862
<ALLOWANCES> 142,706
<INVENTORY> 186,204
<CURRENT-ASSETS> 982,874
<PP&E> 2,429,841
<DEPRECIATION> 577,210
<TOTAL-ASSETS> 14,477,535
<CURRENT-LIABILITIES> 1,034,875
<BONDS> 3,568,304
0
0
<COMMON> 272,046
<OTHER-SE> 3,249,307
<TOTAL-LIABILITY-AND-EQUITY> 14,477,535
<SALES> 815,946
<TOTAL-REVENUES> 869,466
<CGS> 631,673
<TOTAL-COSTS> 675,853
<OTHER-EXPENSES> 60,909
<LOSS-PROVISION> 8,841
<INTEREST-EXPENSE> 72,933
<INCOME-PRETAX> 107,466
<INCOME-TAX> 39,225
<INCOME-CONTINUING> 68,241
<DISCONTINUED> 0
<EXTRAORDINARY> 6,585
<CHANGES> 0
<NET-INCOME> 74,826
<EPS-BASIC> .27
<EPS-DILUTED> .27

</TABLE>