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

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

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

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

                  For the quarterly period ended September 30, 1998

                                       or

     / / 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:  0-24728

                           -------------------------
                       EQUITY CORPORATION INTERNATIONAL
            (Exact name of registrant as specified in its charter)

                                    DELAWARE
                        (State or other jurisdiction of
                         incorporation or organization)

                                   75-2521142
                    (I.R.S. employer identification number)

                       415 SOUTH FIRST STREET, SUITE 210
                                  LUFKIN, TEXAS
                    (Address of principal executive offices)

                                     75901
                                  (Zip Code)

                                 (409) 631-8700
              (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 (or for such shorter period that the 
registrant was required to file such reports) and (2) has been subject to 
such filing requirements for the past 90 days.
Yes /X/      No

The number of shares of the registrant's Common Stock outstanding as of 
November 6, 1998 was 21,783,197.

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

<PAGE> 

                       EQUITY CORPORATION INTERNATIONAL
                                     INDEX

                                                                          Page
Part I.  Financial Information                                            ----

         Item 1. Financial Statements (Unaudited)

                 Consolidated Balance Sheet
                    September 30, 1998 and December 31, 1997.................3

                 Consolidated Statement of Operations
                    Three and Nine Months Ended September 30, 1998 and 1997..4

                 Consolidated Statement of Cash Flows
                    Nine Months Ended September 30, 1998 and 1997............5

                 Consolidated Statement of Stockholders' Equity
                    Nine Months Ended September 30, 1998.....................6

                 Notes to the Consolidated Financial Statements..............7

         Item 2. Management's Discussion and Analysis of Results of
                 Operations and Financial Condition.........................12

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K....................................22

Signature...................................................................23


FORWARD-LOOKING-STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning 
of Section 27A of the Securities Act of 1933 and Section 21E of the 
Securities Exchange Act of 1934. All statements contained herein other 
than statements of historical fact are forward-looking statements. When 
used in this Form 10-Q, the words "anticipate", "believe", "estimate" 
and "expect" and similar expressions are intended to identify forward-
looking statements. Such statements reflect the Company's current views 
with respect to future events and are subject to certain risks, 
uncertainties and assumptions, including competition for and 
availability of funeral home and cemetery acquisitions, the ability of 
the Company to successfully implement its revenue enhancement and cost 
containment programs at acquired funeral homes and cemeteries, the 
Company's ability to retain key management personnel and to continue to 
attract and retain skilled funeral home and cemetery management 
personnel, state and federal regulations, changes in the death rate or 
acceleration of the trend towards cremation, availability and cost of 
capital and general industry and economic conditions. Should one or 
more of these risks or uncertainties materialize, or should underlying 
assumptions prove incorrect, actual results may vary materially from 
those anticipated, believed, estimated or expected. The Company does 
not intend to update these forward-looking statements.


                                       2

<PAGE>

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

                       EQUITY CORPORATION INTERNATIONAL
                          CONSOLIDATED BALANCE SHEET
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                         Sept. 30,   Dec. 31,
(In thousands, except share data)                          1998        1997
-----------------------------------------------------------------------------
<S>                                                      <C>         <C>
                      ASSETS
Current assets:
   Cash and cash equivalents..........................   $  12,274   $  8,039
   Receivables, net of allowances.....................      23,699     15,412
   Inventories........................................      11,028      9,134
   Other..............................................       2,539      2,181
                                                         ---------   --------
      Total current assets............................      49,540     34,766

Preneed funeral contracts.............................     290,547    235,891
Cemetery properties, at cost..........................     120,608    117,087
Long-term receivables, net of allowances..............      66,083     55,393
Property, plant and equipment, at cost (net)..........     130,798     94,684
Deferred charges and other assets.....................      38,690     24,284
Names and reputations (net)...........................     233,581    155,595
                                                         ---------   --------
      Total assets....................................   $ 929,847   $717,700
                                                         =========   ========

        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued liabilities...........   $  21,745   $ 14,077
   Income taxes payable...............................          88         51
   Current maturities of long-term debt...............         689        858
   Deferred income taxes..............................       2,663      2,114
                                                         ---------   --------
      Total current liabilities.......................      25,185     17,100

Deferred preneed funeral contract revenues............     297,444    242,185
Convertible subordinated debentures...................     143,750         --
Long-term debt........................................     139,812    171,303
Deferred cemetery costs...............................      27,197     27,224
Deferred income taxes.................................      39,293     31,106
Other liabilities.....................................       2,304      2,250
Commitments and contingencies.........................                        
Stockholders' equity:
   Preferred stock....................................          --         --
   Common stock, $.01 par value; 50,000,000 shares
     authorized; 21,783,197 and 21,119,362 shares issued
     and outstanding in 1998 and 1997, respectively...         218        211
   Capital in excess of par value.....................     206,719    191,902
   Retained earnings..................................      48,195     34,502
   Accumulated other comprehensive income.............        (270)       (83)
                                                         ---------   --------
      Total stockholders' equity......................     254,862    226,532
                                                         ---------   --------
      Total liabilities and stockholders' equity......   $ 929,847   $717,700
                                                         =========   ========

</TABLE>

The accompanying notes are an integral part of the consolidated financial 
statements.


                                       3

<PAGE> 

                       EQUITY CORPORATION INTERNATIONAL
                     CONSOLIDATED STATEMENT OF OPERATIONS 
                                 (Unaudited)
<TABLE>
<CAPTION>

(In thousands, except per share data)
--------------------------------------------------------------------------
                               Three months ended         Nine months ended
                                    Sept. 30,                  Sept. 30,
                                1998        1997          1998        1997
<S>                          <C>         <C>           <C>         <C>
Net revenues:
   Funeral.................  $ 33,221    $ 20,791      $ 98,876    $ 60,452
   Cemetery................    14,345      12,360        42,541      34,191
   Other...................        --          --           752       1,674
                             --------    --------      --------    --------
                               47,566      33,151       142,169      96,317
                             --------    --------      --------    --------

Costs and expenses:
   Funeral.................    25,352      16,387        72,621      45,185
   Cemetery................     9,723       8,322        29,149      23,431
   Other...................        --          --           387         924
                             --------    --------      --------    --------
                               35,075      24,709       102,157      69,540
                             --------    --------      --------    --------

Total gross profit.........    12,491       8,442        40,012      26,777

General and administrative
   expenses................     2,236       1,836         6,867       5,670
                             --------    --------      --------    --------

Operating income...........    10,255       6,606        33,145      21,107

Interest expense, net......     4,109       1,834        10,698       3,758
                             --------    --------      --------    --------

Income before
   income taxes............     6,146       4,772        22,447      17,349

Provision for
   income taxes............     2,397       1,598         8,754       6,629
                             --------    --------      --------    --------

Net income.................  $  3,749    $  3,174      $ 13,693    $ 10,720
                             ========    ========      ========    ========

Earnings per share:
      Basic................  $   0.17    $   0.15      $   0.64    $   0.52
                             ========    ========      ========    ========

      Diluted..............  $   0.17    $   0.15      $   0.63    $   0.51
                             ========    ========      ========    ========

Weighted average number
   of common and equivalent
   shares outstanding:
      Basic................    21,631      20,701        21,402      20,485
                             ========    ========      ========    ========

      Diluted..............    22,029      21,078        21,790      20,842
                             ========    ========      ========    ========

</TABLE>

The accompanying notes are an integral part of the consolidated financial 
statements.


                                       4

<PAGE> 
                        EQUITY CORPORATION INTERNATIONAL
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                   Nine months ended Sept. 30,
(In thousands)                                             1998         1997
------------------------------------------------------------------------------
<S>                                                     <C>          <C>
Cash flows from operating activities:
   Net income.........................................  $ 13,693     $ 10,720
   Adjustments to reconcile net income                                       
    to net cash provided by operating activities:                            
      Depreciation and amortization...................    10,157        5,798
      Provision for bad debts and contract                                    
       cancellations..................................     6,044        3,764
      Gain on asset dispositions, net.................      (363)        (755)
      Deferred income taxes...........................     2,165          782
   Changes in assets and liabilities, net of effects                         
    from acquisitions:                                                       
     Receivables......................................   (21,108)     (13,277)
     Inventories......................................      (535)        (162)
     Other current assets.............................      (293)        (475)
     Other long-term assets...........................      (954)      (2,603)
     Accounts payable and accrued liabilities.........     3,470          862
     Income taxes payable.............................        37         (294)
     Preneed funeral contracts and associated
      deferred revenues...............................      (512)         341
                                                        --------     -------- 

        Net cash provided by operating activities.....    11,801        4,701
                                                        --------     -------- 

Cash flows from investing activities:
   Capital expenditures...............................   (15,510)      (9,296)
   Proceeds from asset dispositions...................       975           96
   Acquisitions, net of cash acquired.................      (445)     (16,888)
   Other..............................................        --           66
                                                        --------     --------
        Net cash used in investing activities.........   (14,980)     (26,022)
                                                        --------     --------
Cash flows from financing activities:
   Issuance of convertible debentures, net............   139,134           --
   Net proceeds from issuance of Common Stock.........       710       22,230
   Borrowings on long-term debt.......................    13,644       16,359
   Payments on long-term debt.........................  (146,074)     (22,515)
                                                        --------     -------- 

        Net cash provided by financing activities.....     7,414       16,074 
                                                        --------     -------- 

Increase (decrease) in cash and cash equivalents......     4,235       (5,247)
Cash and cash equivalents at beginning of period......     8,039       12,654
                                                        --------     -------- 

Cash and cash equivalents at end of period............  $ 12,274     $  7,407
                                                        ========     ======== 
</TABLE>

The accompanying notes are an integral part of the consolidated financial 
statements.


                                       5

<PAGE> 
                       EQUITY CORPORATION INTERNATIONAL
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                               (Unaudited)
<TABLE>
<CAPTION>
                                                                         ACCUMULATED
                                     COMMON STOCK   CAPITAL IN              OTHER
                                  -----------------  EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDERS'
(In thousands,except share data)  SHARES     AMOUNT  PAR VALUE EARNINGS     INCOME       EQUITY
                                 ----------  ------  --------- --------  -----------  -------------
<S>                              <C>        <C>      <C>       <C>       <C>          <C>
Balance, December 31, 1997.....  21,119,362  $  211  $ 191,902  $ 34,502   $     (83)   $ 226,532

  Comprehensive income:
     Net income................          --      --         --    13,693          --       13,693
     Foreign currency
      translation adjustment,
      net of taxes.............          --      --         --        --        (187)        (187)
                                                                --------   ---------   ----------
        Total..................          --      --         --    13,693        (187)      13,506
                                                                --------   ---------   ----------
  Common stock issued:
     Acquisitions..............     627,691       7     14,107        --          --       14,114
     Option exercises..........      22,129      --        312        --          --          312
     Other.....................      14,015      --        398                                398
                                 ----------  ------  ---------  --------   ---------   ----------
Balance, September 30, 1998...   21,783,197  $  218  $ 206,719  $ 48,195   $    (270)   $ 254,862
                                 ==========  ======  =========  ========   =========   ==========

The Company's comprehensive income for the nine months ended September 30, 1997 of $10,745 
consisted of net income of $10,720 and a foreign currency translation adjustment of $25.




</TABLE>
The accompanying notes are an integral part of the consolidated financial 
statements.


                                       6

<PAGE> 
                       EQUITY CORPORATION INTERNATIONAL
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the 
accounts of Equity Corporation International and all majority owned 
subsidiaries ("the Company") and have been prepared pursuant to the rules and 
regulations of the Securities and Exchange Commission. Certain information in 
the notes to the consolidated financial statements normally included in 
financial statements prepared in accordance with generally accepted accounting 
principles has been condensed or omitted pursuant to these rules and 
regulations. In the opinion of management, all adjustments, consisting of 
normal recurring accruals, considered necessary for a fair presentation of the 
Company's financial position, results of operations and cash flows for the 
periods presented have been included. All dollar amounts are reported in 
thousands unless otherwise indicated. Operating results for interim periods 
are not necessarily indicative of the results that may be expected for the 
year. Capitalized terms not defined herein have the meanings as defined in the 
notes to the consolidated financial statements included in the Company's 
annual report on Form 10-K for the year ended December 31, 1997. For further 
information, refer to the consolidated financial statements and footnotes 
thereto included in the Company's annual report on Form 10-K for the year 
ended December 31, 1997.

2. ACQUISITIONS
The following table is a summary of acquisitions made during the nine months 
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
                               1998            1997
---------------------------------------------------
<S>                     <C>             <C>
Number acquired:
   Funeral homes........         69              69
   Cemeteries...........          5               8
Purchase price..........   $120,106        $116,180
</TABLE>

The purchase price for these acquisitions consisted of cash, Common Stock and 
debt issued or assumed. Also included in the 1997 purchase price is $924 which 
represents the net book value of funeral home assets exchanged for one of the 
acquired cemeteries (Note 5). The excess of purchase price over the fair value 
of assets acquired and liabilities assumed is included in Names and 
reputations (net) on the Consolidated Balance Sheet and will be amortized over 
a 40-year period. In connection with acquisitions, the Company enters into 
customary employment, consulting and noncompetition agreements with certain 
employees and former owners of the businesses acquired. In certain situations, 
the Company will prepay a portion of the noncompetition agreements and 
amortize such prepayments on a straight-line basis over the terms of the 
agreements. The purchase prices indicated above do not include $651 and $852 
for noncompetition agreements that were prepaid to individuals related to 
businesses acquired in 1998 and 1997, respectively. The acquisitions have been 
accounted for as purchases and their operating results have been included in 
the Consolidated Statement of Operations since their respective dates of 
acquisition.

                                       7


<PAGE> 
The net effect of acquisitions (including the exchange discussed above) on the 
Consolidated Balance Sheet was as follows:
<TABLE>
<CAPTION>
                                                   Nine months ended Sept. 30,
(In thousands)                                              1998        1997
------------------------------------------------------------------------------
<S>                                                     <C>         <C>
Current assets........................................  $   5,232   $   5,158
Preneed funeral contracts.............................     38,552      50,927
Long-term receivables, net of allowances..............      2,127      13,600
Cemetery properties...................................      3,958       7,961
Property, plant and equipment.........................     26,731      25,801
Deferred charges and other assets.....................      9,258       7,842
Names and reputations.................................     82,268      64,025
Current liabilities...................................     (2,480)     (1,039)
Deferred preneed funeral contract revenues............    (39,667)    (51,374)
Long-term debt........................................   (100,765)    (93,699)
Deferred cemetery costs...............................     (2,081)     (5,812)
Deferred income taxes.................................     (6,532)         --
Other liabilities.....................................         --         (38)
Common stock issued...................................    (14,114)     (4,810)
                                                        ---------   ---------
   Total..............................................      2,487      18,542
   Less cash acquired.................................      2,042       1,654
                                                        ---------   ---------
   Cash used for acquisitions.........................  $     445   $  16,888
                                                        =========   =========
</TABLE>

The following represents the unaudited pro forma results of operations for the 
nine months ended September 30, 1998 and 1997, assuming the above noted 
acquisitions and exchange had occurred as of January 1, 1997:
<TABLE>
<CAPTION>
(In thousands, except per share data)                      1998         1997
------------------------------------------------------------------------------
<S>                                                     <C>          <C>
Net revenues..........................................  $ 160,094    $ 138,801
Net income............................................     14,215       11,055
Earnings per common and equivalent share:
   Basic............................................... $    0.65    $    0.53
                                                        =========    =========
   Diluted............................................. $    0.64    $    0.52
                                                        =========    =========
</TABLE>


                                       8

<PAGE>
3. PRENEED FUNERAL CONTRACTS AND DEFERRED PRENEED FUNERAL CONTRACT REVENUES
The Company sells preneed funeral contracts through various programs providing 
for future funeral services at prices prevailing when the agreement is signed. 
These contracts are included in the Consolidated Balance Sheet as Preneed 
funeral contracts. Payments on these contracts are generally placed in trust 
(pursuant to state law) or are used to pay premiums on life insurance policies 
issued by third party insurers. When the services are performed, approximately 
$132,072 and $104,523 will be funded by trusts and approximately $158,475 and 
$131,368 will be funded by insurance policies as of September 30, 1998 and 
December 31, 1997, respectively. Accumulated earnings from trust funds and 
increasing insurance benefits have been included to the extent that they have 
accrued through September 30, 1998 and December 31, 1997, respectively. The 
cumulative total has been reduced by allowable cash withdrawals for trust 
earning distributions and amounts retained by the Company pursuant to various 
state laws. At September 30, 1998 and December 31, 1997, the amounts collected 
and held in trusts, at cost, which approximates market, were approximately 
$116,189 and $93,900, respectively. The amounts in trusts and all life 
insurance policies are generally transferred to the customer upon contract 
cancellation.

"Deferred preneed funeral contract revenues" includes the contract amount of 
all price guaranteed funeral services and accumulated trust earnings and 
increasing insurance benefits earned.  The Company defers recognition of trust 
earnings and insurance benefits until performance of the funeral service.  
Upon performance of the funeral service, the Company will recognize the fixed 
contract price and related accumulated trust earnings or increasing insurance 
benefits as funeral service revenues.

4. DEBT
The Company maintains a revolving credit agreement (the "Credit Facility") 
with a group of banks that provides for a $225,000 line of credit to be used 
for acquisition financing and general corporate purposes. The Tranche A 
commitments under the Credit Facility provide for $150,000 of borrowings 
outstanding at any one time expiring September 2, 2002. The Tranche B 
commitments under the Credit Facility provide for $75,000 of borrowings 
outstanding at any one time expiring September 1, 1999, subject to annual 
renewal options. Borrowings under the Credit Facility bear interest, at the 
Company's option, at either (i) the prime rate or (ii) the London Interbank 
Offered Rate plus an applicable margin, depending on the Company's Leverage 
Ratio, as defined. In addition, the Company pays a commitment fee on unused 
funds. The weighted average interest rates on amounts borrowed under the 
Credit Facility were 6.86% and 6.83% at September 30, 1998 and December 31, 
1997, respectively. The Credit Facility contains customary restrictive 
covenants requiring the Company to maintain certain financial ratios, is 
guaranteed by substantially all of the Company's subsidiaries and is 
collateralized by a pledge of stock of certain of the Company's subsidiaries. 
The Credit Facility will permit the payment of dividends on the Company's 
Common Stock only to the extent the Company maintains a specified net worth. 
Balances outstanding under the Credit Facility totaled $128,000 and $156,700 
at September 30, 1998 and December 31, 1997, respectively.

In February 1998, the Company completed the private placement of $143,750 
aggregate principal amount of 4.5% convertible subordinated debentures due 
2004 (the "Debentures"). The Debentures mature on December 31, 2004, are 
convertible into shares of the Company's Common Stock at a conversion price of 
$27.09 per share and may not be redeemed by the Company prior to February 26, 
2001. The net proceeds to the Company from this private placement were used to 
pay down the Credit Facility. The selling commissions and related expenses 
have been deferred and are being amortized ratably over the term of the 
Debentures. 

                                       9

<PAGE> 
5. DISPOSITIONS
In April 1998, one of the Company's funeral home facilities located in Alabama 
was destroyed by a tornado.  The Company received approximately $752 in 
insurance proceeds from this loss and recorded a gain due to the involuntary 
conversion of $365 during the second quarter of 1998, which represents the 
difference between the proceeds received and the net book value of the 
destroyed funeral home facility.

During January 1997, the Company acquired one cemetery from Service 
Corporation International ("SCI"), a former significant stockholder of the 
Company, in exchange for one of the Company's funeral home facilities. This 
was a strategic business decision as the acquired cemetery is in close 
proximity to one of the Company's existing funeral home facilities. In 
connection with the transaction, the Company received consideration of $1,674, 
including $250 in cash, and recognized a gain of approximately $750.

6. EARNINGS PER SHARE
The Company reports earnings per share in accordance with the provisions of 
SFAS No. 128, "Earnings per Share". The prior year period has been restated to 
conform to the new requirements. A reconciliation of the numerators and 
denominators of the basic and diluted per-share computations for net income 
follows:
<TABLE>
<CAPTION>
                                            Three months ended     Nine months ended
                                                 Sept. 30,             Sept. 30,
(In thousands, except per share data)         1998      1997        1998      1997
                                            ------------------     ----------------
<S>                                         <C>         <C>       <C>        <C>
Income (numerator)
  Net income (Basic)....................... $ 3,749   $ 3,174     $13,693   $10,720
  Effect of assumed conversion of
    convertible debt.......................      --        --          --        --
                                            -------   -------     -------    ------
  Net income assuming conversion (Diluted). $ 3,749   $ 3,174     $13,693   $10,720
                                            =======   =======     =======   =======

Shares (denominator)
  Shares (Basic) ..........................  21,631    20,701      21,402    20,485
  Options..................................     379       354         367       336
  Convertible debt.........................      --        --          --        --
  Other....................................      19        23          21        21
                                            -------   -------     -------   -------
  Shares (Diluted) ........................  22,029    21,078      21,790    20,842
                                            =======   =======     =======   =======

Earnings per share:
  Basic.................................... $  0.17   $  0.15     $  0.64   $  0.52
                                            =======   =======     =======   =======
  Diluted.................................. $  0.17   $  0.15     $  0.63   $  0.51
                                            =======   =======     =======   =======
</TABLE>

The Debentures issued in February 1998, convertible into 5,306,386 shares of 
Common Stock (Note 4),and a $2,200 principal amount 5.25% convertible 
subordinated note due January 29, 2008, convertible into 74,074 shares of 
Common Stock beginning January 29, 2000, were excluded from the calculation of 
diluted earnings per share for the three and nine months ended September 30, 
1998, because their effect on earnings per share would have been antidilutive 
for both periods. 

                                    10

<PAGE> 

7. RECENT FASB PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting 
Standards ("SFAS") No. 130 "Reporting Comprehensive Income", effective January 
1, 1998. Currently, the Company's components of comprehensive income consist 
of net income and the foreign currency translation adjustment related to the 
operations of the Company's Canadian subsidiaries. The Company has elected to 
report comprehensive income within the statement of stockholders' equity as 
permitted by SFAS No. 130. 

8. BUSINESS COMBINATION
On August 6, 1998, the Company announced that it entered into an Agreement and 
Plan of Merger (the "Merger Agreement") with SCI to combine the two companies.  
Pursuant to and subject to the terms of the Merger Agreement, each of the 
issued and outstanding shares of the Company's Common Stock will be converted 
in the merger into the right to receive the number of shares of SCI common 
stock, par value $1.00 per share, ("SCI Common Stock") determined by dividing 
$27.00 by the Average SCI Stock Price (as defined below); provided, however, 
that (i) in the event the Average SCI Stock Price is greater than $41.50, the 
Company's Common Stock shall be converted into the right to receive the number 
of shares of SCI Common Stock determined by dividing $27.00 by $41.50 and (ii) 
in the event the Average SCI Stock Price is less than $34.00, the Company's 
Common Stock shall be converted into the right to receive the number of shares 
of SCI Common Stock determined by dividing $27.00 by $34.00.

The "Average SCI Stock Price" means the average of the Daily Per Share Prices 
(as defined below) for the ten consecutive trading days ending on the third 
trading day prior to the closing of the merger. The "Daily Per Share Price" 
for any trading day means the weighted average of the per share selling prices 
on the New York Stock Exchange, Inc. (the "NYSE") of SCI Common Stock (as 
reported in the NYSE Composite Transactions) for that day.

The consummation of the merger, anticipated in the fourth quarter of 1998, is 
subject to the approval of holders of a majority of the shares of the 
Company's Common Stock outstanding and regulatory approvals pursuant to the 
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company 
has deferred approximately $570 of expenses related to the anticipated merger 
as of September 30, 1998. These expenses and all future expenses incurred by 
the Company related to the merger will be recognized upon the consummation of 
the merger.

                                        11




<PAGE> 
           ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

The Company provides services and products in both the funeral home and 
cemetery segments of the death care industry.  The Company has a growth 
strategy that emphasizes an aggressive acquisition program and the 
implementation of revenue enhancement and cost-containment programs. As part 
of this growth strategy, the Company maintains a separate corporate 
development department headed by a senior management executive with 
substantial death care experience. The department is responsible for 
identifying, evaluating, negotiating and closing acquisitions of funeral homes 
and cemeteries. With the Company's knowledge of non-metropolitan markets and 
experienced management team, the Company believes that it is well positioned 
to take advantage of the continuing consolidation trend in the death care 
industry. The Company's future results of operations will depend in large part 
on the Company's ability to continue to make acquisitions on attractive terms 
and to successfully integrate and manage the acquired properties.


RESULTS OF OPERATIONS

The following is a discussion of the Company's results of operations for the 
three and nine month periods ended September 30, 1998 and 1997.  For purposes 
of this discussion, funeral homes and cemeteries owned and operated for the 
entirety of each period being compared are referred to as existing operations. 
Correspondingly, operations acquired or opened during either period being 
compared are referred to as acquired operations. All dollar amounts are 
reported in thousands unless otherwise indicated.

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER 
30, 1997:

Total net revenues for the three months ended September 30, 1998 increased 
43.4% to $47,566 from $33,151 for the three months ended September 30, 1997.  
The increase in net revenues reflects a $13,711 increase in net revenues 
attributable to acquired operations and a $704, or 2.2% increase in net 
revenues from existing operations. The increase in net revenues from existing 
operations is due to increases in average funeral revenues and improvements in 
merchandising mix, offset in part by lower trust investment income at the 
Company's cemetery operations and lower funeral and cemetery at need volumes. 

Gross profit for the three months ended September 30, 1998 increased 48.0% to 
$12,491 from $8,442 for the three months ended September 30, 1997.  The 
increase in gross profit is due primarily to a $3,101 increase attributable to 
acquired operations and a $948, or 11.5% increase from existing operations.  
The increase in gross profit from existing operations was due primarily to 
improvements in product/services mix at both funeral home and cemetery 
operations along with lower maintenance expense at the Company's cemetery 
operations.

                                       12

<PAGE> 

FUNERAL HOME SEGMENT. The following table sets forth certain information 
regarding the net revenues and gross profit of the Company from its funeral 
home operations during the three months ended September 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                         Three months
                                         ended Sept. 30,          Change
(Dollars in thousands)                   1998      1997      Amount    Percent
------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>       <C>
Net revenues:
   Existing operations.................. $ 21,308  $ 20,470  $    838     4.1%
   Acquired operations..................   11,913       321    11,592      *
                                           ------    ------    ------
      Total funeral net revenues........ $ 33,221  $ 20,791  $ 12,430    59.8%
                                           ======    ======    ======

Gross profit:
   Existing operations.................. $  5,131  $  4,310  $    821    19.0%
   Acquired operations..................    2,738        94     2,644      *
                                           ------    ------    ------
      Total funeral gross profit........ $  7,869  $  4,404  $  3,465    78.7%
                                           ======    ======    ======

------
*Not meaningful


Total funeral net revenues for the three months ended September 30, 1998 
increased 59.8% to $33,221 from $20,791 for the prior year quarter, due 
primarily to an $11,592 increase attributable to acquired operations. The 
increase in revenues from existing operations is primarily attributable to an 
increase in the average revenue per regular funeral service performed and 
higher sales of ancillary funeral products, offset in part by a slight 
decrease in the number of funeral services performed.

Total funeral gross profit for the three months ended September 30, 1998 
increased 78.7% to $7,869 from $4,404 for the three months ended September 30, 
1997. Funeral gross margin improved to 23.7% from 21.2% due primarily to 
margin improvements achieved from the Company's existing operations. Funeral 
gross margin at existing operations improved to 24.1% from 21.1% for the prior 
year quarter due primarily to merchandising and cost containment programs 
initiated by the Company in late 1997.  Funeral gross margin for acquired 
operations was 23.0% for the three months ended September 30, 1998.  Depending 
on numerous factors including the size of an acquired operation, the proximity 
to other Company operations and market sensitivity, it may take 12 to 36 
months before significant margin improvement is realized at an acquired 
operation as a result of new policies and procedures implemented by the 
Company. 



                                       13

<PAGE> 

CEMETERY SEGMENT. The following table sets forth certain information regarding 
the net revenues and gross profit of the Company from its cemetery operations 
during the three months ended September 30, 1998 and 1997.


</TABLE>
<TABLE>
<CAPTION>
                                          Three months
                                          ended Sept. 30,         Change
(Dollars in thousands)                     1998      1997      Amount  Percent
------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>       <C>
Net revenues:
   Existing operations.................. $ 12,024  $ 12,158  $   (134)  (1.1)%
   Acquired operations..................    2,321       202     2,119     *
                                           ------    ------    ------
      Total cemetery net revenues....... $ 14,345  $ 12,360  $  1,985   16.1%
                                           ======    ======    ======

Gross profit:
   Existing operations.................. $  4,062  $  3,935  $    127    3.2%
   Acquired operations..................      560       103       457     *
                                           ------    ------    ------
      Total cemetery gross profit....... $  4,622  $  4,038  $    584   14.5%
                                           ======    ======    ======

------
*Not meaningful


Total cemetery net revenues for the three months ended September 30, 1998 
increased 16.1% to $14,345 from $12,360 for the prior year quarter, due 
primarily to a $2,119 increase from acquired operations. Cemetery net revenues 
attributable to existing operations for the three months ended September 30, 
1998 decreased 1.1% to $12,024 from $12,158 for the prior year quarter, due 
primarily to lower at need sales along with lower trust investment income.

Total cemetery gross profit for the three months ended September 30, 1998 
increased 14.5% to $4,622 from $4,038 for the three months ended Seprember 30, 
1997. Cemetery gross margin at existing operations improved to 33.8% for the 
three months ended September 30, 1998 compared to 32.4% for the third quarter 
of 1997 due primarily to a better product/services mix and lower maintenance 
costs. Cemetery gross margin for acquired operations was 24.1% for the three 
months ended September 30, 1998. Gross margin for acquired operations have 
historically been lower than gross margin for the Company's existing 
operations until they have been operated by the Company long enough to fully 
implement the preneed marketing programs to leverage off of the maintenance 
and fixed operating costs which start being incurred immediately after 
acquisition.


                                     14

<PAGE> 

General and administrative expenses for the three months ended September 30, 
1998 increased $400, or 21.8% over the three months ended September 30, 1997. 
This increase resulted primarily from increased personnel costs associated 
with the Company's continued growth, offset in part by decreases in travel and 
insurance expenses and lower professional fees. General and administrative 
expenses as a percentage of net revenues decreased to 4.7% in the three months 
ended September 30, 1998 from 5.5% in the comparable prior year quarter, 
reflecting increased economies of scale as expenses are spread over a larger 
revenue base.

Interest expense for the three months ended September 30, 1998 increased to 
$4,109 from $1,834 for the three months ended September 30, 1997, due 
primarily to significantly higher average debt levels. Average indebtedness 
outstanding for the quarter ended September 30, 1998 increased to $268.1 
million from $118.2 million for the 1997 third quarter primarily as a result 
of acquisition activity. 

The Company's effective tax rate was 39.0% for the three months ended 
September 30, 1998 compared to 33.5% for the prior year quarter. The effective 
tax rate of 33.5% for the 1997 third quarter was the result of a reduction of 
$200 in the Company's 1997 tax provision representing the difference between 
the Company's estimated and actual tax liability for 1996, along with a 
cumulative adjustment to reduce the Company's effective tax rate for 1997 to 
39.0% from 40.0%.  The Company expects the effective tax rate for income 
generated in the remainder of 1998 will be approximately 39.0%.


NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 
30, 1997:

Total net revenues for the nine months ended September 30, 1998 increased 
47.6% to $142,169 from $96,317 for the nine months ended September 30, 1997.  
The increase in net revenues reflects a $45,295 increase in net revenues 
attributable to acquired operations and a $1,479, or 1.8% increase in net 
revenues from existing operations.  The substantial increase in net revenues 
from acquired operations is due primarily to the full period results of the 
Company's 1997 acquisitions and the partial period results of the 69 funeral 
homes and five cemeteries acquired during the nine months ended September 30, 
1998. The increase in net revenues from existing operations is due to 
increases in average revenue per regular funeral service performed, offset in 
part by lower trust investment income at the Company's cemetery operations and 
lower funeral volumes. Included in net revenues for the nine months ended 
September 30, 1998 are insurance proceeds of $752 received in connection with 
the loss of a funeral home facility destroyed by a tornado in the second 
quarter of 1998. Included in net revenues for the nine months ended September 
30, 1997 are proceeds of $1,674 received in connection with the first quarter 
1997 acquisition of a cemetery in exchange for one of the Company's funeral 
homes.

Gross profit for the nine months ended September 30, 1998 increased 49.4% to 
$40,012 from $26,777 for the nine months ended September 30, 1997.  The 
increase in gross profit is due primarily to an $11,601 increase attributable 
to acquired operations and a $2,019, or 8.5% increase from existing 
operations.  The increase in gross profit from existing operations was 
attributable to the increase in funeral revenues noted above, along with a 
better product/services mix, offset in part by lower trust investment income 
at the Company's cemetery operations as noted above. Included in gross profit 
for the nine months ended September 30, 1998 is a $365 gain recorded in 
connection with the loss of the funeral home facility noted above. Included in 
gross profit for the nine months ended September 30, 1997 is a $750 gain 
recorded in connection with the exchange noted above.

                                       15

<PAGE> 

FUNERAL HOME SEGMENT. The following table sets forth certain information 
regarding the net revenues and gross profit of the Company from its funeral 
home operations during the nine months ended September 30, 1998 and 1997.


</TABLE>
<TABLE>
<CAPTION>
                                          Nine months
                                         ended Sept. 30,          Change
(Dollars in thousands)                   1998      1997      Amount    Percent
------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>       <C>
Net revenues:
   Existing operations.................. $ 53,880  $ 51,456  $  2,424     4.7%
   Acquired operations..................   44,996     8,996    36,000      *
                                           ------    ------    ------
      Total funeral net revenues........ $ 98,876  $ 60,452  $ 38,424    63.6%
                                           ======    ======    ======

Gross profit:
   Existing operations.................. $ 15,839  $ 13,391  $  2,448    18.3%
   Acquired operations..................   10,416     1,876     8,540      *
                                           ------    ------    ------
      Total funeral gross profit........ $ 26,255  $ 15,267  $ 10,988    72.0%
                                           ======    ======    ======

------
*Not meaningful


Total funeral net revenues for the nine months ended September 30, 1998 
increased 63.6% to $98,876 from $60,452 for the comparable prior year period, 
due primarily to a $36,000 increase from acquired operations. The increase in 
revenues from existing operations is primarily attributable to an increase in 
the average revenue per regular funeral service performed along with 
improvements in merchandising mix, offset in part by a decrease in the number 
of funeral services performed.

Total funeral gross profit for the nine months ended September 30, 1998 
increased 72.0% to $26,255 from $15,267 for the nine months ended September 
30, 1997. Funeral gross margin improved to 26.6% from 25.3% due to margin 
improvements achieved from both the Company's existing and acquired 
operations. Funeral gross margin at existing operations improved to 29.4% from 
26.0% for the comparable prior year period due primarily to merchandising and 
cost containment programs initiated by the Company in late 1997.  The 
improvement in funeral gross margin at acquired operations to 23.1% from 20.9% 
in the comparable prior year period was largely the result of the 
implementation of new merchandising programs by the Company shortly after 
acquisition.



                                       16

<PAGE> 

CEMETERY SEGMENT. The following table sets forth certain information regarding 
the net revenues and gross profit of the Company from its cemetery operations 
during the nine months ended September 30, 1998 and 1997.


</TABLE>
<TABLE>
<CAPTION>
                                            Nine months
                                           ended Sept. 30,         Change
(Dollars in thousands)                     1998      1997      Amount  Percent
------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>       <C>
Net revenues:
   Existing operations.................. $ 30,787  $ 31,732  $   (945)  (3.0)%
   Acquired operations..................   11,754     2,459     9,295     *
                                           ------    ------    ------
      Total cemetery net revenues....... $ 42,541  $ 34,191  $  8,350   24.4%
                                           ======    ======    ======

Gross profit:
   Existing operations.................. $  9,822  $ 10,251  $   (429)  (4.2)%
   Acquired operations..................    3,570       509     3,061     *
                                           ------    ------    ------
      Total cemetery gross profit....... $ 13,392  $ 10,760  $  2,632   24.5%
                                           ======    ======    ======

------
*Not meaningful


Total cemetery net revenues for the nine months ended September 30, 1998 
increased 24.4% to $42,541 from $34,191 for the comparable prior year period, 
due primarily to a $9,295 increase attributable to acquired operations. 
Cemetery net revenues attributable to existing operations for the nine months 
ended September 30, 1998 decreased 3.0% to $30,787 from $31,732 for the same 
period in 1997, due primarily to lower investment income, along with slight 
decreases in preneed and at need sales.

Total cemetery gross profit for the nine months ended September 30, 1998 
increased 24.5% to $13,392 from $10,760 for the nine months ended September 
30, 1997.  Cemetery gross margin was 31.5% for both comparable periods as 
margin improvements at acquired operations were largely offset by a decrease 
in gross margin at existing operations.  Cemetery gross margin at existing 
operations decreased to 31.9% from 32.3% in 1997 due primarily to lower 
investment income as discussed above. Cemetery gross margin for acquired 
operations improved to 30.4% from 20.7% for the nine months ended September 
30, 1997, reflecting the success of programs initiated by management to 
significantly reduce the maturation cycle of new acquisitions as discussed 
above.


                                       17

<PAGE> 

General and administrative expenses for the nine months ended September 30, 
1998 increased $1,197, or 21.1% over the nine months ended September 30, 1997. 
This increase resulted primarily from increased personnel costs associated 
with the Company's continued growth, offset in part by lower travel costs. 
General and administrative expenses as a percentage of net revenues, excluding 
the effects of the nonrecurring net revenue items noted above, decreased to 
4.9% in the nine months ended September 30, 1998 from 6.0% for the comparable 
prior year period, reflecting increased economies of scale as expenses are 
spread over a larger revenue base.

Interest expense for the nine months ended September 30, 1998 increased to 
$10,698 from $3,758 for the nine months ended September 30, 1997, due 
primarily to significantly higher average debt levels. Average indebtedness 
outstanding for the nine months ended September 30, 1998 increased to $228.2 
million from $93.5 million for the same period in 1997 primarily as a result 
of acquisition activity coupled with the paydown of approximately $13.0 
million of the Credit Facility from proceeds received in connection with an 
equity offering in the first quarter of 1997. 

The Company's effective tax rate for the nine months ended September 30, 1998 
was 39.0% compared to 38.2% for the comparable period in 1997. The 38.2% 
effective tax rate for th nine months ended September 30, 1997 was the result 
of the adjustments to the third quarter 1997 tax provision discussed above. 
The Company expects the effective tax rate for income generated in the 
remainder of 1998 will be approximately 39.0%.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically relied on cash flow from operations and third 
party borrowings to finance its operations and on third party borrowings, the 
issuance of notes payable and, in certain situations, the issuance of shares 
of Common Stock to sellers of funeral homes and cemeteries to finance its 
acquisition program. Recently acquired funeral homes typically generate 
positive cash flow immediately following acquisition. In contrast, recently 
acquired cemeteries typically generate negative cash flow during an 
approximately three to nine month start-up period following the introduction 
of an aggressive preneed cemetery sales effort, although in some cases this 
period has exceeded nine months. This negative cash flow is typically offset 
by positive cash flow from mature cemetery operations.

Cash and cash equivalents totaled $12.3 million at September 30, 1998, 
representing an increase of $4.2 million from December 31, 1997. For the nine 
months ended September 30, 1998, cash provided from operating activities was 
approximately $11.8 million, cash used in investing activities totaled 
approximately $15.0 million and cash provided from financing activities 
amounted to approximately $7.4 million. Significant components of cash flow 
generated from operating activities include net income adjusted for non-cash 
items partially offset by an increase in receivables of $21.1 million 
primarily attributable to preneed cemetery sales which are usually financed on 
an installment basis over 36 months. Significant components of cash used in 
investing activities included capital expenditures of $15.5 million related 
to, among other things, additions and improvements at several funeral home 
facilities, the acquisition of professional vehicles and maintenance equipment 
and upgrades to computer systems and peripheral equipment. Significant 
components of cash provided by financing activities included (i) $139.1 
million of net proceeds received in February 1998 in connection with the 
issuance of the Company's convertible subordinated debentures described below, 
offset by the use of these proceeds to pay down the Company's Credit Facility; 
and (ii) borrowings of approximately $13.6 million which were used to 
extinguish certain seller financed notes and for general corporate purposes. 

                                     18

<PAGE> 

Long-term debt, including current maturities, at September 30, 1998 totaled 
$284.3 million as compared to $172.2 million at December 31, 1997. This 
increase was principally attributable to acquisition activity. Long-term debt 
at September 30, 1998 consisted of $143.8 million of convertible subordinated 
debentures, $128.0 million drawn under the Credit Facility and $12.5 million 
owed under various notes payable to sellers of funeral homes and cemeteries.

In February 1998, the Company completed an underwritten private placement of 
$143.8 million aggregate principal amount of 4.5% convertible subordinated 
debentures (the "Debentures"). The Debentures mature on December 31, 2004, are 
convertible into shares of the Company's Common Stock at a conversion price of 
$27.09 per share, and may not be redeemed by the Company prior to February 26, 
2001. The net proceeds from the private placement were used to pay down the 
Credit Facility. The selling commissions and related expenses have been 
deferred and are being amortized ratably over the term of the Debentures.

Borrowings under the Credit Facility bear interest, at the Company's option, 
at either (i) the prime rate or (ii) the London Interbank Offered Rate plus an 
applicable margin, depending on the Company's Leverage Ratio, as defined. The 
weighted average interest rates on amounts borrowed under the Credit Facility 
were 6.86% and 6.83% at September 30, 1998 and December 31, 1997, 
respectively. In addition, the Company pays commitment fees on unused funds 
depending on the Company's Leverage Ratio. The Tranche A commitments under the 
Credit Facility provide for $150 million of borrowings outstanding at any one 
time expiring September 2, 2002. The Tranche B commitments under the Credit 
Facility provide for $75 million of borrowings outstanding at any one time 
expiring September 1, 1999, subject to annual renewal options. The Credit 
Facility contains customary restrictive covenants, permits the payment of 
dividends only to the extent the Company maintains a specified net worth and 
requires the Company to maintain certain financial ratios. The Credit Facility 
is guaranteed by substantially all of the Company's subsidiaries and is 
collateralized by a pledge of the stock of certain of the Company's 
subsidiaries. At September 30, 1998, $97.0 million was available for 
borrowings under the Credit Facility. Any amounts repaid under the Credit 
Facility are available for future borrowings under the terms of the Credit 
Facility.

The Company currently expects to acquire funeral homes and cemeteries for 
purchase prices aggregating approximately $140 million in 1998. The Company 
anticipates that the consideration for future acquisitions will consist of a 
combination of cash, long-term notes, the assumption of existing indebtedness 
of the acquired businesses, and, in some cases, the issuance of additional 
shares of the Company's Common Stock. In April 1998, the Company filed, and 
had declared effective, a "shelf" registration statement for the issuance of 
up to 2,500,000 shares of Common Stock, including shares then available under 
the Company's former acquisition shelf registration statement, to be used in 
connection with future acquisitions. As of September 30, 1998, 2,138,520 
shares remained available under this shelf registration statement for future 
acquisitions. The Company anticipates making routine capital expenditures of 
approximately $11 million in 1998. In addition, the Company currently 
anticipates spending approximately $20 million over the next 12 to 18 months 
for major construction and development projects, including the construction of 
six new funeral homes, three of which will be built on existing Company-owned 
cemetery property.

                                    19

<PAGE> 

Management believes that cash flow from operations and the borrowing capacity 
available under the Credit Facility as a result of the repayment of such 
indebtedness with the net proceeds of the Debentures should be sufficient to 
meet its anticipated capital expenditures and other operating requirements and 
to substantially fund acquisitions through 1998. The Company continually 
evaluates alternatives, including additional debt or equity financing, to 
ensure adequate funding for its operations, including planned capital 
expenditures and projected acquisitions. However, because future cash flows 
and the availability of financing at terms favorable to the Company are 
subject to a number of variables, such as the number, size and rate of 
acquisitions made by the Company, there can be no assurance that the Company's 
capital resources will be sufficient to fund planned future levels of capital 
expenditures and acquisitions. Additional debt and equity financings may be 
required in connection with future acquisitions. The availability of these 
capital sources will depend on prevailing market conditions and interest rates 
and the then-existing financial condition of the Company.

YEAR 2000

The year 2000 issue is the result of computer programs using two digits to 
define the applicable year instead of four.  Any programs that have time 
sensitive software may recognize a date using "00" as the year 1900 rather 
than the year 2000.  A computer system that is not year 2000 compliant would 
not be able to correctly process certain data, or in extreme situations, 
system failure could result.

As part of the Company's continuing program to upgrade its information systems 
in anticipation of future growth, the Company is currently involved in the 
installation of software for its funeral corporate and field operations and 
cemetery corporate operations which is year 2000 compliant.  This installation 
is currently expected to be complete by the third quarter of 1999.  The 
Company is also currently evaluating software solutions for its cemetery field 
operations and cemetery merchandise trusting systems and expects to have year 
2000 compliant systems in place by the third quarter of 1999.  As part of this 
process, the Company has assembled a task force of key employees and outside 
professional consultants to identify, evaluate and repair or replace, if 
necessary, any remaining areas of its operating systems that could pose a 
potential year 2000 problem.

Planned upgrades to the cemetery field operating and merchandise trusting 
systems have been accelerated to ensure timely year 2000 compliance.  The 
Company expects to incur approximately $0.7 to $1.0 million on these 
accelerated planned upgrades.

The Company has also made inquiries of certain of its vendors to determine 
what impact, if any, their year 2000 compliance exposure might have on the 
Company's operations and has received assurances that those vendors' systems 
are or will be year 2000 compliant in a timely manner.

The Company has begun, but not yet completed, a comprehensive analysis of the 
operational problems and costs (including any possible loss of revenue) that 
would be reasonably likely to result from the failure by the Company and 
certain third parties to complete efforts necessary to achieve year 2000 
compliance in a timely manner.  A contingency plan has not been developed for 
dealing with the most reasonably likely worst case scenario, and such scenario 
has not clearly been identified.  The Company plans to complete such analysis 
and have contingency planning in place by the third quarter of 1999.

The failure to correct a material year 2000 problem could possibly result in 
an interruption in, or failure of, certain normal business activities or 
operations.  Such failure could materially and adversely affect the Company's 
financial position, results of operations and cash flows.  Due to the general 
uncertainty inherent in the year 2000 problem, including uncertainty regarding 
the year 2000 readiness of third party suppliers and potential future 
acquisitions, the Company is unable to determine at this time whether the 
consequences of any possible year 2000 failures will have a material impact on 
the Company's financial position, results of operations and cash flows.  The 
Company believes that, with the scheduled completion of its funeral and 
cemetery computer system upgrades, the possibility of any material 
interruptions to normal operations should be significantly reduced.

                                       20

<PAGE> 

The Company's plans to comply with year 2000 requirements and completion dates 
are based on management's best estimates, which were derived utilizing 
numerous assumptions of future events including the continued availability of 
certain resources and other factors.  There can be no assurance, however, that 
these estimates will be achieved and actual results could differ materially 
from those estimates.  Specific factors that might cause such material 
differences include, but are not limited to, the availability and cost of 
personnel trained in this area, the ability to identify and correct potential 
problems, and similar uncertainties. 

BUSINESS COMBINATION

On August 6, 1998, the Company announced that it entered into an Agreement and 
Plan of Merger (the "Merger Agreement") with SCI to combine the two companies.  
Pursuant to and subject to the terms of the Merger Agreement, each of the 
issued and outstanding shares of the Company's Common Stock will be converted 
in the merger into the right to receive the number of shares of SCI common 
stock, par value $1.00 per share, ("SCI Common Stock") determined by dividing 
$27.00 by the Average SCI Stock Price (as defined below); provided, however, 
that (i) in the event the Average SCI Stock Price is greater than $41.50, the 
Company's Common Stock shall be converted into the right to receive the number 
of shares of SCI Common Stock determined by dividing $27.00 by $41.50 and (ii) 
in the event the Average SCI Stock Price is less than $34.00, the Company's 
Common Stock shall be converted into the right to receive the number of shares 
of SCI Common Stock determined by dividing $27.00 by $34.00.

The "Average SCI Stock Price" means the average of the Daily Per Share Prices 
(as defined below) for the ten consecutive trading days ending on the third 
trading day prior to the closing of the merger. The "Daily Per Share Price" 
for any trading day means the weighted average of the per share selling prices 
on the New York Stock Exchange, Inc. (the "NYSE") of SCI Common Stock (as 
reported in the NYSE Composite Transactions) for that day.

The consummation of the merger, anticipated in the fourth quarter of 1998, is 
subject to the approval of holders of a majority of the shares of the 
Company's Common Stock outstanding and regulatory approvals pursuant to the 
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company 
has deferred approximately $0.6 million of expenses related to the anticipated 
merger as of September 30, 1998. These expenses and all future expenses 
incurred by the Company related to the merger will be recognized upon 
consummation of the merger.

SEASONALITY

Although the deathcare business is relatively stable and fairly predictable, 
the Company's results of operations may periodically fluctuate due to limited 
seasonality. Revenues from the Company's funeral home operations tend to be 
somewhat greater in the first and fourth quarters of each calendar year while 
revenues from its cemetery operations tend to be somewhat greater in the 
second and fourth quarters of each calendar year.

INFLATION

Inflation has not had a significant impact on the results of operations of the 
Company during the last three years.

RECENT FASB PRONOUNCEMENTS

The Company adopted the provisions of Statement of Financial Accounting 
Standards ("SFAS") No. 130 "Reporting Comprehensive Income", effective January 
1, 1998. Currently, the Company's components of comprehensive income consist 
of net income and the foreign currency translation adjustment related to the 
operations of the Company's Canadian subsidiaries. The Company has elected to 
report comprehensive income within the statement of stockholders' equity as 
permitted by SFAS No. 130. 


                                      21

<PAGE> 

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     10.1(1)- Agreement and Plan of Merger by and among Service Corporation 
              International, SCI Delaware Funeral Services, Inc., and the 
              Company, dated August 6, 1998 (filed as Exhibit 2.1 to the 
              Company's Current Report on Form 8-K, filed September 2, 1998).

     27     - Financial Data Schedule

     (1) Incorporated herein by reference to the indicated filing.


(b)  Reports on Form 8-K

     The Company filed a Current Report on Form 8-K on August 10, 1998 in 
     which the Company reported under Item 5 that it had entered into an
     agreement with SCI to combine the two companies.  No financial statements
     were filed.

     The Company filed a Current Report on Form 8-K on September 2, 1998 in 
     which the Company reported under Item 5 that it had entered into an
     agreement with SCI to combine the two companies and provided terms of the
     merger agreement.


                                      22

<PAGE> 

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.

Date:  November 13, 1998

EQUITY CORPORATION INTERNATIONAL

By:  /s/ W. Cardon Gerner
     ------------------------
     Senior Vice President
     Chief Financial Officer
    (Principal Financial Officer and Duly Authorized Officer)


                                      23



</TABLE>