<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 2000

                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

               For the transition period from         to

                       Commission file number 333-21411

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

                              ROSE HILLS COMPANY
            (Exact name of registrant as specified in its charter)

<TABLE>
 <S>                              <C>
            Delaware                                13-3915765
 (State or other jurisdiction of                 (I.R.S. Employer
 incorporation or organization)                Identification No.)
</TABLE>

                         3888 South Workman Mill Road
                          Whittier, California 90601
              (Address of principal executive offices) (Zip Code)

                                (562) 692-1212
              Registrant's telephone number, including area code

                                      N/A
  (Former name, former address and former fiscal year, if changed since last
                                    report)

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

          Securities registered pursuant to Section 12(b) of the Act:

                                     None

          Securities registered pursuant to Section 12(g) of the Act:

                                     None

  Indicate by check [X] 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 outstanding Common shares as of March 23, 2001, was 1,000.

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                               TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
  Item
 Number                                                                    Page
 ------                                                                    ----
 <C>    <S>                                                                <C>
  1.    BUSINESS........................................................     1
  2.    PROPERTIES......................................................     7
  3.    LEGAL PROCEEDINGS...............................................     8
  4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............     8

                                    PART II

  5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........     9
  6.    SELECTED FINANCIAL DATA.........................................     9
  7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS..........................................    11
  7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......    19
  8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................    19
  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE...........................................    19

                                    PART III

 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............    20
 11.    EXECUTIVE COMPENSATION..........................................    22
 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..    25
 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................    25

                                    PART IV

 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-     29
         K..............................................................
</TABLE>
<PAGE>

                                    PART 1
ITEM 1. BUSINESS.

OVERVIEW

  Rose Hills Company (the "Company"), a Delaware corporation, is a wholly
owned subsidiary of Rose Hills Holdings Corp. ("RH Holdings"). The Company was
formed in 1996 for purposes of acquiring Roses, Inc., the owner and operator
of the Rose Hills Mortuary (the "Mortuary"), and purchasing certain assets and
assuming certain liabilities of Rose Hills Memorial Park Association (the
"Association") and Workman Mill Company, the owners of the real property and
other cemetery assets of the Rose Hills Memorial Park (the "Cemetery"). In
connection with the acquisition, The Loewen Group Inc., a shareholder of RH
Holdings, also caused one of its subsidiaries to contribute to the Company 14
funeral homes and 2 funeral home cemetery combination properties (the
"Satellite Properties"). As a result of these acquisitions (collectively the
"Acquisition Transaction"), the Company is the successor to the operations,
assets and liabilities of the Rose Hills Mortuary and Cemetery (collectively,
"Rose Hills") and the Satellite Properties.

  Rose Hills is the largest, single-location cemetery and funeral home
combination in the United States, and the Cemetery is the largest, single-
location cemetery in the United States. Rose Hills is situated less than
14 miles from downtown Los Angeles on approximately 1,418 acres of permitted
cemetery land near Whittier, California. Rose Hills and the Satellite
Properties constitute a strategic assembly of cemeteries and funeral homes in
the greater Los Angeles area.

  The Cemetery and the Mortuary have been continuously operating since 1914
and 1956, respectively.

ACQUISITION TRANSACTION

  On September 19, 1996, the Company entered into an Agreement and Plan of
Merger with Roses, Inc. (the "Merger Agreement"). The Merger Agreement
provided for the acquisition of the Mortuary through the merger of the Company
with and into Roses, Inc., with Roses, Inc. (renamed RH Mortuary Corporation)
being the surviving corporation in the merger. On November 19, 1996 (the
"Acquisition Closing Date"), the Company assigned all of its rights and
obligations under the Merger Agreement to a newly-created subsidiary of the
Company, so that following the merger, the Mortuary became a wholly-owned
subsidiary of the Company.

  On September 19, 1996, the Company and the Association also entered into an
Asset Purchase Agreement (the "Asset Purchase Agreement"), pursuant to which
the Company agreed to purchase from the Association substantially all of the
cemetery assets and assume the liabilities of the Cemetery. At the Acquisition
Closing Date, the Company's rights under such Agreement were assigned to a
newly-created, wholly owned subsidiary of the Company (RH Cemetery
Corporation), and accordingly, on the Acquisition Closing Date, the Cemetery
became a wholly owned subsidiary of the Company.

  In connection with the Acquisition Transaction, RH Holdings, Blackstone
Capital Partners II Merchant Banking Fund L.P. and its affiliates
(collectively, "Blackstone"), a subsidiary of Loewen ("LN Sub"), Loewen Group
International, Inc. ("LGII") and The Loewen Group Inc. ("LWN") entered into a
subscription agreement (the "Subscription Agreement") pursuant to which: (i)
Blackstone subscribed for common stock of RH Holdings in exchange for a cash
contribution to RH Holdings, (ii) LGII subscribed for common stock and
preferred stock of RH Holdings in exchange for a cash contribution to RH
Holdings, and (iii) LN Sub subscribed for shares of preferred stock of RH
Holdings in exchange for the contribution by LN Sub of the Satellite
Properties.

  In connection with the Acquisition Transaction, (i) Blackstone and Loewen
contributed to RH Holdings, and RH Holdings contributed to the Company, cash
in the amount of $106.6 million ($107.0 million less $0.4 million to be
advanced by the Company to RHI Management Direct L.P. ("RHIMD") to finance its
purchase of common stock of RH Holdings); (ii) the Company acquired the
Mortuary in consideration of the payment of $59.9 million in cash plus the
repayment of outstanding debt of the Mortuary; (iii) the Company

                                       1
<PAGE>

paid a cash purchase price for the Cemetery in the amount of $166.3 million in
cash. The Company financed the purchase price for the Mortuary and Cemetery in
part through the borrowing of $75.0 million under a Bank Credit Agreement with
the Bank of Nova Scotia, as Agent, and through the issuance and sale of $80.0
million aggregate principal amount of Senior Subordinated Notes due 2004. See
Item 7, "Liquidity and Capital Resources."

THE FUNERAL SERVICE AND CEMETERY INDUSTRY AND LOCAL CHARACTERISTICS

  Since 1986, demand for funeral services and related commodities has grown
steadily at a 1% compound annual growth rate while the aggregate number of
funeral homes has remained relatively constant. Future demographic trends are
expected to contribute to the stability of the funeral service industry. The
Census Bureau projects that the segment of the United States population over
65 years old, which presently totals 34 million, will more than double in size
to over 73 million by 2035. Over the next 10 years, the aging of this
population is expected to outweigh the effects of increased life expectancies.
The Census Bureau projects that the number of deaths in the United States will
grow at approximately 1% annually through 2010.

  Historically the death care industry has been made up of relatively small,
family owned and operated businesses. In the last several decades, several
large "consolidators" have sought to take advantage of economies of scale by
acquiring a large number of smaller funeral homes and cemeteries. Management
believes the major consolidators serve 20% of the overall market in the United
States. In 1999, the trend toward consolidation changed significantly. The
largest consolidator, Service Corporation, International, which competes
directly in the Company's market, announced plans to significantly curtail its
acquisition activity. On June 1, 1999, the second largest consolidator and an
approximately 20% owner of the Company, The Loewen Group Inc. (collectively
with its affiliates, "Loewen"), filed for protection from its creditors under
Chapter 11 of the United States Bankruptcy Code, and has since abandoned its
own acquisition strategy. The third largest consolidator, Stewart Enterprises,
Inc., has also announced plans to curtail its acquisition strategy. In 2000,
Service Corporation International publicly announced that it was selling a
number of its locations. Management believes that the curtailment of
acquisitions and the divesture of certain locations by the large consolidators
are likely to reduce their expansion in the Company's immediate market area.
In addition, Management believes that the divestitures and reduction in
acquisitions have reduced acquisition multiples for funeral homes and
cemeteries in the Company's market area.

  The Company attracts customers from a geographic region encompassing
substantially all of Los Angeles County and the northern portion of Orange
County. According to statistics compiled by the State of California Department
of Health Services, the Census Bureau and Los Angeles County, the estimated
population of Los Angeles County was approximately 9.9 million people (over 3
million households) in 2000. Approximately 17% of this population was age 55
or older, 10% age 65 or older, and 4% age 75 or older. The death rate in
Los Angeles County has demonstrated stability over the last decade and the
number of deaths is expected to increase in step with the 1% annual projected
population growth in Los Angeles County over the next five years. However,
slight year-to-year variations can occur in the number of deaths. In 1999,
deaths for Los Angeles County increased by 1%. Data through November 2000
indicates deaths have increased 2.2% from the same period in 1999.

 Mortuary Operations

  The Mortuary, which first began operations in 1956, provides a complete
range of funeral services, including collection of remains, certification of
death, embalming, sale of caskets and related merchandise, sale of flowers,
visitation facilities and transportation to place of services and to burial
site. All funeral arrangements provided to each of the Mortuary's customers
are provided by an experienced counselor with the assistance of a centralized
computer system. Management believes centralized computer and operating
systems combine to reduce fixed costs per funeral call, giving the Mortuary a
competitive advantage over smaller, independently-operated funeral homes. The
Mortuary has the current capacity to provide over 30 funeral services per day.
In 2000, the Mortuary performed approximately 4,800 funeral calls.

                                       2
<PAGE>

  The Mortuary provides funeral services on both an at-need and a pre-need
basis. Since 1987, substantially all pre-need funeral services have been
funded through the sale by the Mortuary to its customers of a life insurance
product. Under the insurance plan, the Mortuary is named the beneficiary of
the insurance policy. The Mortuary recognizes revenue related to the
contracted services when such services are provided, although the Mortuary
recognizes commission income and related selling expenses upon the sale of
such policies. On the date of performance of the prearranged funeral service,
the Mortuary recognizes funeral service income and the proceeds received under
the policy are applied against the contract. Currently, the Mortuary has an
arrangement with its third party insurance carrier, which locks in the price
of caskets at the time an insurance policy is sold, protecting future casket
margins on funeral sales. Prior to 1987, the Mortuary also offered trust-
backed and debenture-backed pre-need products.

  In addition to the Rose Hills Mortuary, the Company also operates 14 funeral
homes and 2 combination properties located in Los Angeles, San Bernardino and
Northern Orange County. These Satellite Properties and funeral homes provide a
wide variety of funeral services to various communities in such counties.
While the demographics of the population served by these funeral homes, taken
as a whole, are generally similar to that of Rose Hills' clients, the smaller
size and long-standing local reputations have led each of such properties to
develop a demographically unique client base within its particular community.
Therefore, as a result of this extended cluster of funeral service providers
as well as the ability of particular funeral homes to meet special needs of
local communities, Management believes that the other funeral home locations
permit the Company to access a base of mortuary clients that it otherwise
would be unable to develop solely from its location near Whittier.

  Substantially all revenues from mortuary operations are derived from at-need
services (including services funded through insurance policies). In 2000,
total revenues from at-need services accounted for 91% of mortuary revenue and
35% of total Company revenue. The remaining 9% of mortuary revenue is derived
from insurance commissions and trust administration fees. The amount and
percentage of the Company's total revenues contributed by the mortuary
operations during each of the last three fiscal years is set forth herein
under the caption "Item 7--Management's Discussion and Analysis." For
additional information about the revenues, income and assets attributable to
the Company's mortuary operations, see Note 20 to the Company's consolidated
financial statements which are included as part of this Annual Report on Form
10-K.

 Cemetery Operations

  The Cemetery is the largest single location cemetery in the United States.
The Cemetery consists of approximately 1,418 acres, 420 of which have been
developed and sold, 286 of which are developed and unsold cemetery property,
and the remaining 712 of which have been permitted as cemetery property. Since
its founding in 1914, the Cemetery has performed over 350,000 interments, of
which approximately 9,446 occurred in 2000. The Cemetery provides a complete
line of cemetery products (including a selection of burial spaces, vaults,
crypts, memorials and niches) and burial and cremation services on both an at-
need and pre-need basis.

  Pre-need sales of cemetery interment rights are recognized as revenue when
the customer contracts are signed with concurrent recognition of related
costs. In cases where cemetery property is not fully developed and significant
development costs remain, cemetery interment right revenue is deferred and
recognized on a percentage of completion basis.

  Prior to 2000, the Company recognized the sale of cemetery merchandise and
services at the time a customer contract was signed. Effective July 1, 2000,
the Company no longer sells cemetery merchandise and services on cemetery
contracts in advance of need. For sales made prior to July 1, 2000, the
Company voluntarily trusted 100% of pre-need cemetery service revenue when the
sales contracts were paid in full. Also, the Company has an agreement with a
vendor to purchase pre-need merchandise when pre-need contracts are paid in
full. Funds voluntarily trusted for pre-need cemetery services are shown as
trust receivables in the consolidated financial statements.

                                       3
<PAGE>

  The Company funds its obligation to maintain cemetery grounds by placing a
portion, generally $100 per lot, of the proceeds from cemetery property sales
into perpetual care trust funds. Income from these funds is withdrawn and used
for maintenance of the cemetery.

  Although the Cemetery is non-sectarian, in order to better serve an
increasingly diverse customer base, the Cemetery has developed and offers many
lawn areas for use by particular ethnic, religious and fraternal organizations
as well as its eight non-denominational chapels (including the Sky Rose
Chapel, a 350 seat chapel and mausoleum designed by architect Fay Jones that
was completed in 1997), seven additional mausoleums and a crematory. In
addition, in 1994, the Company entered into a development agreement with the
International Buddhist Progress Society ("IBPS") under which the Company:

  .  Granted IBPS the interment rights with respect to 7.5 acres of Cemetery
     property;

  .  Agreed to contribute to IBPS's development of a 16,000 square foot
     columbarium and surrounding stupa gardens; and

  .  Granted IBPS a seven-year option to build a second columbarium on an
     adjacent 2.7-acre site for $2.0 million.

  In exchange for these rights, IBPS agreed to pay the Company approximately
$1.4 million. IBPS paid $160,000 upon execution of the development agreement
and agreed to pay the remaining balance at the rate of $100,000 per quarter
starting April 1, 2000. In addition, IBPS has agreed to pay the Company $75
per niche on the first 5,000 niches sold and $50 per niche thereafter. The
first columbarium and stupa gardens are complete and open for interments.

  In February 2001, the IBPS notified the Company that it would exercise its
option for the adjacent 2.7-acre parcel.

  In 2000, approximately 65% of cemetery revenue and 36% of total Company
revenue was derived from pre-need sales of cemetery interment rights. The
amount and percentage of the Company's total revenue contributed by the
cemetery operations during each of the last three fiscal years is set forth
herein under the caption "Item 7--Management's Discussion and Analysis." For
additional information concerning the revenues, income and assets attributable
to the Company's cemetery operations, see Note 20 to the Company's
consolidated financial statements which are included as part of this Annual
Report on Form 10-K.

COMPETITION

  The Company competes with a number of sectarian and nonsectarian mortuaries
and cemeteries in the greater Los Angeles area. Mortuary competition is
primarily from small, local mortuaries that attract customers through the
personal reputation of the funeral director and their ability to tailor their
services to their local ethnic, religious or fraternal communities. Cemetery
competition comes primarily from Forest Lawn, Inglewood, Oakdale, Live Oak and
Memory Gardens cemeteries, as well as a number of cemeteries owned by the
Catholic Church. The Company's primary methods of competition in both its
mortuary and cemetery operations consist of building goodwill in the community
by continually strengthening and leveraging its heritage and name recognition
and developing its infrastructure to further improve its ability to serve the
diverse population of the greater Los Angeles area.

  The Company also faces competition from large "consolidators" in the
industry that seek to make profits from an acquisition and consolidation
strategy as well as casket retailers (including internet casket stores) and
low-cost funeral providers. Such competitors include several large, publicly-
traded multinational funeral services companies, including Service Corporation
International and Stewart Enterprises, Inc. Management believes that, in the
Los Angeles area, large consolidators control over 20% of the funeral market,
and together with large independents, control over 40% of the Los Angeles
funeral market.

                                       4
<PAGE>

  In 2000, 20% of Rose Hills' funeral business was cremation, which compares
to an average of over 35% for the Los Angeles market generally. The Company's
traditional funeral and cemetery operations face increasing competition from
non-traditional cremation and alternative service firms. The Company believes
that it can capitalize on its reputation and name to compete with lesser-known
companies through its own alternative service strategy. In 2000, the Company
opened its own cremation company under the name, "A Better Way", to compete
with the minimal service cremation providers and leverage the Company's
cremation facilities.

REGULATION

  The Company's funeral home operations are regulated by the Federal Trade
Commission (FTC), which administers the Trade Regulation Rule on Funeral
Industry Practices (the "Funeral Rule"). The Funeral Rule became effective on
April 30, 1984 and was revised as of July 19, 1994. The FTC is currently
reviewing the Funeral Rule but has yet to issue any proposed changes in
regulation. The Funeral Rule defines certain acts and practices in connection
with the provision of funeral goods or services as unfair or deceptive and
sets forth various requirements intended to prevent such unfair or deceptive
acts and practices. The Company also must comply with other federal
legislation, including the Americans with Disabilities Act and regulations
administered by the Occupational Safety and Health Administration.

  The Company's operations are also regulated by the State of California,
which regulates the sale of cemetery property and funeral services and
commodities, and licenses sales persons, funeral directors and others engaged
in the provision of these services. California state regulations require,
among other things, that a portion of the funds received by the Company in
connection with all cemetery sales be deposited in an endowment care fund. The
principal of such endowment care fund must be invested and the income from
such investment may be used only for the development, improvement,
embellishment and maintenance of the cemetery. Capital gains from investments
in the fund can be set-aside in a special reserve fund for major maintenance
and repair projects. California state regulations also require that money
received from the sale of pre-need funeral service contracts be held in trust
until the services are delivered, that such contracts may be cancelled by the
customer at any time prior to the delivery of such services and that upon any
such cancellation the principal and interest of such trust (less, in certain
cases, a revocation fee) be repaid to the customer.

  The Company believes that it is currently in substantial compliance with the
Funeral Rule and all other applicable federal, state and local laws and
regulations specifically applicable to the cemetery and mortuary businesses.
The Company cannot predict the outcome of any proposed legislation or
regulation, or the effect that any such legislation or regulation might have
on the Company.

ENVIRONMENTAL MATTERS

  The Company's operations are subject to various federal, state and local
environmental laws and regulations, including those pertaining to remediation
of hazardous substances, the handling and disposal of biological materials,
and protection of endangered or threatened species. These laws and regulations
may require the Company to incur compliance, remediation and other costs from
time to time or restrict development in certain environmentally sensitive
areas.

  Environmental audits of the Company's various properties were conducted in
connection with the Acquisition Transaction. Management is aware of certain
areas within the Cemetery that have required and may in the future require
remediation, including a solid waste disposal area that previously was used to
dump rubbish, green waste and used motor oil in the 1970's. The Company
believes that Rose Hills Foundation, an unaffiliated company that is the
successor to the Association, is obligated to pay for or otherwise indemnify
the Company for the remediation costs associated with this area pursuant to
the terms of an Environmental Compliance Agreement entered into at the time of
the Acquisition Transaction. Recently, however, the Foundation has denied
responsibility for certain costs of remediation, including post-closure
monitoring and maintenance, as well as the construction of a leachate
collection system. As a result, the Company has retained an outside technical

                                       5
<PAGE>

consultant to further investigate the solid waste disposal area to determine
what risks, if any, the solid waste disposal area poses for the Company, and
to quantify such risks. The Company's ultimate goal is to resolve future
responsibility with respect to the solid waste disposal area as between the
Association and the Company. The Company and the Association are currently in
discussions regarding these goals, and the Company is keeping the local
regional water quality control board apprised of the investigation being
conducted. However, no assurance can be given as to the outcome of the
Company's discussions with the local water board agency or as to the outcome
of the Company's indemnification claim against the Foundation.

  In addition, two of the Company's cemetery properties are located in or near
areas of regional groundwater contamination. The Company submitted information
in connection with contamination at one of these areas and was informed by the
Environmental Protection Agency that the Company will not be included in the
Super Fund cleanup of the basin.

  Although there can be no assurance, Management does not believe that the
above or other environmental matters affecting the Company will have a
material adverse effect on the Company's financial condition or results of
operations.

  During August and September 2000, the Company discovered that there had been
some land movement in a portion of Rose Hills Cemetery. The affected area
represents approximately 13 acres of the Cemetery's approximately 1,418 total
acres, and consists of approximately 12,000 interment sites. The Company has
hired outside geo-technical and engineering consultants to study the affected
area, to identify the underlying cause and the extent of the land movement,
and to make recommendations with regard to both short-term and long-term
remediation and stabilization measures. While the Company and its consultants
are continuing to assess the situation, the Company currently believes that
accumulated rainfall and drainage conditions may have contributed to the land
movement.

  The Company's consultants advised that the affected area could continue to
move, particularly in the event of heavy rainfall during the winter months.
Accordingly, during October 2000, the Company began to take some intermediate
remediation measures, including the installation of additional dewatering
wells in the affected area and the relocation to other areas of the Cemetery
(at the Company's expense) of approximately 140 interred remains that were in
the most severely impacted portion of the affected area. Such expenses could
increase if significant further movement is detected in the affected area or
if additional families request the relocation of interred remains from the
affected area. As of February 28, 2001, the Company had relocated, at its
expense, approximately 200 interred remains from the affected areas to other
areas of the Cemetery.

  The Company expects the geo-technical study to be completed by April 2001.
Until it receives a final report from its consultants, the Company can not
determine or give assurances as to the cause or extent of the land movement,
the cost of short-term and long-term remediation and stabilization measures,
or whether the affected area can be restored to a condition that is suitable
for interments. The Company intends to seek reimbursement from its Endowment
Care Fund (ECF) for a significant portion of the repair, maintenance and
remediation costs associated with the affected area.

  The Company estimates that total direct costs of relocating all of the
interred remains from the affected area to other areas of the Cemetery could
approximate $1.0 million. In 2000, the Company applied for and received from
its ECF approximately $0.5 million for costs related to the initial relocation
of interred remains and installation of additional dewatering wells. As of
December 31, 2000, the ECF had $2.1 million in reserves available for
remediation and relocation expenses.

EMPLOYEES

  As of December 31, 2000, the Company had 700 employees. Management believes
that the Company's relationship with its employees is good.

                                       6
<PAGE>

  In December 1993, the National Labor Relations Board ("NLRB") certified the
Teamsters Union as the collective bargaining representative of 57 employees in
the Company's Park Department. In December 1994, certain of these employees
petitioned the NLRB to hold an election regarding decertifying the union.
During the same period, the Teamsters filed numerous unfair labor practice
charges against the Company with the NLRB. On April 29, 1996, the NLRB General
Counsel issued a Consolidated Amended Complaint and Notice of Hearing on
certain of the union's charges. In April 1997, the Administrative Law Judge
issued an unfavorable decision regarding the unlawful termination of two
employees and a favorable decision in the alleged failure to recognize and
bargain in good faith with the union.

  On October 3, 1997, the Company filed an appeal with the United States Ninth
Circuit Court of Appeals. On December 15, 1999, the United States Ninth
Circuit Court of Appeals reviewed the case and upheld the original unfavorable
decision. In June 2000, the Company reached a final settlement with the two
employees, which resulted in the reinstatement of one employee and payment of
approximately $0.3 million for settlement and back wages and benefits.

ITEM 2. PROPERTIES.

  The property on which the Cemetery is located consists of approximately
1,418 acres, 420 of which have been developed and sold as cemetery property,
286 of which are developed and unsold cemetery property, and the remaining 712
of which have been permitted as cemetery property. The Company estimates that
approximately 300 acres of the undeveloped property is rugged terrain and
cannot be easily developed for cemetery property for economic and
environmental reasons. Also located on the grounds of Rose Hills are eight
chapels that seat over 800 people in the aggregate, seven mausoleums, 39
visitation rooms, a crematory and a 43,460 square foot administrative
building. In addition to the above facilities, Sky Rose Chapel, a 26,490
square foot chapel and mausoleum facility, is also located on the Cemetery
grounds.

  In connection with the Acquisition Transaction, the Company was granted an
option, exercisable for a period of three years after the Acquisition Closing
Date, to purchase from the Association an additional 75 acres of permitted
cemetery property located adjacent to the Cemetery, for an aggregate price of
$18.2 million. In November 1999, the Company exercised its option and
simultaneously sold the property to an unrelated third party. The Company
netted approximately $0.3 million from the transaction and has the right to
earn an additional $1.5 million if the buyer is able to secure entitlements by
June 2001.

  The Mortuary's facilities consist of 6.2 acres of land, a two-story, 74,000
square foot mortuary and administrative building (inclusive of relevant
properties above), an adjacent flower shop and storage facilities.

                                       7
<PAGE>

  The Satellite Properties, which were contributed by Loewen to the Company in
the Acquisition Transaction, consist of the funeral homes and combination
properties located in the cities listed below:

<TABLE>
<CAPTION>
Name                                                       Location
----                                                       --------
<S>                                             <C>
Custer Christiansen (five funeral homes)....... West Covina, Covina, Glendora,
                                                La Puente (two locations)
White's Funeral Home........................... Bellflower
Neels-Brea Funeral Home........................ Brea
Diamond & Sons-Mettler Chapel.................. Garden Grove
Shannon-Donegan Chapel......................... Orange
San Fernando Mortuary.......................... San Fernando
R. L. Malinow-Glasband-Weinstein                West Hollywood
 Mortuaries(1).................................
Colton Funeral Chapel.......................... Colton
Grove Colonial Mortuary........................ San Bernardino
Richardson-Peterson Mortuary................... Ontario
Harbor Lawn(2)................................. Costa Mesa
Melrose Abbey (including Angels Lawn            Anaheim
 Cemetery)(3)..................................
</TABLE>
--------
(1) 95% owned by the Company.

(2) Combination property located on 28 acres; includes a funeral home and a
    cemetery (with crematory).

(3) Combination property located on 20 acres; includes a funeral home and a
    cemetery.

  The facilities of ten of the Satellite Property locations are owned by the
Company, and the facilities of the remaining six Satellite property locations
are leased by the Company.

  In December 1998, the Company acquired Home of Peace Memorial Park and
Mausoleum located in Los Angeles. This property consists of 35 acres and
includes a funeral home that, while not currently in use, can be made fully
operational.

  The obligations of RH Holdings, the Company and each of the Company's
existing and future domestic subsidiaries under the Bank Credit Facilities (as
defined below) are secured by a first priority security interest in all
existing and future assets (including the real property located at Rose Hills,
but excluding other real property and vehicles covered by certificates of
title) of each such entity. See Item 6, "Selected Financial Data."

ITEM 3. LEGAL PROCEEDINGS.

  The Company is party to certain legal proceedings in the ordinary course of
its business. Management does not expect that the outcome of any such
proceedings will have a material adverse effect on the Company's financial
condition or results of operation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

  None.

                                       8
<PAGE>

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

  In connection with the Acquisition Transaction, the Company issued 1,000
shares of Common Stock to RH Holdings. This represents all of the outstanding
Common Stock of the Company.

  There is no established public trading market for the Common Stock of the
Company.

ITEM 6. SELECTED FINANCIAL DATA.

  The following table sets forth certain selected consolidated financial data
for the Company (and its predecessors, as the case may be) as of and for the
fiscal year ended December 31, 2000, and as of and for each of the preceding
four fiscal years. The proforma combined information as of and for the year
ended December 31, 1996 is a combination of the Company (for the period from
November 19, 1996 to December 31, 1996) and its predecessor companies (for the
period from January 1, 1996 to November 18, 1996). Comparative financial
information as of and for the period ended November 18, 1996 has been included
on a historical basis for the predecessor Mortuary and Cemetery and is not
comparable. Such combined financial data for the predecessor operations have
been included solely to facilitate a discussion of the operations from period
to period. Such presentation of the 1996 data is proforma in that accounting
principles generally accepted in the United States of America would not allow
such combination due to the lack of common ownership of the predecessor
operations. The operations of the Satellite Properties have been omitted from
the presentation of the 1996 data for the predecessor operations on the basis
of immateriality.

  The selected financial data under the captions "Income Statement Data",
"Other Financial Data" and "Balance Sheet Data" for the years ended December
31, 2000, 1999, 1998 and 1997, and the period from November 19, 1996 through
December 31, 1996, were derived from the Company's financial statements. The
selected financial data under the captions "Income Statement Data", "Other
Financial Data" and "Balance Sheet Data" for the period from January 1, 1996
through November 18, 1996 were derived from the financial statements of Roses,
Inc., and of Rose Hills Memorial Park Association and Workman Mill Investment
Company.

  Effective January 1, 2000, the Company changed its method of accounting for
revenue recognized on sales of pre-need interment rights, cemetery services
and merchandise, and for earnings realized through the cemetery service and
merchandise trust funds. For further details, see Note 3 to the Company's
consolidated financial statements included in Item 14. Data for fiscal years
1996 through 1999 are presented as originally reported.

                                       9
<PAGE>

  The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's consolidated financial statements and notes thereto and other
financial information included elsewhere in this report.

                     Selected Consolidated Financial Data
                             (Dollars in millions)
<TABLE>
<CAPTION>
                                                                           Proforma
                                                                          Predecessor
                                                                          and Company
                                                                            For the
                                                     Predecessor             Year
                           For the Year Ended          Company               Ended
                              December 31,            Pro forma  Company   December
                         --------------------------    1/10/96   11/19/96     31,
                         2000   1999   1998   1997    11/18/96   12/31/96    1996
                         -----  -----  -----  -----  ----------- -------- -----------
<S>                      <C>    <C>    <C>    <C>    <C>         <C>      <C>
INCOME STATEMENT DATA
Total Revenue........... $76.6  $86.0  $81.3  $70.7     $42.9     $  7.1    $ 50.0
Operating Income........   9.7   18.4   17.3   14.7       5.1        1.3       6.4
Net Loss Before
 Cumulative Effect of
 Accounting Change......  (2.9)   --     --     --        --         --        --
Cumulative Effect of
 Accounting Change, net
 of tax.................  (7.5)   --     --     --        --         --        --
Net (Loss) Income....... (10.4)   3.7    1.0   (1.8)      1.1       (0.5)      0.6
OTHER FINANCIAL DATA
EBITDA(1)...............  23.8   34.6   28.9   23.4       6.2        2.4       8.6
Cash flows from:
  Operating Activities..  14.1    7.9    4.1    1.6       7.4        5.1      12.5
  Investing Activities..  (4.9)  (3.4)  (5.8)  (2.7)     (2.7)    (246.6)   (249.3)
  Financing Activities..  (3.2)  (4.0)  (0.1)  (3.4)     (3.7)     249.4     245.7
BALANCE SHEET DATA
Total Assets............ 310.5  316.2  321.9  312.6       N/A      317.8     317.8
Long-Term
 Obligations(2)......... 151.1  154.3  155.7  157.3       N/A      159.7     159.7
</TABLE>
--------
(1) EBITDA is defined as income (loss) before income taxes and cumulative
    effect of accounting change plus interest expense, depreciation and
    amortization.

  EBITDA is presented because (i) Management believes that EBITDA provides
  relevant and useful information, (ii) it is a widely accepted financial
  indicator of a company's ability to incur and service debt, and (iii) it is
  the basis on which compliance with the financial covenants under the
  Company's debt agreements is determined. However, EBITDA should not be
  considered in isolation, as a substitute for net income or cash flow data
  prepared in accordance with accounting principles generally accepted in the
  United States of America, or as a measure of a company's profitability or
  liquidity. Also, this measure of EBITDA may not be comparable to similar
  measures reported by other companies.

(2) Long-Term Obligations include long-term debt (including bank borrowings
    and subordinated notes) and capital leases.

                                      10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

INTRODUCTORY NOTE--CHANGE IN ACCOUNTING PRINCIPLE

  SAB 101. In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (the "Bulletin"). The Bulletin
provides the Staff's views on the application of existing accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. The Bulletin, which applies to all
companies and was not directed at the death care industry, states that
industry practice would not override these views. The Bulletin among other
matters emphasizes the importance of physical delivery of a product or service
to justify the recognition of revenue. The Company had heretofore followed
industry practice in recognizing revenues, including recognizing revenue upon
the sale of cemetery merchandise and services before the time of death.

  In response to the issuance of the Bulletin and consultation with the SEC
Staff, the Company changed the following accounting principles effective
January 1, 2000:

  .  Revenue recognition of pre-need interment rights are now accounted for
     in accordance with Financial Accounting Standards No. 66, Accounting for
     the Sales of Real Estate (FAS 66). The direct and acquisitions costs for
     the deferred sales will be deferred and recognized concurrent with the
     recognition of the deferred sales. Previously, the Company recognized
     the sale of pre-need interment rights, and their related costs, at the
     time of sale;

  .  Revenue recognition of pre-need cemetery services and merchandise, and
     their direct and acquisition costs, are now deferred until time of
     delivery or performance of service. Previously, the Company recognized
     the sale of pre-need service and merchandise, and their related costs,
     at the time of sale; and

  .  Earnings realized by the cemetery service and merchandise trust funds
     are now deferred until the underlying service and merchandise is
     delivered. Previously, the Company recognized the earnings as they
     accrued.

  The cumulative effect of these changes in accounting principles on prior
years resulted in a $12,329,000 decrease in net earnings before taxes and
$7,467,000 decrease in net earnings after taxes.

  Comparisons between the year 2000 and 1999 reflect the pro forma effects of
applying the accounting change as if it had occurred on January 1, 1999;
whereas comparisons between the years 1999 and 1998 are presented as
originally reported.

                                      11
<PAGE>

RESULTS OF OPERATIONS

  The following table presents the results as reported for the years ended
December 31, 2000 and 1999, and the pro forma results for the year ended
December 31, 1999 after giving effect to the accounting change:

<TABLE>
<CAPTION>
                                             Years ended December 31,
                                       ---------------------------------------
                                           2000        1999           1999
                                       (as reported) (proforma)   (as reported)
                                       ------------- ---------    ------------
                                              (Dollars in thousands)
   <S>                                 <C>           <C>          <C>
   Sales and services
    Funeral sales and services.......    $ 32,299    $ 33,277       $ 33,248
    Cemetery sales and services .....      44,284      45,121         52,744
                                         --------    --------       --------
     Total sales and services .......    $ 76,583    $ 78,398       $ 85,992
   Gross profit:
    Funeral sales and services ......    $  8,587    $ 10,938       $ 10,903
    Cemetery sales and services .....      12,401      14,754         18,356
                                         --------    --------       --------
     Total gross profit .............    $ 20,988    $ 25,692       $ 29,259
   General and administrative
    expenses ........................       7,582       7,143          7,143
   Amortization .....................       3,704       3,707          3,707
   Interest expense .................     (15,729)    (15,979)       (15,979)
   Finance income....................       2,763       2,411          2,411
   Income from settlement agreement..           0       2,500(1)       2,500(1)
   (Loss) income before taxes and
    cumulative effect of accounting
    change...........................      (3,264)      3,774(1)       7,341(1)
   EBITDA............................      23,829      30,865         34,625
</TABLE>

  The following table sets forth certain income statement data as a percentage
of total sales for the Company:

<TABLE>
<CAPTION>
                                          Years ended December 31,
                            ----------------------------------------------------
                                2000         1999        1999          1998
                            (as reported) (proforma) (as reported) (as reported)
                            ------------- ---------- ------------- -------------
   <S>                      <C>           <C>        <C>           <C>
   Sales and Services:
    Funeral sales and
     services..............      42.2%       42.4%        38.7%         39.3%
    Cemetery sales and
     services..............      57.8%       57.6%        61.3%         60.7%
     Total sales and
      services.............     100.0%      100.0%       100.0%        100.0%
   Gross Profit:
    Funeral sales and
     services..............      26.6%       32.9%        32.8%         35.3%
    Cemetery sales and
     services..............      28.0%       32.7%        34.8%         34.8%
     Total Gross profit....      27.4%       32.8%        34.0%         35.0%
   General and
    Administrative
    Expenses...............       9.9%        9.1%         8.3%          9.1%
    Amortization...........       4.8%        4.7%         4.3%          4.6%
    Interest Expense.......      20.5%       20.4%        18.6%         20.3%
</TABLE>
--------
(1) 1999 includes a non-recurring gain on Settlement Agreement with the
    Association. Excluding this gain, income before taxes and cumulative
    effect of accounting change would have been $1.3 million.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
(PROFORMA)

  Consolidated revenues decreased 2.3% to $76.6 million for the year ended
December 31, 2000 compared to $78.4 million for the year ended December 31,
1999. Consolidated gross profit totaled $21.0 million in 2000 compared to
$25.7 million in 1999. As a percentage of revenue, consolidated gross profit
percentage decreased to 27.4% in 2000 from 32.8% in 1999.

                                      12
<PAGE>

 Funeral Operations:

  Revenue from funeral operations accounted for more than 42% of the Company's
total revenue in 2000. Revenues from funeral operations decreased 2.9% to
$32.3 million in 2000 compared to $33.2 million in 1999. At-need funeral
revenue totaled $29.2 million representing a 3.0% decrease from the prior
year. The Company performed 8,116 funeral service calls in 2000 compared to
8,547 in 1999. Management believes that the 5% decrease in funeral service
calls from the prior year was principally due to increased price competition
from other full service providers and lower-end budget funeral homes. The
average revenue per funeral service increased 3.1% from the prior year due
primarily to a change in product mix toward higher priced product packages.
Pre-need funeral service revenue increased 26.1% from $2.3 million in 1999 to
$2.9 million in 2000. The significant increase over the prior year is due to a
greater emphasis on increasing prearranged funeral services and selling of
cemetery merchandise and services beginning in July 2000. As of December 31,
2000, the Company had a prearranged funeral and cemetery backlog of $161.7
million.

  As a percentage of sales, income from operations for the funeral segment
decreased from 32.9% in 1999 to 26.6% in 2000. The decline in gross profit
percentage was primarily attributable to declines in profit margin experienced
at the Satellite Properties (14 funeral homes). The same store sales profit
margin from these small funeral home operations declined from 20% to 10%. The
increased local competition and the decline in case volume have resulted in
negative cash flows at some of these locations. The Company is currently
evaluating the future and considering the divestiture of several of these
funeral home locations that do not fit the original "clustering" model
anticipated from acquiring all the Satellite Properties. The Rose Hills
Mortuary also experienced a gross profit margin decline from 37% to 33% due to
its 5.2% case volume decline and the inflation-driven increase in various
semi-fixed operating costs. In addition, the 1999 funeral segment margin also
included a one-time bonus of $.5 million from the insurance product provider.

 Cemetery Operations:

  Cemetery revenue in 2000 decreased 1.9 % from the prior year to $44.3
million. Pre-need cemetery revenue in 2000 was $23.5 million compared to $24.1
million (excluding the $1.1 million sale to IBPS) for 1999. At-need cemetery
revenue in 2000 was $16.7 million, representing a 5.0% increase over the prior
year due to increased average property sales. Total internments slightly
increased to 9,446 in 2000 from 9,343 in 1999.

  Income from operations as a percentage of sales decreased from 32.7% in 1999
to 28.0% in 2000 (29.9% excluding the $.9 million one-time cemetery property
tax charge). Cemetery labor and park maintenance expenses have increased up to
5% over the prior year. The increases were part of a plan to enhance the
appearance and maintenance standards for Rose Hills Memorial Park. Total
direct selling expense was relatively constant at 36.2% of sales in 2000
compared to 36.6% in 1999. The Company plans to invest in a new media campaign
in the first quarter 2001. The planned advertising expenditures for the first
quarter 2001 will be approximately $1.0 million and are designed to increase
consumer awareness and improve both funeral and cemetery market share. The
Company has not run a major media campaign since the early 1990's.

 Other:

  Corporate general and administrative expenses of $7.6 million for 2000 were
6% higher than in the prior year. As a percentage of total revenue, corporate
general and administrative expenses increased from 9.1% for the year ended
December 31, 1999 to 9.9% for the year ended December 31, 2000. Non-recurring
items included in 2000 were $.6 million of Phantom Equity Plan expense, $.2
million related to land movement legal fees and $.1 million in a 1996 union
labor dispute settlement. In 1999, nonrecurring items were $.2 million related
to Y2K incremental expenses, $.3 million related to the settlement of
environmental issues with the previous owners of Rose Hills Memorial Park and
a net $.1 million loss from the sale of two vacant properties.

  EBITDA, earnings before taxes, depreciation and amortization (including
cemetery property amortization included in cost of sales), decreased to $23.8
million for 2000 from $30.9 million for 1999. EBITDA decreased

                                      13
<PAGE>

$7.1 million as a result of the funeral cash volume declines and several non-
recurring transactions such as the $2.5 million gain recognized in 1999 on
finalizing the Settlement Agreement with the Foundation, the IBPS sale of $1.1
million and the $.9 million property tax charge. EBITDA should not be
considered in isolation as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of company's profitability or liquidity.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

  The following table represents the results as reported for the years ended
December 31, 1999 and 1998 as originally reported:

<TABLE>
<CAPTION>
                                                               Years ended
                                                              December 31,
                                                             ------------------
                                                              1999       1998
                                                             -------    -------
                                                             (in thousands)
     <S>                                                     <C>        <C>
     Sales and services
      Funeral sales and services ...........................  33,248     31,923
      Cemetery sales and services ..........................  52,744     49,361
                                                             -------    -------
       Total sales and services ............................  85,992     81,284
     Gross profit:
      Funeral sales and services ...........................  10,903     11,263
      Cemetery sales and services ..........................  18,356     17,153
                                                             -------    -------
       Total gross profit ..................................  29,259     28,416
     General and administrative expenses ...................   7,143      7,399
     Amortization ..........................................   3,707      3,752
     Interest expense ...................................... (15,979)   (16,526)
     Finance income ........................................   2,411      2,280
     Income from settlement agreement ......................   2,500(1)       0
     Income before taxes ...................................   7,341(1)   3,019
</TABLE>
--------
(1) 1999 includes a non-recurring gain on settlement agreement. Excluding this
    gain, income before taxes would have been $4.8 million.

  Consolidated revenues increased 5.7% to $86.0 million for the year ended
December 31, 1999 compared to $81.3 million for the year ended December 31,
1998. Consolidated gross profit totaled $29.3 million in 1999 compared to
$28.4 million in 1998. As a percentage of revenue, consolidated gross profit
percentage decreased to 34.0% in 1999 from 35.0% in 1998.

 Funeral Operations:

  Revenue from funeral operations increased 4.2% to $33.2 million in 1999
compared to $32.0 million in 1998. At-need funeral revenue totaled $30.1
million which was approximately equivalent to that earned during the prior
year. The Company performed 8,547 funeral service calls in 1999 compared to
8,939 in 1998. At-need funeral services average revenue per case increased
3.2% from the prior year primarily due to a traditional service price increase
in late 1998. Pre-need funeral service revenue increased 43.8% from $1.6
million in 1998 to $2.3 million in 1999. The significant increase over the
prior year is due to a change in the insurance provider effective April 1999
and improved agent commission fees. In addition, the new supplier paid a one-
time payment of $.5 million in February 1999.

  Income from operations for the funeral segment decreased from 35.3% to 32.8%
as a percentage of sales due primarily to start-up costs relating to opening
new storefront locations (at-need and pre-need sales offices) and additional
depreciation from a major vehicle replacement and upgrade program started in
late 1998.

                                      14
<PAGE>

 Cemetery Operations:

  Cemetery revenue increased 6.9% over last year to $52.7 million. Pre-need
cemetery revenue (excluding the $1.1 million sale to IBPS) was $33.3 million
compared to $31.5 million for 1998. The increase was driven largely by overall
property price increases in early 1999 and an emphasis on selling "upscale
properties". At-need cemetery revenue in 1999 was $13.9 million and was
comparable to the prior year. Total interments for the year were slightly
ahead of the prior year at 9,343. Pre-need merchandise and service sales
volume decreased 11% due to a deliberate strategy to de-emphasize non-cash
generating products.

  Income from operations as a percentage of sales remained constant between
1998 and 1999 at 34.8%. Higher commission and advertising expense were offset
by product mix changes from lower margin merchandise to higher margin property
sales. Total direct selling expense was 36.6% of sales in 1999 compared to
35.5% in 1998.

 Other:

  Corporate general and administrative expenses were slightly lower than the
prior year at $7.1 million. As a percentage of total revenue, corporate
general and administrative expenses decreased from 9.1% for the year ended
December 31, 1998 to 8.3% for the year ended December 31, 1999. Non-recurring
items included in 1999 were $.2 million related to Y2K incremental expenses,
$.3 million related to the settlement of environmental issues with the
previous owners of Rose Hills Cemetery and a net $.1 million loss from the
sale of two vacant properties.

  EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales),
increased to $34.6 million for 1999 from $28.9 million for 1998. The increase
in EBITDA of $5.7 million was primarily a result of the $2.5 million gain
recognized on finalizing the Settlement Agreement with the previous owners of
Rose Hills' Cemetery which is a non-recurring item. In addition, the Company
and IBPS finally completed all requirements to recognize the $1.1 million
group sale originally negotiated in 1994. EBITDA should not be considered in
isolation, as a substitute for net income or cash flow data prepared in
accordance with accounting principles generally accepted in the United States
of America or as a measure of a company's profitability or liquidity.

LIQUIDITY AND CAPITAL RESOURCES

  The Company presently believes that, based upon current levels of operations
and anticipated growth and the availability of the Bank Revolving Facility
(see description below), it can meet its working capital and short-term
liquidity requirements for current operations, satisfy its contingent
obligations and service its indebtedness through December 31, 2002. As of
December 31, 2000, the Company had net working capital of $10.5 million and a
current ratio of 1.59 compared to net working capital of $9.5 million and
current ratio of 1.67 at December 31, 1999.

  Net cash provided by operating activities was $14.1 million for the year
ended December 31, 2000, compared to $7.9 million for the same period in 1999.
Cash provided by operating activities in 1999 was reduced by a one-time
payment of $3.9 million to the Association under the Settlement Agreement. The
increase over 1999 is due principally to a reduction in the growth of pre-need
receivables and service trust accounts from 1999 and 1998. In addition, the
implementation of the deferred commission program and monthly customer
statements at the beginning of the year resulted in higher down payments and
early loan payoffs.

  The primary uses of cash were for working capital (receivables and trusts
accounts), principal payments on outstanding long-term indebtedness and
capital expenditures as permitted under the terms of bank agreements. The
Company's capital expenditures in 2000 of approximately $4.9 million were used
primarily to develop and improve the existing infrastructure and cemetery
grounds, as well as the addition of rolling stock. In addition to principal
payments on outstanding long-term debt and capital expenditures, cash was used
to finance installment contracts receivable during the ramp-up of pre-need
sales.

                                      15
<PAGE>

  Concurrent with the Acquisition Transaction, the Company entered into senior
secured amortization extended term loan facilities (the "Bank Term Facility")
in an aggregate principal amount of $75 million, the proceeds of which were
used to finance the Acquisition Transaction and related transaction costs, to
pre-fund certain capital expenditures and to refinance existing indebtedness
of the Company, and a senior secured revolving credit facility (the "Bank
Revolving Facility", collectively with the Bank Term Facility, the "Bank
Credit Facilities") in an aggregate principal amount of up to $25 million, the
proceeds of which are available for general corporate purposes and a portion
of which may be extended (as agreed upon) in the form of swing line loans or
letters of credit for the account of the Company. In addition, the Company has
the right, subject to certain conditions to performance tests, to increase the
Bank Term Facility by up to $25 million. Each of the Bank Term Facility and
the Bank Revolving Facility will mature on November 1, 2003 and November 1,
2001, respectively. The Bank Term Facility is payable, subject to certain
conditions, in semi-annual installments in the amounts of $1 million in each
of the first three years after the anniversary of the closing date of the Bank
Term Facility (the "Bank Closing"); $3 million in the fourth year after the
Bank Closing; $7 million in the fifth year after the Bank Closing; $9 million
in the sixth year after the Bank Closing and $53 million upon maturity of the
Bank Term Facility. The Bank Revolving Facility is payable in full at
maturity, with no prior amortization.

  All obligations under the Bank Credit Facilities and any interest rate
hedging agreements entered into with the lenders or their affiliates in
connection therewith are unconditionally guaranteed (the "Bank Guarantees"),
jointly and severally, by RH Holdings and each of the Company's existing and
future domestic subsidiaries (the "Bank Guarantors"). All obligations of the
Company and the Bank Guarantors are secured by first priority security
interests in all existing and future assets (including real property located
at Rose Hills but excluding other real property and vehicles covered by
certificates of title) of the Company and the Bank Guarantors. In addition,
the Bank Credit Facilities are secured by a first priority security interest
in 100% of the capital stock of the Company and each subsidiary thereof and
all intercompany receivables.

  In connection with the Acquisition Transaction, the Company also issued
$80.0 million of 9 1/2% Senior Subordinated Notes due 2004, which were
exchanged in September 1997 for $80.0 million of 9 1/2% Senior Subordinated
Notes due 2004 (the "Notes") that were registered under the Securities Act of
1933. The Notes mature on November 15, 2004. Interest on the Notes is payable
semi-annually on May 15 and November 15 at the annual rate of 9 1/2%. The
Notes are redeemable in cash at the option of the Company, in whole or in
part, at any time on or after November 15, 2000, at prices ranging from
104.75% with annual reductions to 100% in 2003 plus accrued and unpaid
interest, if any, to the redemption date. The proceeds of the Notes were used,
in part, to finance the Acquisition Transaction.

  As a result of the Acquisition Transaction and the application of proceeds
therefrom, the Company's total outstanding indebtedness was approximately
$151.5 million as of December 31, 2000. The Company also had the entire $25.0
million of borrowing capacity under the Bank Revolving Facility available as
of December 31, 2000 and does not anticipate making any borrowings prior to
its maturity. Management currently believes that, based upon current levels of
operations and anticipated growth and the availability under the Bank
Revolving Facility, it can adequately service its indebtedness through
December 31, 2001. If the Company cannot generate sufficient cash flow from
operations or borrow under the Bank Revolving Facility to meet such
obligations, the Company may be required to take certain actions, including
reducing capital expenditures, restructuring its debt, selling assets or
seeking additional equity in order to avoid an event of default under the Bank
Credit Facilities. There can be no assurance that such actions could be
effected or would be effective in allowing the Company to meet such
obligations. In addition, the Company currently expects that it will need to
obtain new or additional financing to pay some or all of the principal amount
due at maturity under the Bank Term Facility ($53 million by November 1, 2003)
and under the Notes ($80 million on November 15, 2004). No assurance can be
given that such financing will be available to the Company or, if available,
that it may be obtained on terms and conditions that are satisfactory to the
Company.

  The Company and its Subsidiaries are subject to certain restrictive
covenants contained in the indenture to the Notes (the "Indenture"),
including, but not limited to, covenants imposing limitations on: the
incurrence of additional indebtedness; certain payments, including dividends
and investments; the creation of liens; sales of

                                      16
<PAGE>

assets and preferred stock; transactions with interested persons; payment
restrictions affecting subsidiaries; sale-leaseback transactions; and mergers
and consolidations. In addition, the Bank Credit Facilities contain certain
restrictive covenants that, among other things, limit the ability of the
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, prepay other indebtedness (including the Notes), pay dividends
or make certain restricted payments, create liens on assets, engage in mergers
or acquisitions or enter into leases or transactions with affiliates. As of
December 31, 2000, the Company was in compliance with the terms of the
Indenture and the Bank Credit Facilities.

  Although the Company has no material commitments for capital expenditures,
the Company anticipates capital expenditures primarily of approximately $5.0
million for 2001, which includes $2.3 million in internal growth initiatives
and $2.7 million for maintenance capital expenditures.

FORWARD-LOOKING STATEMENTS

  Certain statements in this Form 10-K include "forward-looking statements" as
defined in Section 21E of the Securities Exchange Act of 1934. All statements
other than statements of historical facts included herein, including, without
limitation, the statements under Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," regarding the Company's
financial position, its plans to increase revenues, reduce general and
administrative expense, take advantage of synergies, and make capital
expenditures, and the Company's ability to service its indebtedness, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct.
Important factors that could cause actual results to differ materially from
the Company's expectations ("Cautionary Statements") are disclosed herein,
including, without limitation, in conjunction with the forward-looking
statements included herein.

  All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.

CAUTIONARY STATEMENTS

  The Company cautions readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual consolidated results and could cause the Company's actual
consolidated results in the future to differ materially from the goals and
expectations expressed elsewhere herein:

  The Company may not be able to achieve or sustain growth in
revenues. Maintaining current revenue levels and achieving future growth
depends in part on sustaining the current level of pre-need cemetery sales and
maintaining funeral market share. Several important factors, among others,
affect the Company's ability to sustain and grow revenue:

  .  The volume and prices of properties, products and services sold.

    The inability of the Company to increase volume and prices could affect
  the Company's ability to increase revenue in the future. The ability to
  achieve volume and price increases at Rose Hills and other Company
  locations depends on several factors including local competition, death
  rates, changes in consumer buying patterns, economic conditions and the
  availability of qualified sales personnel. Furthermore, the Company may
  experience pricing pressures from low-cost funeral service and merchandise
  providers and from large consolidators with greater market power than the
  Company, which could result in reduced volume or having to reduce prices in
  order to recapture market share.

  .  Performances of endowment care and trust funds.
    The Company includes certain earnings from endowment care and trust funds
  in its results of operations. Although substantially all of these funds are
  invested in fixed income securities, the performance of these funds is
  subject to market conditions beyond the control of the Company.

                                      17
<PAGE>

  .  The level of pre-arranged funeral sales in prior periods.

    The level of pre-arranged funeral sales in prior periods may affect
  future revenues. The Company's inability to maintain and increase pre-
  arranged funeral sales could impact future revenues. The ability to
  maintain and increase the level of pre-arranged funeral sales may be
  adversely affected by such factors as competition and general economic
  conditions which may reduce individual discretionary income.

  .  Changes in the sales organization, or in its size, compensation or
     morale.

    Pre-need cemetery sales are a significant component of the Company's
  cemetery revenue, and are usually associated with new customers of the
  Company. Changes in the Company's sales organization, or in the size,
  compensation, or morale thereof, may affect the Company's ability to
  increase pre-need sales.

  Our earnings may be adversely affected by a number of factors. Such factors
include:

  .  The ability of the Company to manage its growth in terms of implementing
     internal controls and information gathering systems, and retaining,
     attracting, and motivating key personnel, among other things.

  .  The amount and rate of growth in the Company's general and
     administrative expenses.

  .  Changes in interest rates, which can increase or decrease the amount the
     Company pays on borrowings with variable rates of interest.

  .  The impact on the Company's financial statements of nonrecurring
     accounting charges that may result from the Company's ongoing evaluation
     of its business strategies, asset valuations and organizational
     structures.

  .  Changes in government regulations, including tax rates and their effects
     on corporate structure.

  .  Changes in inflation and other general economic conditions, both
     domestically and internationally, affecting financial markets (e.g.
     marketable security values).

  .  Unanticipated legal proceedings and unanticipated outcomes of legal
     proceedings.

  .  Changes in accounting policies and practices adopted voluntarily or
     required to be adopted by accounting principles generally accepted in
     the United States of America.

  .  The impact of technological changes and of market acceptance of advances
     in technology on the Company's business.

  .  The Company's ability to, as necessary, access debt markets on
     satisfactory terms and conditions, including without limitation its
     ability to obtain such new or additional financing as may become
     necessary to avoid defaults under any of its existing debt agreements.
     See "Liquidity and Capital Resources" above.

  .  Any amendments, renegotiations, or extensions of existing debt
     agreements.

  .  Environmental liabilities that are unanticipated or unanticipated in
     their extent, including without limitation costs and expenses associated
     with past or future land movement within Rose Hills and costs and
     expenses associated with remediation of existing contamination of
     Company properties. See "Environmental Matters" above and Note 19 to the
     Company's consolidated financial statements which are included as part
     of this Annual Report on Form 10-K.

  .  An unanticipatedly unfavorable outcome in the dispute with the County of
     Los Angeles regarding the supplemental property tax accrued by the
     Company. See Note 19 to the Company's consolidated financial statements
     which are included as part of this Annual Report on Form 10-K.

  .  The impact of actions, including reducing capital expenditures, selling
     assets, or seeking additional equity, the Company may become required to
     take to avoid defaults under any of its debt agreements. See "Liquidity
     and Capital Resources" above.

                                      18
<PAGE>

  .  The impact of any defaults that may occur under any of the Company's
     debt agreements.

  .  The Company's continuing ability to reduce costs and enhance revenue by
     integrating its prior acquired properties and taking advantage of
     "clustering."

  The Company's ability to remain in compliance with the restrictions of its
debt agreements is affected by several factors, including the Company's
earnings and fixed charges. The Company's ability to achieve projected
earnings and fixed charges depends upon many uncertainties, including each of
the factors discussed herein.

  The Company also cautions readers that it assumes no obligation to update or
publicly release any revisions to forward-looking statements made herein or
any other forward-looking statements made by or on behalf of the Company.

ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

  The Company's market risk is impacted by changes in interest rates. Pursuant
to the Company's policies, derivative financial instruments may be utilized to
reduce the impact of adverse changes in interest rates. The Company does not
use derivative instruments for speculation or trading purposes, and has no
material sensitivity to changes in market rates and prices on its derivative
financial instrument positions.

  The Company entered into interest rate Collar Agreements in 1996, which
effectively set maximum and minimum interest rates on the principal amount of
Senior Debt, ranging from a floor of 5.5% (the Company would pay 5.5% even if
rates fall below that level) to a maximum or cap of 6.5% for the period
commencing January 2, 1997 through December 1, 2000.

  The counter party to these contractual relationships is a major financial
institution with which the Company has other financial relationships. The
Collar Agreement expired in December 2000 and was not renewed.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  See Item 14(a).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

  None.

                                      19
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The following table sets forth certain information regarding the directors
and executive officers of the Company as of March 23, 2001:

<TABLE>
<CAPTION>
                Name                Age                Position
                ----                ---                --------
 <C>                                <C> <S>
 Dennis C. Poulsen................   58 Chairman of the Board, Director
                                        President and Chief Executive Officer,
 Dillis R. Ward...................   64 Director
                                        Executive Vice President, Chief
 Virginia C. Phillips.............   45 Operations Officer
 Kenton C. Woods..................   46 Senior Vice President, Chief Financial
                                         Officer, Secretary and Treasurer
                                     59 Executive Vice President Marketing &
 Joseph R. Schillaci..............      Sales
 Howard A. Lipson.................   37 Director
 Michael G. Weedon................   47 Director
 John S. Lacey....................   57 Director
 Bradley D. Stam..................   53 Director
 David I. Foley...................   33 Director
 Chinh E. Chu.....................   34 Director
</TABLE>

  Dennis C. Poulsen. Mr. Poulsen was named the Chairman of the Board of the
Company on November 19, 1996 and has served as a director of the Company since
its formation in 1996. Mr. Poulsen joined Rose Hills in 1981 and became
President in 1984. Prior to joining the Company, Mr. Poulsen was employed by
INA Corporation and Transamerica Corporation. Mr. Poulsen is a member of the
American, California and Los Angeles Bar Associations. He served as a Director
and Chairman of the Los Angeles Chamber of Commerce in 1997 and is past
director of the American Cemetery Association.

  Dillis R. Ward. Mr. Ward joined the Company as President and a Director
effective October 1, 1997. On August 11, 1998 he was named Chief Executive
Officer. From August 1996 until joining the Company, Mr. Ward served as the
Regional President, West Region of Loewen.

  Virginia C. Phillips. Ms. Phillips was named Executive Vice President, Chief
Operations Officer of the Company on September 1, 2000. Ms. Phillips was Vice
President of Human Resources of the Company from 1991 to August 2000.

  Kenton C. Woods. Mr. Woods joined the Company as Senior Vice President and
Chief Financial Officer in May 1997. From 1990 to 1997, Mr. Woods served in
senior financial positions at Baskin-Robbins including Vice President--Finance
and Chief Financial Officer. Mr. Woods previously spent 10 years with KPMG
LLP.

  Joseph R. Schillaci. Mr. Schillaci joined the Company as Executive Vice
President Marketing and Sales in November of 2000. From 1997 until joining the
Company, Mr. Schillaci was Executive Vice President of Marketing and Sales for
Consolidated Freightways. He served as President & COO of Petro Travel Plazas,
L.P. from 1993 to 1997 and as President of Six Flags Magic Mountain from 1986
to 1993.

  Howard A. Lipson. Mr. Lipson has served as a Director of the Company since
its formation in 1996. Mr. Lipson is Senior Managing Director of The
Blackstone Group L.P., a principal shareholder in the Company. Mr. Lipson
joined Blackstone in 1988. Prior to joining Blackstone, Mr. Lipson was a
member of the Mergers and Acquisitions Group of Salomon Brothers Inc. He is
also a Director of UCAR International Inc., Volume Services, Inc., AMF Group,
Inc., and Ritvik Holdings, Inc.

                                      20
<PAGE>

  Michael Weedon. Mr. Weedon was named a director of the Company in 1998.
Since February 2000, Mr. Weedon has also served as a Senior Vice President,
Trust and Insurance for Loewen, a principal shareholder in the Company. Mr.
Weedon has served in various senior management capacities with Loewen since
November 1997. From 1996 to 1997, Mr. Weedon was a private business consultant
and investor. Mr. Weedon previously served as Chief Operating Officer of
Viridian Inc. in Fort Saskatchewan, Alberta.

  John S. Lacey. Mr. Lacey was named a Director of the Company effective March
10, 2000. Mr. Lacey has been Chairman of the Board and Director of Loewen
since January 1999. In December 1998, Mr. Lacey became a Director of Loewen.
From July 1998 to November 1998, Mr. Lacey was President and Chief Executive
Officer of The Oshawa Group Ltd. in Toronto, Ontario. From November 1996 to
July 1998, Mr. Lacey was President and Chief Executive Officer of WIC Western
International Communications Inc. in Vancouver, British Columbia.

  Bradley D. Stam. Mr. Stam was named a Director of the Company effective
March 10, 2000. Mr. Stam has also served as a Senior Vice-President, Legal and
Asset Management for Loewen since March 1998. Prior to joining Loewen, Mr.
Stam had been a management member of Western Star Trucks Holdings Ltd. from
June 1995 to September 1997. He was previously a partner with a Seattle law
firm.

  David I. Foley. Mr. Foley has served as a Director of the Company since its
formation in 1996. Mr. Foley is a Principal at The Blackstone Group L.P.,
which he joined in 1995. Prior to joining Blackstone, Mr. Foley was a member
of AEA Investors, Inc. and The Monitor Company.

  Chinh E. Chu. Mr. Chu has served as a Director of the Company since its
formation in 1996. Mr. Chu is a Managing Director of The Blackstone Group
L.P., which he joined in 1990. Prior to joining Blackstone, Mr. Chu was a
senior member of the Mergers and Acquisitions Group of Salomon Brothers Inc.
from 1988 to 1990.

  Under the Shareholders' Agreement described in Item 13, "Certain
Relationships and Related Transactions," Blackstone and Loewen have the right
to designate five and three nominees, respectively, to the Board of Directors
of RH Holdings. Blackstone designated Messrs. Chu, Foley, Lipson, Poulsen and
Ward. Loewen designated Messrs. Lacey, Weedon and Stam. Each of Blackstone's
and Loewen's nominees to the RH Holdings Board is also a member of the
Company's Board of Directors.

  Each of Messrs. Weedon, Lacey and Stam are executive officers of Loewen or
one or more of its affiliates. On June 1, 1999, LWN, LGII and certain of their
affiliates filed for bankruptcy protection under the United States Bankruptcy
Code.

  Each of the Company's directors is elected to serve until their respective
successor is elected and qualified (unless the director earlier resigns or is
removed from office). Each of the Company's officers serves at the pleasure of
the Board of Directors, subject to the rights under their employment
agreements.

  With the exception of Mr. Poulsen, Directors of the Company receive no
compensation for their service as Directors or for service on committees of
the Board. All directors are reimbursed for all reasonable expenses of
attendance at each meeting.

  The Board approved a new employment arrangement with Mr. Poulsen effective
March 1, 2000, which replaced his previous consulting agreement. Under the
terms of the new employment agreement, Mr. Poulsen's annual salary is
$120,000. Mr. Poulsen may be terminated without "cause" (as defined in the
employment agreement) at any time, but if so terminated, Mr. Poulsen will
continue to receive his salary for twenty-four (24) months after the date on
which the Company notifies him of the termination. The employment agreement
provides that a resignation by Mr. Poulsen within three (3) months following a
change in control of the Company is deemed a termination by the Company
without cause. The proposed acquisition by Loewen of all of the outstanding
shares of RH Holdings owned by Blackstone ("the Loewen Purchase") would
constitute a change of control for purposes of the employment agreement. See
Item 13, "Certain Relationships and Related Transactions--Put/Call Agreement."
Mr. Poulsen has the right to terminate the employment agreement at any time
with 60 days notice to the Company.

                                      21
<PAGE>

  On March 20, 2001, a committee of the Company's Board of Directors
authorized the grant of a bonus award to Mr. Poulsen in the amount of $
335,000 pursuant to the Company's Phantom Equity Appreciation Plan. The bonus
award is conditioned upon and payable only in the event that the closing of
the Loewen Purchase occurs on or prior to December 31, 2001. On March 20,
2001, Blackstone granted Mr. Poulsen limited partnership units in a Blackstone
partnership entity which will hold the Loewen Promissory Note (as defined in
Item 11, "Executive Compensation--Change-in-Control Arrangements"),
conditioned upon and granted only in the event that the closing of the Loewen
Purchase occurs on or prior to December 31, 2001.

ITEM 11. EXECUTIVE COMPENSATION.

  The following table sets forth the compensation paid or accrued to the Chief
Executive Officer and certain other executive officers of the Company
(determined pursuant to applicable SEC rules) during the last three completed
fiscal years. The position identified in the table for each person is their
current position unless otherwise indicated:

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       Annual
                                    Compensation
                                   --------------- Other Annual    All Other
 Name and Principal Position  Year Salary   Bonus  Compensation   Compensation
 ---------------------------  ---- ------- ------- ------------   ------------
<S>                           <C>  <C>     <C>     <C>            <C>
Dillis E. R. Ward............ 2000 250,000  38,000        --          2,792(1)
 President & Chief Executive
  Officer                     1999 250,000 100,000        --          3,098
                              1998 257,692 106,250        --          3,287
Kenton C. Woods.............. 2000 160,431  25,000        --          2,180(2)
 Executive Vice President &
  Chief Financial Officer     1999 160,431  64,172        --          2,264
                              1998 155,000  65,952        --          2,102
Gary P. Baker................ 2000 135,511                          190,402(4)
 Senior Vice President--
  Operations(3)               1999 132,775  26,250        --          2,213
                              1998 105,000  26,563        --          2,288
Virginia C. Phillips......... 2000 104,000  12,000                    2,120(6)
 Executive Vice President--
  Chief Operations Officer(5) 1999  92,000   8,000                   25,644
                              1998  92,000   8,000                   26,978
Patrick L. Monroe............ 2000 104,000  10,500                    2,054(7)
 Vice President--Cemetery
  Operations                  1999 100,000  19,923                    2,060
                              1998  75,000  19,000                    2,066
Kimberley K. Cleaver......... 2000 226,185     --                     2,045(9)
 Senior Vice President--
  Sales(8)                    1999 523,616     --         --          2,120
                              1998 441,581     --    106,000(10)      2,049
</TABLE>
--------
 (1) Amount includes $2,000 in matching contributions by the Company under its
     401(k) profit-sharing plan and a payment of $792 for life insurance
     premiums.

 (2) Amount includes $2,000 in matching contributions by the Company under its
     401(k) profit-sharing plan and a payment of $180 for life insurance
     premiums.

 (3) Mr. Baker terminated employment with the Company effective January 3,
     2001.

 (4) Amount includes: (i) $2,000 in matching contributions by the Company
     under its 401(k) profit-sharing plan; (ii) payment of $138 for life
     insurance premiums; and (iii) $188,264 in severance payments, management
     commissions, medical benefits, outplacement service reimbursements and
     other benefits paid or provided in connection with Mr. Baker's
     termination of employment with the Company.

 (5) Ms. Phillips was promoted to the position of Executive Vice President--
     Chief Operations Officer effective September 1, 2000.

                                      22
<PAGE>

 (6) Amount includes $2,000 in matching contributions by the Company under its
     401(k) profit-sharing plan and a payment of $120 for life insurance
     premiums. Amounts reportable for Ms. Phillips as "All Other Compensation"
     in 1999 and 1998 included reimbursement for educational expenses.

 (7) Amount includes $2,000 in matching contributions by the Company under its
     401(k) profit-sharing plan and a payment of $54 for life insurance
     premiums.

 (8) Ms. Cleaver terminated employment with the Company effective May 31,
     2000.

 (9) Amount includes $2,000 in matching contributions by the Company under its
     401(k) profit-sharing plan and a payment of $45 for life insurance
     premiums.

(10) Amount includes a payment of $100,000 as a housing allowance and a
     payment of $6,000 for automobile expenses.

Employment Agreements, Termination of Employment and Change-in-Control
Arrangements

  Dillis R. Ward. The Company has an employment agreement with Mr. Ward dated
as of July 10, 1998, pursuant to which Mr. Ward currently serves as the
Company's President and Chief Executive Officer. Mr. Ward's base salary is
$250,000, which is subject to annual review and may be increased (but not
reduced) at the sole discretion of the Board. Mr. Ward's cash bonus may range
from 0%-100% of his base salary and is based on the Company's performance as
measured against EBITDA targets established annually by the Board. Mr. Ward
may be terminated without "cause" (as defined in the employment agreement) at
any time with 24 months notice to Mr. Ward, but if so terminated, he will
receive (i) his then base salary and benefits through the effective date of
the termination; (ii) his annual bonus for all years completed prior to the
effective date of the termination; and (iii) a prorated portion of the annual
bonus for the year in which the termination becomes effective. Mr. Ward's
employment agreement provides that he will be entitled to a long-term
incentive bonus at any time that Loewen purchases all of the shares of common
stock of RH Holdings owned by Blackstone, provided that certain cumulative
EBITDA targets are achieved. Such bonus will equal $500,000 if the EBITDA
targets are met and such purchase occurs prior to 2002, and the payment amount
will be increased by $100,000 each year thereafter up to a maximum of
$900,000. Mr. Ward has the right to terminate the employment agreement at any
time with 90 days notice to the Company.

  Kenton C. Woods. The Company has an employment agreement with Mr. Woods
dated as of December 1, 1998, pursuant to which Mr. Woods currently serves as
the Company's Senior Vice President and Chief Financial Officer. Mr. Woods'
base salary is $169,000, which is subject to annual review and may be
increased (but not reduced) at the sole discretion of the Board. Mr. Woods'
cash bonus may range from 0%-100% of his base salary and is based on the
Company's performance as measured against EBITDA targets established annually
by the Board. Mr. Woods may be terminated without "cause" (as defined in the
employment agreement) at any time with 12 months notice to Mr. Woods, but if
so terminated, Mr. Woods will receive (i) his then base salary and benefits
through the effective date of the termination; (ii) his annual bonus for all
years completed prior to the effective date of the termination; and (iii) a
prorated portion of the annual bonus for the year in which the termination
becomes effective. Mr. Woods has the right to terminate the employment
agreement at any time with 90 days notice to the Company.

  Virginia C. Phillips. The Company has an employment agreement with Ms.
Phillips dated as of September 1, 2000, pursuant to which Ms. Phillips
currently serves as the Company's Executive Vice President, Chief Operations
Officer. Ms. Phillips' base salary is $131,000, which is subject to annual
review and may be increased (but not reduced) at the sole discretion of the
Board. Ms. Phillips' cash bonus may range from 0%-50% of her base salary and
is based on the Company's performance as measured against EBITDA targets
determined annually by the Board. Ms. Phillips is entitled to participate in
the Company's Phantom Equity Plan and is eligible to receive up to 14% of the
Bonus Pool as defined thereunder. Ms. Phillips may be terminated without
"cause" (as defined in the employment agreement) at any time but if so
terminated will receive one year's then base salary, plus a prorated portion
of the annual bonus. Ms. Phillips has the right to terminate the employment
agreement at any time with 90 days notice to the Company.

                                      23
<PAGE>

  Gary P. Baker. The Company entered into a Resignation and General Release
Agreement with Mr. Baker dated as of December 14, 2000. Pursuant to the
agreement, Mr. Baker resigned as the Company's Senior Vice President--Mortuary
Operations effective January 3, 2001. Mr. Baker received severance equal to
one year's base pay ($131,250) plus a liquidated bonus amount of $6,900, all
payable on January 3, 2001. The Company agreed to reimburse Mr. Baker for the
cost of outplacement services, up to $25,000. The Company also agreed to pay
for twelve (12) months of COBRA coverage for Mr. Baker and to purchase and
give Mr. Baker title to his company leased vehicle, valued at $21,629.

  Change-in-Control Arrangements. In November 2000 Loewen announced a
tentative agreement with Blackstone to purchase all shares of RH Holdings
owned by Blackstone (the "Loewen Purchase"). The transaction is conditioned
upon the execution of definitive agreements by the parties, and is subject to
approval by the U.S. Bankruptcy Court. If the transaction is consummated, RH
Holdings and the Company will become wholly owned subsidiaries of Loewen. See
Item 13, "Certain Relationships and Related Transactions."

  On March 20, 2001, a committee of the Company's Board of Directors
authorized the grant of bonus awards to each of the Company's executive
officers pursuant to the Company's Phantom Equity Appreciation Plan (the
"Plan"). Each of the bonus awards represents the right to receive a fixed sum
in cash conditioned upon and payable only in the event that the closing of the
Loewen Purchase occurs on or before December 31, 2001. The bonus amounts
payable upon the closing of the Loewen Purchase (if it occurs on or before
December 31, 2001) to each of the named executive officers are as follows:
Dillis R. Ward, $711,000; Kenton C. Woods, $585,000; Virginia C. Phillips,
$172,000; Patrick L. Monroe, $105,000; and Gary P. Baker, $105,000 (Mr. Baker
is entitled to receive a bonus award pursuant to the terms of his severance
agreement with the Company).

  On March 20, 2001, Blackstone authorized the grant of limited partnership
units in one of its partnership entities to certain of the Company's officers,
conditioned upon and granted only in the event that the closing of the Loewen
Purchase occurs on or before December 31, 2001. The partnership's sole asset
will be a note from Loewen in the principal amount of $24,500,000 which bears
interest at an annual rate of 12% and matures in 2011 (the "Loewen Promissory
Note"). Each of the units represents a proportionate share in the principal
and interest payments received by the partnership on the Loewen Promissory
Note. The units were allocated among the participants in the same
proportionate shares as the bonus amounts awarded by the Company pursuant to
the Plan.

Compensation Committee Interlocks and Insider Participation

  The Company does not have a compensation committee. Compensation policies
applicable to executive officers are determined by the Board of Directors. As
directors of the Company, Mr. Ward and Mr. Poulsen participated in the
deliberations of the Board concerning executive compensation.

  During fiscal 2000, Mr. Poulsen provided consulting services to the Company
for which he was paid $16,046. As discussed in Item 10, "Directors and
Executive Officers of the Registrant": (i) on March 20, 2001, the consulting
agreement was terminated and replaced by an employment agreement providing for
an annual salary of $120,000; (ii) on March 20, 2001, Mr. Poulsen was awarded
a bonus amount of $335,000, conditioned upon and payable only in the event
that the closing of the Loewen Purchase occurs on or prior to December 31,
2001; and (iii) on March 20, 2001, Blackstone granted Mr. Poulsen units in a
Blackstone partnership entity which will hold the Loewen Promissory note,
Conditioned upon and granted only in the event that the closing of the Loewen
Purchase occurs on or prior to December 31, 2001.

                                      24
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

  The Company is a direct, wholly owned subsidiary of RH Holdings. The
following table sets forth certain information as of March 23, 2001 regarding
the beneficial ownership of the common stock of RH Holdings:

<TABLE>
<CAPTION>
                                                              Number  Percentage
                                                                of    of Common
   Name of Beneficial Owner                                   Shares    Stock
   ------------------------                                   ------- ----------
   <S>                                                        <C>     <C>
   The Blackstone Group L.P.(1).............................. 795.455   79.55%
   Loewen Group International, Inc.(2)....................... 204.545   20.45%
   Chinh E. Chu(3)...........................................     --      --
   David I. Foley(3).........................................     --      --
   Howard A. Lipson(3).......................................     --      --
   John Lacey(4).............................................     --      --
   Bradley Stam(4)...........................................     --      --
   Michael Weedon(4).........................................     --      --
   Dennis C. Poulsen.........................................     --      --
   Dillis E. R. Ward.........................................     --      --
   Virginia C. Phillips......................................     --      --
   Kenton C. Woods...........................................     --      --
   Patrick L. Monroe.........................................     --      --
   Gary Baker................................................     --      --
   Kim Cleaver...............................................     --      --
   All directors and executive officers as a group...........     --      --
</TABLE>
--------
(1) Includes shares held by Blackstone Capital Partners II Merchant Banking
    Fund L.P., Blackstone Rose Hills Offshore Capital Partners L.P.,
    Blackstone Family Investment Partnership II L.P., and RHI Management
    Direct L.P., each of which is controlled by The Blackstone Group L.P. or
    an affiliate. The address for the Blackstone entities is c/o Blackstone
    Group L.P., 345 Park Avenue, New York, N.Y. 10154.

(2) The address for LGII is 311 Elm Street, Suite 1000, 1st Floor, Cincinnati,
    OH 45202. LGII is a wholly owned subsidiary of LWN.

(3) Messrs. Chu, Foley and Lipson are affiliated with The Blackstone Group
    L.P. in the capacities described under Item 10, "Directors and Executive
    Officers of the Registrant," above. Each of Messrs. Chu, Foley and Lipson
    disclaim beneficial ownership of the shares owned or controlled by The
    Blackstone Group L.P. and its affiliates.

(4) Messrs. Lacey, Stam and Weedon are affiliated with Loewen in the
    capacities described under Item 10, "Directors and Executive Officers of
    the Registrant," above. Each of Messrs. Lacey, Stam and Weedon disclaim
    beneficial ownership of the shares owned or controlled by Loewen and its
    affiliates.

  See Item 13, "Certain Relationships and Related Transactions" for a
description of certain arrangements, the operation of which may, at a
subsequent date, result in a change in control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The summaries of the Shareholders' Agreement, the Put/Call Arrangement, the
Administrative Services Agreement, and the Loewen Settlement Agreement set
forth below do not purport to be complete and are qualified in their entirety
by reference to all the provisions of the Stockholders' Agreement, the
Put/Call Agreement, the Administrative Services Agreement, and the Loewen
Settlement Agreement, respectively. Copies of the Stock Purchase Agreement,
the Stockholders' Agreement, the Put/Call Agreement, the Administrative
Services Agreement and the Loewen Settlement Agreement are incorporated by
references as exhibits to this Annual Report on Form 10-K.

                                      25
<PAGE>

Shareholders' Agreement

  In connection with the Acquisition Transaction, Blackstone, LGII and LN Sub
entered into an agreement (the "Shareholders' Agreement") setting forth
certain of their rights and obligations as shareholders of RH Holdings. The
Shareholders' Agreement provides that, subject to the Put/Call Agreement
referred to below, none of the shareholders is permitted to transfer any of
its respective shares of common or preferred stock of RH Holdings ("RH
Holdings Common Stock") without the others' prior written consent, subject to
certain exceptions.

  Under the terms of the Shareholders' Agreement, Blackstone and LGII have the
right to designate five and three nominees as directors, respectively, to the
Board of Directors of RH Holdings (the "Board'). Each of Blackstone and LGII
further agreed (i) to vote all of its shares of RH Holdings Common Stock to
ratify and adopt any and all actions adopted or approved by the Board and (ii)
subject to certain exceptions related to the election and removal of
directors, not to vote any of its shares of RH Holdings Common Stock in favor
of any resolution, give any consent with respect to any matter or take any
other action as a stockholder of RH Holdings unless such resolution, matter or
other action first shall have been adopted or approved by the Board and
recommended by it for adoption, approval or consent by the shareholders. In
addition, the By-Laws of RH Holdings provide that certain actions by or with
respect to RH Holdings will require the unanimous consent of the Board. See
"Certain Matters Subject to Supermajority Vote".

  In addition, in the event that Loewen owns, operates or controls any funeral
home or cemetery within 20 miles of any other funeral home or cemetery owned
by the Company, Loewen has an option, exercisable for the succeeding 12
months, to either sell such properties to a third party or transfer such
properties to the Company (free of indebtedness for borrowed money) in
exchange for additional equity in RH Holdings.

  The Shareholders' Agreement will terminate following the exercise by either
Blackstone or LGII of its option pursuant to the Put/Call Agreement or on such
other date as the parties may agree.

Put/Call Arrangement

  Pursuant to a separate agreement among Blackstone, LWN, LGII and LN Sub (the
"Put/Call Agreement"), (i) LGII has a call option, exercisable from and after
November 19, 2000 (the fourth anniversary of the Acquisition Closing Date),
until but excluding November 19, 2002 (the sixth anniversary of the
Acquisition Closing Date) to purchase all of Blackstone's shares of RH
Holdings Common Stock (the "Call Option") and (ii) Blackstone has a put
option, exercisable from and after November 19, 2002 (the sixth anniversary of
the Acquisition Closing Date) until but excluding November 19, 2004 (the
eighth anniversary of the Acquisition Closing Date) to require LGII to
purchase Blackstone's shares of RH Holdings Common Stock (the "Put Option").
The option price in either case is derived from a formula based on EBITDA. The
performance by LGII of its obligations under the Put/Call Agreement is
guaranteed by LWN.

  On June 1, 1999, LWN, LGI and LN Sub filed for protection from their
creditors under Chapter 11 of the U.S. Bankruptcy Code. On November 15, 2000,
LWN submitted a plan of reorganization to the U.S. Bankruptcy Court. The Plan
was amended on February 15, 2001. In the plan, LWN disclosed that it had
reached a tentative agreement with Blackstone and RHMID, pursuant to which
Blackstone would exercise its put and a subsidiary of reorganized Loewen would
acquire 100% of the outstanding common stock of RH Holdings. The proposed
acquisition is conditioned upon the execution of a definitive settlement
agreement among the parties, and is subject to U.S. Bankruptcy Court approval.
If the acquisition is consummated, RH Holdings will become a wholly owned
subsidiary of LWN following its bankruptcy reorganization, and the
Shareholders' Agreement and the Put/Call Agreement will terminate.

  The exercise of either the Call Option or the Put Option will not give rise
to a Change of Control under the Indenture.

                                      26
<PAGE>

  Monitoring Fee Arrangement. Pursuant to the Put/Call Agreement, from the
Acquisition Closing Date until the date on which Loewen or Blackstone
exercises the Call Option or the Put Option, an affiliate of Blackstone will
receive a monitoring fee equal to $250,000 per annum (as such fee may be
increased to account for inflation) from the Company (the "Monitoring Fee
Arrangement"). The Company paid $250,000 in fiscal 1999 and $250,000 in fiscal
2000 to Blackstone pursuant to the Monitoring Fee Arrangement.

Administrative Services Agreement

  In connection with the Acquisition, the Company engaged Loewen to provide
certain administrative services and to share certain resources pursuant to an
Administrative Services Agreement. The services to be provided by Loewen under
the Administrative Services Agreement included: accounting services, computer,
telecommunications, general operations support, legal services, environmental
compliance, regulatory compliance, employee training and corporate
development. In addition, Loewen agreed to provide management expertise in
planning MIS, sales, tax, and fund management strategy. The Company also could
benefit under the Administrative Services Agreement from access to some of
Loewen's vendor agreements.

  As compensation for services provided under the Administrative Services
Agreement, Loewen would be entitled to receive from the Company a fee (the
"Administrative Services Fee"), payable monthly in arrears and in an aggregate
annual amount equal to $334,000 for the first year following the Acquisition
Closing Date and $250,000 for the second year following the Acquisition
Closing Date, to be increased by 2.5% for each year thereafter until the
termination of the Administrative Services Agreement. The Company was also
generally required (in certain cases, subject to approval in advance by
Blackstone) to reimburse Loewen for all out-of-pocket costs and expenses
incurred by it from third parties in connection with performing the
administrative services described in the Administrative Services Agreement.
The Company recorded and paid $250,000 during fiscal 1998 and recorded
$289,000 during fiscal 1999 in Administrative Services Fees under the
Administrative Services Agreement.

  In July 1999, the Company began proceedings to terminate the Administrative
Services Agreement due to a disagreement between Loewen and the Company with
respect to the value of services rendered by Loewen under the Agreement. On
February 4, 2000, the Company filed a motion in U.S. Bankruptcy Court for an
order setting a deadline for Loewen to assume or reject the Administrative
Services Agreement. On March 4, 2000, the parties agreed at a hearing to
resolve the motion through a stipulation and order. As a result of the order,
effective March 1, 2000, the Company is no longer obligated to pay Loewen for
administrative services under the Administrative Services Agreement until such
time as Loewen exercises its right to assume the Administrative Services
Agreement or the Company requests that services be performed thereunder.

  Management believes that the Company has sufficient resources and expertise
to internally meet its needs for the type of services contemplated under the
Administrative Services Agreement and that it is unlikely that the Company
will request services from Loewen. However, if Loewen should exercise its
right to assume the Administrative Services Agreement, the Company could be
required to pay the Administrative Services Fee whether or not the Company
derives any actual benefit.

  As of December 2000, the Company had accrued a total of $332,000 in unpaid
Administrative Services Fees due Loewen under the Administrative Services
Agreement. The Company had further accrued, over the life of the
Administrative Services Agreement, $400,000 due Loewen as reimbursement for
out-of-pocket costs and expenses incurred by Loewen from third parties in
connection with performing the administrative services described in the
Administrative Services Agreement. In December 2000, as part of the Loewen
Settlement Agreement described below, the Company paid Loewen the sum of
$514,000 in full settlement of all amounts due Loewen under the Administrative
Services Agreement, including both Administrative Services Fees and
reimbursement of expenses.

  The Administrative Services Agreement is subject to termination
automatically upon closing following the exercise of the Call Option or the
Put Option, and at the option of the Company under certain other

                                      27
<PAGE>

circumstances, including the failure of Loewen to fully exercise the options
set forth in the third paragraph under "Shareholders Agreement" above.

Loewen Settlement Agreement

  The Company and Loewen were involved in a dispute with respect to the right
to receive proceeds arising from the sale of a vacant parcel of land to an
unrelated party in October, 1999. The Company maintained that it was the legal
owner of the Property, and as such, that the Company was entitled to receive
the sale proceeds. Loewen disputed the Company's contention, and the sale
proceeds of approximately $936,000 remained in escrow pending resolution of
the dispute.

  On September 27, 2000, the Company and Loewen entered into a letter
agreement (the "Loewen Settlement Agreement") that resolved the dispute of the
escrow. At the time the Loewen Settlement Agreement was executed, the escrow
contained approximately $968,000, inclusive of $32,000 in accrued interest.
Pursuant to the Loewen Settlement Agreement, which was approved by the U.S.
Bankruptcy Court on November 12, 2000, Loewen consented to the release to the
Company of the entire $968,000. This amount was partially offset by the
obligation of the Company to pay Loewen the sum of $514,000 to settle amounts
due under the Administrative Services Agreement as described above.

Formation of RHIMD; Loans to Management

  In connection with the Acquisition Transaction, on the Acquisition Closing
Date, RHIMD purchased 10.2273 shares (approximately 1.02%) of RH Holdings
common stock (the "RHIMD-Owned Stock"). PSI P&S Corp., an affiliate of
Blackstone Group L.P., is the general partner of RHIMD. Limited partnership
interests in RHIMD have subsequently been allocated to certain officers of the
Company (the "RHIMD Limited Partners").

  In order to effect the purchase of the RHIMD-Owned Stock, on the Acquisition
Closing Date, the Company made a loan to RHIMD in the principal amount of
$450,000 which is evidenced by a note bearing interest at an annual rate of 9%
and secured by the RHIMD-Owned Stock. RHIMD is deemed to have made loans to
each of the RHIMD Limited Partners in connection with their subscription for
limited partnership interests in RHIMD. Individual subscription agreements and
loan documents have not yet been executed.

Certain Matters Subject to Supermajority Vote

  The By-Laws of RH Holdings provide that the following matters require the
unanimous approval of the Board of Directors: (1) amendments to the
Certificate of Incorporation or By-Laws of RH Holdings; (2) transactions
involving the merger, consolidation or sale of substantially all of the assets
of RH Holdings; (3) the declaration or payment of any cash dividend or other
distribution to the shareholders of RH Holdings (other than payments pursuant
to the Administrative Services Agreement or payment of the monitoring fee to
Blackstone described under "Put/Call Arrangement") and (4) issuances of
additional shares of capital stock, except for issuances to third parties and
issuances of additional shares of capital stock to the extent they are
required to be issued to cure or prevent an event of default or failure of any
financial covenants under the Bank Credit Agreement.

                                      28
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Documents filed as a part of this report:

1. Financial Statements
 Index to Financial Statements

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ROSE HILLS COMPANY CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report..............................................   32
Consolidated Balance Sheets as of December 31, 2000 and 1999..............   33
Consolidated Statements of Operations for the Years ended December 31,
 2000, 1999 and 1998......................................................   34
Consolidated Statements of Cash Flows for the Years ended December 31,
 2000, 1999 and 1998......................................................   35
Consolidated Statements of Stockholder's Equity for the Years ended
 December 31, 2000, 1999 and 1998.........................................   36
Notes to Consolidated Financial Statements................................   37

2. Financial Statement Schedule
 Schedule II--Valuation and Qualifying Accounts ..........................   59
</TABLE>

                                       29
<PAGE>

(b) Exhibits

<TABLE>
<CAPTION>
   Exhibit
   Number  Description
   ------- -----------

   <C>     <S>
    2.1*   --Asset Purchase Agreement, dated as of September 19, 1996, by and
            between Rose Hills Memorial Park Association and Tudor Acquisition
            Corp. (now known as the Rose Hills Company).

    2.2*   --Agreement and Plan of Merger, dated as of September 19, 1996, by
            and among the stockholders of Roses, Inc. and Tudor Acquisition
            Corp. (now known as the Rose Hills Company).

    2.3*   --Amendment to the Agreement and Plan of Merger dated as of November
            18, 1996 by and among Rose Hills Acquisition Corp. (now known as
            Rose Hills Company), Roses Inc., the Stockholders of Roses Inc.,
            and RH Mortuary Corporation.

    3.1*   --Restated Certificate of Incorporation of Tudor Acquisition Corp.
            changing its name to Rose Hills Acquisition Corp.

    3.2*   --Certificate of Amendment of Certificate of Incorporation of Rose
            Hills Acquisition Corp. changing its name to Rose Hills Company.

    3.3*   --Amended and Restated By-Laws of Rose Hills Company.

    4.1*   --Indenture dated as of November 15, 1996 between Rose Hills
            Acquisition Corp. and United States Trust Company of New York, as
            Trustee.

    4.2*   --Form of 9.5% Senior Subordinated Note due 2004 (included in
            Exhibit 4.1).

   10.1*   --Stockholders' Agreement dated as of November 19, 1996 among Rose
            Hills Holdings Corp., Blackstone Capital Partners II Merchant
            Banking Fund L.P., Blackstone Rose Hills Offshore Capital Partners
            L.P., Blackstone Family Investment Partnership II L.P., Roses
            Delaware, Inc., Loewen Group International, Inc., and RHI
            Management Direct L.P.

   10.2*   --Administrative Services Agreement dated as of November 19, 1996
            between Rose Hills Acquisition Corp. (now known as Rose Hills
            Company), The Loewen Group, Inc., and Loewen Group International
            Inc.

   10.3*   --Credit Agreement dated as of November 19, 1996 among Rose Hills
            Company, Rose Hills Holdings Corp., Goldman, Sachs & Co., as
            syndication agent and arranging agent, the financial institutions
            from time to time parties thereto as lenders and The Bank of Nova
            Scotia, as administrative agent for such lenders.

   10.4*   --Put/Call Agreement, dated as of November 19, 1996 among Blackstone
            Capital Partners II Merchant Banking Fund L.P., Blackstone Rose
            Hills Offshore Capital Partners L.P., Blackstone Family Investment
            Partnership II L.P., Roses Delaware, Inc., Loewen Group
            International, Inc., The Loewen Group Inc., and RHI Management
            Direct L.P.

   10.5*   --Buddhist Memorial Complex Development and Use Agreement dated as
            of March 1, 1994 between Rose Hills Memorial Park Association and
            International Buddhist Progress Society.

   10.6*   --First Amendment to Buddhist Memorial Complex Development and Use
            Agreement, dated as of September 1, 1994 between Rose Hills
            Memorial Park Association and International Buddhist Progress
            Society.

   10.7*   --Second Amendment to Buddhist Memorial Complex Development and Use
            Agreement, dated as of March 15, 1995 between Rose Hills Memorial
            Park Association and International Buddhist Progress Society.

   10.8*   --Third Amendment to Buddhist Memorial Complex Development and Use
            Agreement, dated as of May 15, 1995 between Rose Hills Memorial
            Park Association and International Buddhist Progress Society.

   10.9*   --Fourth Amendment to Buddhist Memorial Complex Development and Use
            Agreement, dated as of October 15, 1995 between Rose Hills Memorial
            Park Association and International Buddhist Progress Society.
</TABLE>

                                       30
<PAGE>

<TABLE>
<CAPTION>
   Exhibit
   Number     Description
   -------    -----------

   <C>        <S>
   10.10*     --Memorandum of Understanding, dated as of March 22, 1996 between
               Rose Hills Memorial Park Association and International Buddhist
               Progress Society.

   10.11***** --Letter Agreement dated September 27, 2000 by and between the
               Loewen Group, Inc. and Rose Hills Company

   10.12**    --Employment Agreement, dated July 10, 1998 by and between Rose
               Hills Company and Dillis R. Ward.

   10.13***   --Employment Agreement, dated December 1, 1998 by and between
               Rose Hills Company and Kenton C. Woods.

   10.14***   --Employment Agreement, dated December 1, 1998 by and between
               Rose Hills Company and Gary P. Baker.

   10.15***   --Employment Agreement, dated March 23, 1999 by and between Rose
               Hills Company and Kimberly K. Cleaver.

   10.16*     --Non-Competition Agreement dated as of November 19, 1996 between
               RH Mortuary Corporation and Kendall E. Nungesser.

   10.17*     --Non-Competition Agreement dated as of November 19, 1996 between
               RH Mortuary Corporation and Dennis C. Poulsen.

   10.18**    --Non-Competition Agreement dated as of November 19, 1996 between
               RH Mortuary Corporation and Sandy V. Durko.

   10.19***   --Profit Sharing/401K Plan

   10.20***** --Employment Agreement, dated September 1, 2000 by and between
               Rose Hills Company and Virginia C. Phillips.

   10.21***** --Employment Agreement, dated November 6, 2000 by and between
               Rose Hills Company and Joseph R. Schillaci.

   10.22****  --Employment Agreement, effective March 1, 2000 by and between
               Rose Hills Company and Dennis C. Poulsen.

   10.23***** --Resignation and General Release Agreement, dated December 14,
               2001, by and between Rose Hills Company and Gary Baker.

   10.24***** --Rose Hills Company Phantom Equity Appreciation Plan effective
               January 1, 2000 and Form of Award Agreement.

   12*****    --Statement Re-Computation of Earnings to Fixed Charges Ratio.

   21***      --Subsidiaries of Rose Hills Company (formerly known as Rose
               Hills Acquisition Corp.).
</TABLE>

(c) Reports on Form 8-K

  None
--------
    * Incorporated by reference to the Exhibits to the Company's Registration
      Statement on Form S-4 (Registration No. 33-321411)

   ** Incorporated by reference from Rose Hills' Report on Form 10-Q for the
      quarter ended September 30, 1998, filed on November 5, 1998

  *** Incorporated by reference from Rose Hills' Report on Form 10-K for the
      year ended December 31, 1999, filed on March 24, 1999

 **** Incorporated by reference from Rose Hills' Report on Form 10-Q for the
      quarter ended June 30, 2000, filed on August 10, 2000.

***** Filed herewith

                                      31
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
Rose Hills Company:

  We have audited the consolidated financial statements of Rose Hills Company
and subsidiaries (a wholly owned subsidiary of Rose Hills Holdings Corp.) as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.

  We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Rose Hills Company and subsidiaries as of December 31, 2000 and 1999 and
the results of their operations and their cash flows for the years ended
December 31, 2000, 1999 and 1998 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

  As discussed in note 3 to the consolidated financial statements, the Company
changed its method of recognizing revenue in 2000.

                                          KPMG LLP

Los Angeles, California
March 2, 2001 (Except as to
 Note 18, which is as of March
 20, 2001)

                                      32
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                          CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                               2000      1999
                                                             --------  --------
<S>                                                          <C>       <C>
                           ASSETS
Current assets:
 Cash and cash equivalents ................................. $  8,171  $  2,150
 Accounts receivable, net of allowances ....................   12,662    11,805
 Inventories ...............................................    1,042       991
 Prepaid expenses and other current assets .................    2,640     5,277
 Deferred tax asset ........................................    3,550     3,508
                                                             --------  --------
    Total current assets ...................................   28,065    23,731
Long-term receivables, net of allowances ...................   14,012    18,729
Cemetery property, at cost .................................   74,551    77,003
Property and equipment, net ................................   59,870    59,292
Goodwill ...................................................  118,330   121,629
Deferred finance charges ...................................    5,777     7,534
Receivables from service trusts.............................    7,323     5,738
Other assets ...............................................    2,533     2,565
                                                             --------  --------
    Total assets ........................................... $310,461  $316,221
                                                             ========  ========

            LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
 Accounts payable and accrued liabilities .................. $  9,759  $ 10,377
 Current portion of long-term debt .........................    7,842     3,832
                                                             --------  --------
    Total current liabilities ..............................   17,601    14,209
Retirement plan liabilities ................................    6,876     6,990
Deferred tax liability .....................................    3,065     8,271
Subordinated notes payable .................................   80,000    80,000
Bank senior-term loan ......................................   61,581    68,513
Other long-term debt .......................................    1,658     1,913
Other liabilities ..........................................       50     4,336
Deferred Revenue............................................   17,995       --

Commitments and contingencies

Stockholder's equity:
 Common stock, par value of $.01. Authorized and outstanding
  1,000 shares .............................................      --        --
 Additional paid-in capital ................................  129,554   129,554
 Accumulated (deficit) earnings ............................   (7,919)    2,435
                                                             --------  --------
    Total stockholder's equity .............................  121,635   131,989
                                                             --------  --------
    Total liabilities and stockholder's equity.............. $310,461  $316,221
                                                             ========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       33
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 2000, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   2000      1999      1998
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Sales and services:
 Funeral sales and services .................... $ 32,299  $ 33,248  $ 31,923
 Cemetery sales and services ...................   44,284    52,744    49,361
                                                 --------  --------  --------
    Total sales and services ...................   76,583    85,992    81,284
                                                 --------  --------  --------
Cost of sales and services:
 Funeral sales and services ....................   23,712    22,345    20,660
 Cemetery sales and services ...................   31,883    34,388    32,208
                                                 --------  --------  --------
    Total cost of sales and services ...........   55,595    56,733    52,868
                                                 --------  --------  --------
    Gross profit................................   20,988    29,259    28,416
General and administrative expenses ............    7,582     7,143     7,399
Amortization of purchase price in excess of net
 assets acquired and other intangibles..........    3,704     3,707     3,752
                                                 --------  --------  --------
    Income from operations .....................    9,702    18,409    17,265
Interest expense ...............................  (16,148)  (15,979)  (16,526)
Finance income..................................    3,182     2,411     2,280
Income from settlement agreement................      --      2,500       --
                                                 --------  --------  --------
    (Loss) income before income taxes and
     cumulative effect of accounting change.....   (3,264)    7,341     3,019
Income tax (benefit) expense ...................     (377)    3,644     1,985
                                                 --------  --------  --------
Net (loss) income before cumulative effect of
 accounting change..............................   (2,887)    3,697     1,034
Cumulative effect of accounting change (net of
 income tax benefit of $4,862)..................   (7,467)      --        --
                                                 --------  --------  --------
    Net (loss) income .......................... $(10,354) $  3,697  $  1,034
                                                 ========  ========  ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       34
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2000, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                      2000     1999      1998
                                                    --------  -------  --------
<S>                                                 <C>       <C>      <C>
Cash flows from operating activities:
 Net (loss) income ...............................  $(10,354) $ 3,697  $  1,034
                                                    --------  -------  --------
 Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
  Depreciation and amortization ..................     7,977    7,675     6,846
  Amortization of deferred finance cost...........     1,757    1,757     1,757
  Amortization of cemetery property ..............     2,967    3,828     2,615
  Provision for bad debts and sales cancellation
   ...............................................     1,202    5,106     3,011
  Cumulative effect of change in accounting
   principle......................................     7,467      --        --
  Provision for deferred taxes ...................    (5,248)   2,433     1,906
  Loss on disposal of property and equipment......         1      260         9
  Changes in assets and liabilities, net of
   effects of acquisition transaction:
   Accounts receivable ...........................     1,643   (8,330)  (14,254)
   Inventories ...................................       (51)     (12)      (99)
   Prepaid expenses and other current assets .....     2,637     (354)   (1,902)
   Accounts payable and accrued liabilities ......      (617)  (5,891)    4,401
   Retirement plan liabilities ...................      (114)    (157)     (242)
   Net deferred revenue...........................    10,526      --        --
   Other assets and liabilities ..................    (5,742)  (2,106)   (1,012)
                                                    --------  -------  --------
     Net cash provided by operating activities ...    14,051    7,906     4,070
                                                    --------  -------  --------
Cash flows from investing activities:
 Capital expenditures ............................    (4,857)  (3,691)   (5,080)
 Cash paid for acquisitions, net of cash received
  ................................................       --       --       (776)
 Proceeds from disposal of property and
  equipment.......................................         4      250        39
                                                    --------  -------  --------
     Net cash used in investing activities .......    (4,853)  (3,441)   (5,817)
                                                    --------  -------  --------
Cash flows from financing activities:
 (Repayments of) proceeds from borrowings under
  Bank Credit Agreement...........................    (3,053)  (2,000)      507
 Increase (repayments) of other long-term debt ...       522   (1,452)      (51)
 Principal payments of capital lease obligations
  ................................................      (646)    (508)     (526)
                                                    --------  -------  --------
     Net cash used in financing activities .......    (3,177)  (3,960)      (70)
                                                    --------  -------  --------
     Net increase (decrease) in cash and cash
      equivalents ................................     6,021      505    (1,817)
Cash and cash equivalents at beginning of period
 .................................................     2,150    1,645     3,462
                                                    --------  -------  --------
Cash and cash equivalents at end of period .......  $  8,171  $ 2,150  $  1,645
                                                    ========  =======  ========
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
  Interest........................................  $ 14,401  $14,193  $ 14,730
  Income taxes ...................................       200      --        859
                                                    --------  -------  --------
Acquisition of businesses:
 Cash paid for acquisitions ......................       --       --        776
                                                    --------  -------  --------
 Cash paid for acquisitions, net of cash received
  ................................................       --       --   $    776
                                                    ========  =======  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2000, 1999 and 1998
                    (In thousands except for share amounts)

<TABLE>
<CAPTION>
                                     Additional                 Total
                           Shares     paid-in   Accumulated Stockholder's
                         outstanding  capital     Deficit      Equity
                         ----------- ---------- ----------- -------------
<S>                      <C>         <C>        <C>         <C>
Balance, December 31,
 1997...................    1,000     $129,554   $ (2,296)    $127,258
Net income..............      --           --       1,034        1,034
                            -----     --------   --------     --------
Balance, December 31,
 1998 ..................    1,000     $129,554   $ (1,262)    $128,292
Net income .............      --           --       3,697        3,697
                            -----     --------   --------     --------
Balance, December 31,
 1999...................    1,000     $129,554   $  2,435     $131,989
Net loss ...............      --           --     (10,354)     (10,354)
                            -----     --------   --------     --------
Balance, December 31,
 2000...................    1,000     $129,554   $ (7,919)    $121,635
                            =====     ========   ========     ========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       36
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business and Basis of Presentation

  The December 31, 2000 consolidated financial statements of Rose Hills
Company and subsidiaries (collectively the Company) (a wholly owned subsidiary
of Rose Hills Holding Corp.) (RH Holdings) include the accounts of RH Mortuary
Corporation (the Mortuary), RH Satellite Properties Corporation (the Satellite
Properties) and RH Cemetery Corporation (the Cemetery). The Company is the
successor to the operations of Roses, the Association and the Satellite
Properties, as described below under Acquisition Transaction. The Company had
no prior operations. RH Holdings was formed by Blackstone Capital Partners II
Merchant Banking Fund L.P. and affiliates (Blackstone), RHI Management Direct
L.P. (RHIMD) and the Loewen Group Inc. and affiliates (Loewen) (collectively
the Buyers), in order to purchase certain mortuary and cemetery operations
(the Acquisition Transaction) as discussed below.

  The Company operates 14 funeral homes, 3 funeral home and cemetery
combination properties and 1 cemetery property in the Southern California
area. Services offered at the locations include cemetery interment and
professional mortuary services, both of which include pre-need and at-need
sales. In addition, the Company sells caskets, memorials, vaults, flowers and
pre-need funeral insurance from which commissions are earned.

  The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America (GAAP) and the
prevailing practices within the cemetery and mortuary industry. All
significant intercompany accounts and transactions have been eliminated.

 Acquisition Transaction

  In connection with the Acquisition Transaction, Blackstone, RHIMD and Loewen
contributed to RH Holdings and RH Holdings contributed to the Company $106.6
million in cash ($107 million less $.4 million advanced by the Company to
RHIMD to finance its purchase of common stock of RH Holdings).

  Additionally, effective November 19, 1996, to finalize the capitalization
and structure of the Company, Loewen contributed to RH Holdings 14 funeral
homes and 2 combination funeral home and cemetery properties located in the
Southern California area (the Satellite Properties) which were valued at the
date of the Acquisition Transaction at $23 million. RH Holdings in turn
contributed these properties to the Company effective November 19, 1996.
Finally, the Company entered into the Bank Credit Agreement (see note 12) and
the sale of the senior subordinated notes was consummated (see note 12).

  Effective November 19, 1996, per terms of the merger agreement (the Merger
Agreement), the Company, through its subsidiary RH Mortuary Corporation,
acquired the common stock of Roses, Inc. (Roses), the predecessor mortuary, in
consideration of the payment of $59.9 million in cash after giving effect to
the repayment of outstanding indebtedness of Roses, Inc. Upon consummation of
the Merger Agreement, RH Mortuary Corporation was merged with and into Roses.

  The Company also paid a cash purchase price for certain assets, net of
certain liabilities, (the Asset Purchase Agreement) of Rose Hills Memorial
Park Association, the predecessor cemetery (the Association), in the amount of
$166.3 million (subject to downward adjustment under certain circumstances).

  In connection with the Acquisition Transaction described above, the Company
entered into a "Settlement Agreement" dated November 19, 1996 with the
Association to resolve amounts due/owed under an operation and management
agreement between the predecessor company and the Association as of November
18, 1996. On March 31, 1999, the Company and the Association finally
determined the amount due from the Company to the Association under the
Settlement Agreement. Under the final settlement, the Company paid to the

                                      37
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Association's successor the sum of $3.9 million, including interest of $0.8
million. The Company had accrued $6.4 million, including interest, for the
settlement, which resulted in a gain to the Company of $2.5 million in 1999.

  The assets acquired by the Company have been recorded at cost and, in the
case of the Satellite Properties, at fair value at the date of contribution.

 Reclassification

  Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation.

(2) Summary of Significant Accounting Policies

 (a) Use of Estimates

  The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and revenues and expenses and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 (b) Cash and Cash Equivalents

  Cash and cash equivalents are comprised of cash and short-term certificates
of deposit, with original maturities of three months or less.

 (c) Cemetery Operations

  Pre-need sales of cemetery interment rights are recognized in accordance
with the guidance of Statement of Financial Accounting Standards No. 66,
Accounting for the Sales of Real Estate (FAS 66). Accordingly, sales of
interment rights are recognized under the full accrual method, the percentage
of completion method, or the deposit method depending on the level of the
buyer's down payment and any continuing involvement the Company has in
developing sold property. Direct and acquisition costs of the sales are
deferred and recognized concurrent with the recognition of the deferred sales.

  Allowances for anticipated customer cancellations and refunds are provided
at the date of sale based on management's estimate of expected cancellations
using historical trends. Actual cancellation rates in the future may result in
a change in estimate.

  A portion of the proceeds from the sale of interment rights is required by
state law to be paid into the Endowment Care Fund to provide for the perpetual
care of the associated properties. Cemetery revenue is recorded net of these
amounts. Earnings of the Endowment Care Fund are used to defray the
maintenance costs of cemeteries. Additionally, pursuant to state law, the
proceeds from the sale of pre-need merchandise and services may also be
required to be paid into trust funds.

  It is the Company's policy to voluntarily trust 100% of pre-need service
revenue when contracts are paid in full. Also, the Company has an agreement
with a vendor to purchase pre-need merchandise when the sales contracts are
paid in full. Funds voluntarily trusted for pre-need cemetery services are
included in the consolidated financial statements as receivables from service
trust.

                                      38
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Effective January 1, 2000, the Company changed its method of accounting for
the pre-need sales of cemetery products and services. See note 3.

 (d) Pre-arranged Funeral Services

  Pre-arranged funeral services provide for future funeral services and are
generally determined by prices prevailing at the time the contract is signed.
The payments made under the contract are either placed in trust or are used to
pay the premiums of life insurance policies under which the Company will be
designated as beneficiary. The pre-need funeral insurance policies sold by the
Company are whole-life policies sold on a pre-need basis to pay for the cost
of funeral services. Commissions earned are based on a combination of factors,
such as the amount of funeral cost coverage sold, the age of the insured and
the volume of monthly sales activity. Insurance commissions earned and related
selling expenses are recognized when the policies are accepted by the
insurance company. Except for insurance commissions and amounts not required
to be trusted which are used to defray the initial costs of administration, no
income is recognized until the performance of a specific funeral.

  Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance
benefits, are deferred until the service is performed. The Company estimates
that trust fund investment earnings and annual insurance benefits exceed the
increase in cost over time of providing the related services. Upon performance
of the specific funeral service, the Company will recognize the trust fund
principal amount or insurance contract amounts together with the accumulated
trust earnings and annual insurance benefits as funeral revenues. Costs
relating to the sale of pre-arranged funeral services, including sales
commission expense, are expensed in the period incurred.

 (e) Receivables

  Receivables due from customers for cemetery property, merchandise and
services sold in advance of need are generally collected over one to seven
years and bear interest at the rate of 11.75% per annum. An allowance for
sales cancellations has been established to recognize that cemetery property
sold in advance of need, for which a minimum down payment is received, may be
subsequently cancelled. Accordingly, as of December 31, 2000 and December 31,
1999, allowance for sales cancellations totaled $2,223,000 and $2,981,000,
respectively. A provision of $1,717,000, $4,685,000, and $2,071,000 was
charged to cemetery sales to provide for estimated future cancellations for
the years ended December 31, 2000, 1999 and 1998, respectively.

  In addition, receivables due from customers for cemetery and mortuary goods
and services provided at the time of need are generally collected over a
period of one to five years bearing interest at the rate of 12% per annum. An
allowance for doubtful accounts has been established to recognize that a
portion of these types of receivables may not ultimately be collectible. As of
December 31, 2000 and 1999, the allowance for doubtful accounts totaled
$333,000 and $398,000, respectively.

  Finance income earned on long-term receivables is recognized on a current
basis.

 (f) Inventories

  Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.

 (g) Cemetery Property

  Cemetery property consists of developed and undeveloped cemetery property
and is valued at average cost, which is not in excess of market value. Amounts
are expensed to costs and expenses as sales of cemetery plots occur.

                                      39
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (h) Property and Equipment

  Property and equipment are valued at fair market value at the acquisition
date, with additions subsequent to the acquisition date recorded at cost and
depreciated on a straight-line basis over the estimated useful lives of the
assets as follows:

<TABLE>
     <C>                                <S>
     Building and improvements........  10 to 40 years
     Automobiles......................  4 to 6 years
     Furniture, fixtures and
      equipment.......................  10 years
     Computer hardware and software...  3 to 6 years
     Leasehold improvements...........  Life of the asset or term of the lease,
                                         whichever is shorter
</TABLE>

  Expenditures for maintenance and repairs are charged to operations as
incurred and expenditures for replacements and betterment are capitalized.

 (i) Goodwill

  The excess of purchase price over the fair value of identifiable net assets
acquired (goodwill) is being amortized by use of the straight-line method over
a 40-year period. As of December 31, 2000 and 1999, accumulated amortization
was $13,603,000 and $10,304,000, respectively.

 (j) Covenants Not to Compete

  Covenants not to compete included in "Other Assets" on the consolidated
balance sheets represent amounts prepaid or the present value of future
payments under noncompetition agreements with certain key management personnel
of acquired operations.

  Amortization of such covenants not to compete is provided by use of the
straight-line method over the terms of the relevant agreements, typically ten
years. As of December 31, 2000 and 1999, accumulated amortization of covenants
not to compete was $1,726,000 and $1,320,000, respectively.

 (k) Deferred Financing Cost

  Deferred financing costs relating to the bank senior-term loan and the
senior subordinated notes are being amortized over the life of the loan and
the notes based on the effective interest method. As of December 31, 2000 and
1999, accumulated amortization of these costs was $7,231,000 and $5,474,000,
respectively.

 (l) Derivative Instruments

  The Company enters into derivative transactions with financial institutions
only as hedges of other financial transactions and not for speculative
purposes. The Company's policies do not allow leveraged transactions and are
designed to minimize credit and concentration risk with counter parties.

 (m) Income Taxes

  The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date.

                                      40
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (n) Fair Value of Financial Instruments

  The carrying value of the Company's debt instruments approximates fair value
which is based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.

  The fair value of the Company's accounts and notes receivable in excess of
one year approximates carrying values and is determined as the present value
of expected future cash flows discounted at the interest rate currently
offered by the Company, which approximates rates currently offered for loans
with similar terms and collateral to borrowers with comparable credit risk.

  The carrying amounts of the remaining current assets and liabilities
approximate fair value because of the short-term nature of those accounts.

 (o) Impairment of Long-Lived Assets

  The Company assesses the carrying value of long-lived assets by comparing
their fair value to their carrying amounts. It recognizes impairment losses
for long-lived assets used in operations when indicators of impairment are
present and the undiscounted operating cash flows are not sufficient to
recover the assets' carrying amount.

 (p) Earnings (Loss) per Share

  Earnings (loss) per share have not been included, as the Company is a wholly
owned subsidiary.

(3) Change in Accounting Principles

  In response to the issuance of Staff Accounting Bulletin No.101 (SAB 101)
and consultation with the U.S. Securities and Exchange Commission, the Company
changed the following accounting principles effective January 1, 2000:

  Revenue recognition of pre-need interment rights are now accounted for in
accordance with FAS 66. The direct and acquisitions costs for the deferred
sales are now deferred and recognized concurrent with the recognition of the
deferred sales. Previously, the Company recognized the sale of pre-need
interment rights, and their related costs, at the time of sale.

  Revenue recognition of pre-need cemetery services and merchandise, and their
direct and acquisition costs, are now deferred until time of delivery or
performance of service. Previously, the Company recognized the sale of pre-
need service and merchandise, and their related costs, at the time of sale.

  Earnings realized by the cemetery service and merchandise trust funds are
now deferred until the underlying service and merchandise is delivered.
Previously, the Company recognized the earnings as they accrued.

  The cumulative effect of these changes in accounting principles on prior
years resulted in $12,329,000 decrease in net earnings before taxes and
$7,467,000 decrease in net earnings after taxes.


                                      41
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4) Prepaid Expenses and Other Current Assets

  Prepaid expenses and other current assets consist of the following at
December 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
                                                                   2000   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Due from insurance companies.................................. $  881 $1,239
   Due from Funeral Service Trust................................    106     35
   Due from Endowment Care Fund..................................    534    825
   Prepaid insurance.............................................    210    278
   Other.........................................................    909  2,900
                                                                  ------ ------
     Prepaid expenses and other current assets................... $2,640 $5,277
                                                                  ====== ======
</TABLE>

(5) Property and Equipment

  Property and equipment consist of the following at December 31, 2000 and
1999 (in thousands):

<TABLE>
<CAPTION>
                                                                 2000    1999
                                                                ------- -------
   <S>                                                          <C>     <C>
   Land........................................................ $ 8,261 $ 8,261
   Buildings and improvements..................................  41,980  41,395
   Furniture, fixtures and equipment...........................   7,798   7,155
   Vehicles....................................................   3,324   2,107
   Computers and computer software.............................   5,568   5,718
   Construction in progress....................................   6,187   4,064
                                                                ------- -------
     Total property, plant and equipment.......................  73,118  68,700
   Less accumulated depreciation...............................  13,248   9,408
                                                                ------- -------
     Property and equipment, net............................... $59,870 $59,292
                                                                ======= =======
</TABLE>

(6) Accounts Payable and Accrued Liabilities

  Accounts payable and accrued liabilities consist of the following at
December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                  2000   1999
                                                                 ------ -------
   <S>                                                           <C>    <C>
   Trade payables............................................... $1,359 $   189
   Interest.....................................................  1,346   1,248
   Property taxes...............................................  2,605   2,191
   Payroll and related costs....................................  1,110   1,760
   Other payables...............................................  1,312     990
   Other accrued expenses.......................................  2,027   3,999
                                                                 ------ -------
                                                                 $9,759 $10,377
                                                                 ====== =======
</TABLE>

(7) Derivative Financial Instruments

  The Company's policy is not to use derivative instruments for speculation.
The Company does not trade in financial instruments and is not a party to
leveraged derivatives.

                                      42
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The notional amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of the exposure of the Company
through the use of derivatives. The amounts exchanged during the term of the
derivatives are calculated on the basis of the notional amounts and the other
contractual conditions of the derivatives.

  The Company has entered into interest rate Collar Agreements, which
effectively set maximum and minimum interest rates on the principal amount of
Senior Debt (note 12), ranging from a floor of 5.5% (the Company would pay
5.5% even if rates fall below that level) to a maximum or cap of 6.5% through
December, 2000. The Collar Agreement was based on three-month LIBOR. The fair
value of the Collar Agreement at December 31, 1999 was a favorable $85,000.
The Collar Agreement had expired as of December 31, 2000.

  The counter-party to these contractual relationships is a major financial
institution with which the Company has other financial relationships. The
Company is exposed to credit losses in the event of non-performance by the
other parties to the interest rate Collar Agreements. However, the Company
does not anticipate non-performance by the other party, and no material loss
would be expected from non-performance of such counterpart.

(8) Cemetery Funds

 (a) Endowment Care Fund

  The Company, pursuant to state law, has placed the cemeteries under
endowment care. Therefore, when cemetery property is sold, an endowment care
charge is made for which a minimum amount is statutory. Charges are payable to
the Endowment Care Fund (the Fund), a separate 501(c)(13) organization, when
the total sales contract amount has been collected. Since a substantial
portion of pre-need cemetery property sales is made on an installment basis,
many of the charges are not due currently. Generally, the installment
receivables, including late charges, are collectible within one to seven
years. As of December 31, 2000 and 1999, amounts owed to the Funds, but not
yet due or collected from customers, amounted to $1,742,000 and $1,977,000,
respectively. The Funds' assets are invested under the direction of the Board
of Trustees of the Funds. The principal of the funds generally cannot be
withdrawn by the Company and therefore is not included on the consolidated
balance sheet. The change in net assets of the Funds, net of amounts required
to be withheld under state law, is paid by the Funds to the Company and is
used for the care, maintenance and embellishment of the cemeteries. As
allowable by state law, a portion of the undistributed capital gains of the
Funds has been reserved and is available to the Company at the discretion of
the Trustees for future maintenance, repair or restoration of property or
embellishment. The amounts earned by the Funds and transferred to the Company
are reported in the consolidated statements of operations and amounted to
$3,814,000, $3,770,000 and $3,791,000 for the years ended December 31, 2000,
1999 and 1998, respectively.

  Total assets of the Funds are $63,671,000 and $62,589,000 at December 31,
2000 and 1999, respectively, and consist primarily of cash and investments
carried at fair market value. Total liabilities of the Funds are $837,000 and
$1,123,000 at December 31, 2000 and 1999, respectively, which includes amounts
payable to the Company. Total net assets of $62,834,000 and $61,466,000 at
December 31, 2000 and 1999, respectively, resulted primarily from Funds'
deposits received or receivable from customers, capital gains (net of
transfers to reserves) and holding losses experienced by the Funds.

 (b) Special Care Funds

  In 1998, the Company established Special Care Funds (SCF) pursuant to state
law for the investment of proceeds from the sale of pre-need cemetery services
and merchandise. The Company's policy is to voluntarily

                                      43
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

set aside in trust, 100% of the pre-need service revenue when the contracts
are paid in full. American Funeral and Cemetery Trust Services is the trustee
of the Special Care Funds.

  Total assets of the SCF are $7,925,000 and $6,132,000 at December 31, 2000
and 1999, respectively, and consist primarily of cash and investments carried
at fair market value. Total liabilities of the SCF are $308,000 at December
31, 2000 and 1999, which includes amounts payable to the Company. Total net
assets of $7,617,000 and $5,824,000 at December 31, 2000 and 1999,
respectively, resulted primarily from SCF deposits received or receivable from
customers, capital gains (net of transfers to reserves) and holding losses
experienced by the SCF's.

(9) Pre-need Funeral Service Debentures

  From 1960 to 1975, the Association (the predecessor cemetery) sold pre-need
funeral service debentures at face amounts under subscription agreements,
which provided for the collection of the amount on an installment basis.
Debentures were issued in denominations of $125 each when installments of the
amount were collected. As of December 31, 2000 and 1999, the debentures
subscribed pursuant to the subscription agreements amounted to less than
$10,000. The Company may redeem the debentures at any time prior to maturity
at the face amount or the holders thereof may at any time apply the debentures
to the purchase price of funeral services and arrangements furnished by the
Company.

  Additionally, the subscription agreements may be canceled at any time by
either the Company or the subscriber. Interest on the debentures is calculated
at the rate of 3% per annum, is payable semiannually and continues to accrue
on debentures not presented for payment on their maturity date.

  Under the indenture and supplemental indentures, as amended, the Company is
required to make payments to a trustee of the fund to be used for the
retirement of the debentures at maturity or upon their application to the
purchase price of funeral services. Initial funding payments in amounts equal
to 25% of the face amount of debentures being issued were required at the time
of issuance. The issued and outstanding debentures at December 31, 2000,
equaling $609,000, have matured.

(10) Income Taxes

  The provision for income tax (benefit) expense is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000     1999   1998
                                                         -------  ------ ------
     <S>                                                 <C>      <C>    <C>
     Current:
      Federal........................................... $   --   $  792 $  --
      State.............................................       9     419     79
                                                         -------  ------ ------
         Total current..................................       9   1,211     79
                                                         -------  ------ ------
     Deferred:
      Federal...........................................  (4,676)  2,105  1,502
      State.............................................    (578)    328    404
                                                         -------  ------ ------
         Total deferred.................................  (5,248)  2,433  1,906
                                                         -------  ------ ------
         Total income tax (benefit) expense............. $(5,239) $3,644 $1,985
                                                         =======  ====== ======
</TABLE>

                                      44
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Differences between the provision for income tax (benefit) expense
(exclusive of the tax benefit related to the cumulative effect of the
accounting change) and income tax (benefit) expense at the statutory Federal
income tax rate are as follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000     1999   1998
                                                         -------  ------ ------
     <S>                                                 <C>      <C>    <C>
     Expected Federal tax (benefit) expense............. $(1,110) $2,496 $1,027
     Net tax effects of:
      Goodwill amortization.............................     702     712    709
      State taxes, net of Federal benefit...............    (190)    428    319
      Other.............................................     221       8    (70)
                                                         -------  ------ ------
         Actual income tax (benefit) expense............ $  (377) $3,644 $1,985
                                                         =======  ====== ======
</TABLE>

  The components of the net deferred tax balances at December 31, 2000 and
1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               2000     1999
                                                              -------  -------
     <S>                                                      <C>      <C>
     Deferred tax assets:
      Operating reserves..................................... $   735  $   --
      Retirement benefits....................................   1,486    1,585
      Other reserves.........................................     --     2,280
      Net operating loss.....................................   2,998      --
      Deferred revenue and other.............................   3,805      228
                                                              -------  -------
         Total deferred tax assets........................... $ 9,024  $ 4,093
                                                              -------  -------
     Deferred tax liabilities:
      Acquisition step up....................................  (2,804)  (2,977)
      Goodwill amortization..................................  (3,131)  (3,244)
      Depreciation...........................................  (1,801)  (1,772)
      Land...................................................    (803)    (863)
                                                              -------  -------
         Total deferred tax liability........................  (8,539)  (8,856)
                                                              -------  -------
         Net deferred tax asset (liability).................. $   485  $(4,763)
                                                              =======  =======
</TABLE>

  Based upon the level of historic taxable income and projections for future
taxable income during the periods over which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences at December 31, 2000.

(11) Related Party Transactions

 (a) Administrative Services Agreement

  In connection with the Acquisition Transaction, referred to in Note 1, the
Company engaged Loewen to provide certain administrative services and share
certain resources pursuant to an Administrative Services Agreement. Pursuant
to the Administrative Services Agreement, Loewen was to provide accounting
services, computer systems and support, telecommunications support, general
operations support, legal services, environmental compliance, regulatory
compliance, as well as expertise in management information systems, sales, tax
and fund management. As compensation for services provided under the
Administrative Services Agreement, Loewen was entitled to receive from the
Company, a minimum fee (the Administrative Services Fee)

                                      45
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

payable monthly in arrears and in an aggregate amount equal to $250,000
(subject to specified annual increases). The Company was also required to
reimburse Loewen for all out-of-pocket costs and expenses incurred from third
parties in connection with services performed pursuant to the Administrative
Services Agreement. For the years ended December 31, 2000, 1999 and, 1998, the
Company had recorded approximately $43,000, $258,000 and $250,000 for
Administrative Services Fee, respectively.

  In July 1999, the Company began proceedings to terminate the Administrative
Services Agreement due to a disagreement between Loewen and the Company with
respect to the value of services rendered under the Agreement. On February 4,
2000, the Company filed a motion in U.S. Bankruptcy Court for an order setting
a deadline for Loewen to assume or reject the Administrative Services
Agreement. On March 4, 2000, the parties agreed at a hearing to resolve the
motion through a stipulation and order. As a result of the order, effective
March 1, 2000, the Company is no longer obligated to pay Loewen for
administrative services under the agreement until such time Loewen exercises
and is granted its right to assume the agreement or the Company requests
services.

  Management believes that the Company has sufficient resources and expertise
to internally meet its needs for the type of services contemplated under the
Administrative Service Agreement.

  In December 2000, the Company rendered payment in full of all balances due
Loewen.

  As of December 31, 2000 and 1999, the Company had payables due to Loewen as
follows:

<TABLE>
<CAPTION>
                                                                  2000   1999
                                                                  ---- --------
   <S>                                                            <C>  <C>
   Administrative Service Agreement.............................. $ -- $289,000
   Other.........................................................   --  400,000
                                                                  ---- --------
   Total Payable to Loewen....................................... $ -- $689,000
                                                                  ==== ========
</TABLE>

 (b) Escrow Transaction

  In connection with the October 1999 sale of a vacant land parcel, previously
owned by Loewen, the entire sales price remained in escrow due to outstanding
title issues regarding ownership. Loewen held up resolution of the title issue
after the Company commenced proceedings to terminate the Administrative
Services Agreement with Loewen. Management believed the Company was the legal
owner of the property, and that it had the right to receive the proceeds from
the sale.

  In October 2000, the Company and Loewen entered into a settlement agreement
that resolved the dispute of the escrow. Pursuant to the settlement agreement,
which was approved by the U.S. Bankruptcy Court on November 12, 2000, the
Company received $454,000 from the escrow fund, net of amounts due Loewen for
the administrative services and other expenses.

 (c) Monitoring Fee

  The Company is required to pay annually a monitoring fee (the Monitoring
Fee) equal to $250,000 (subject to increases for inflation) to an affiliate of
a shareholder of the Parent Company. The Company has expensed the Monitoring
Fee of $250,000 for each of the three years ended December 31, 2000.

                                      46
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (d) Insurance Commissions

  In 1999, the Company earned insurance commissions totaling approximately
$482,000 from a subsidiary of Loewen. Effective May 1999, the Company changed
back to an unrelated insurance provider.

(12) Long-Term Debt

  Long-term debt consists of the following at December 31, 2000 and 1999 (in
  thousands):

<TABLE>
<CAPTION>
                                                             2000      1999
                                                           --------  --------
     <S>                                                   <C>       <C>
     Borrowings outstanding under Bank Credit Agreement,
      due November 2003................................... $ 68,534  $ 71,513
     Senior subordinated notes at 9.5%, due November 15,
      2004................................................   80,000    80,000
     Notes payable and liabilities under noncompete
      agreements bearing interest at rates ranging from
      7.46% to 9%. The notes and noncompete agreements
      have variable maturities ranging from 2001 through
      2007................................................    1,101     1,436
     Capital lease obligations............................    1,446     1,309
                                                           --------  --------
                                                            151,081   154,258
     Less current portion.................................   (7,842)   (3,832)
                                                           --------  --------
     Long-term debt....................................... $143,239  $150,426
                                                           ========  ========
</TABLE>

  At December 31, 2000, annual maturities of long-term debt consisted of the
following (in thousands):

<TABLE>
     <S>                                                                <C>
     Year ending December 31:
       2001............................................................ $  7,842
       2002............................................................    9,677
       2003............................................................   53,123
       2004............................................................   80,319
       2005............................................................       43
       Thereafter......................................................       76
                                                                        --------
                                                                        $151,081
                                                                        ========
</TABLE>

 Acquisition Transaction Debt

  The Company has a credit agreement (the Bank Credit Agreement) with a group
of financial institutions in Canada and the United States, which provides for
(1) a senior secured amortization extended term loan facility (the Bank Term
Facility) in an aggregate principal amount of $75.0 million and (2) a senior
secured revolving credit facility (the Revolving Credit Facility) in an
aggregate principal amount of $25.0 million, a portion of which may be
extended (as agreed upon) in the form of swing line loans or letters of credit
for the account of the Company.

  The Bank Credit Agreement contains certain affirmative and negative
covenants customary for this type of agreement and is guaranteed by the
Company, its subsidiaries and RH Holdings. All such guarantees are secured by
a first priority security interest of the capital stock of the Company and
each subsidiary and all inter-company receivables. The Company is required to
maintain certain defined financial ratios. The Company was in compliance with
all such requirements at December 31, 2000.

                                      47
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Borrowings under the Bank Term Facility bear interest at the Company's
option, at the reference rate (the Base Rate) of the agent acting on behalf of
the financial institutions plus 2%, or under a Eurodollar option, at a
reserve-adjusted Eurodollar rate (the Adjusted Eurodollar Rate) plus 3%. The
Bank Term Facility will mature seven years after the Acquisition and requires
semiannual installments aggregating $1.0 million in each of the first three
years after the Acquisition, $3.0 million in the fourth year after the
Acquisition, $7.0 million in the fifth year after the Acquisition, $9.0
million in the sixth year after the Acquisition and $53 million in the seventh
year after the Acquisition.

  As of December 31, 2000, the Company was paying interest at the Adjusted
Eurodollar Rate (6.6875%) plus 2.50% on its outstanding borrowings under the
Bank Term Facility. Additionally, the Company had entered into interest rate
Collar Agreements to limit its interest rate risk. Pursuant to the terms of
the interest rate Collar Agreements, the minimum and maximum Base Rate or
Adjusted Eurodollar interest rates range from 5.5% to 6.5%, respectively, for
the period from January 2, 1997 through December 1, 2000.

  Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at the Base Rate plus 1.75%, or the Adjusted Eurodollar Rate
plus 2.75%. The Company pays a commitment fee of .5% on the unused portion.
The Revolving Credit Facility is payable in full at maturity, with no prior
amortization. As of December 31, 2000, the Company had no borrowings under the
Revolving Credit Facility.

  The Company has $80.0 million of 9.5% senior subordinated notes payable due
November 15, 2004 (the Notes). There are no sinking fund requirements on the
Notes and they may not be redeemed until November 2000. At such date, they are
redeemable at the Company's option at 104.75% of principal amount, plus
accrued and unpaid interest, if any, to the redemption date, and thereafter,
at an annually declining premium over par until November 2003, when they are
redeemable at par. The indenture limits the payment of dividends and
repurchase of capital stock, and includes certain other restrictions on
indebtedness and limitations customary with subordinated indebtedness of this
type. The Company is in compliance with all such requirements as of December
31, 2000.

  The Company assumed liabilities under notes payable and non-compete
agreements from the Satellite Properties. The notes payable are secured by
land and bear interest at rates ranging from 7.46% to 8.00%. The non-compete
agreements consist of the net present value of future payments discounted at
9.00%.

 (13) Retirement Plans

  The Company has a defined benefit plan, a defined contribution plan,
supplemental employee retirement plan (SERP) and a retirement plan for the
Board of Trustees. All plans except for the defined contribution plan are
frozen.

 (a) Defined Benefit Plan

  The Company has a defined benefit plan, a defined contribution plan,
supplemental employee retirement plan (SERP) and a retirement plan for the
Board of Trustees. All plans except for the defined contribution plan are
frozen.

  The Retirement Plan for Employees of Rose Hills Mortuary, L.P. (the Plan) is
frozen. It is the intention to formally terminate the Plan at a later date.
Prior to the Acquisition Transaction, all employees of the Mortuary, which
employed all cemetery and mortuary employees, were participants in the Plan.
Participants became fully vested upon the freezing of the Plan. Employees may
elect to receive their pension benefits in the form of a single-life annuity
or a qualified joint and contingent annuity.

                                      48
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company has funded or accrued the present value of these benefits. The
Plan is subject to and in compliance with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). During 1995, the Plan received
a favorable letter of determination from the IRS.

  The change in benefit obligation included the following components (in
  thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Benefit obligation at January 1............................ $10,285  $11,250
   Service cost...............................................     --       --
   Interest cost..............................................     768      749
   Actuarial loss (gain)......................................     201   (1,168)
   Benefits paid..............................................    (566)    (546)
                                                               -------  -------
     Benefit obligation at December 31........................ $10,688  $10,285
                                                               =======  =======
</TABLE>

  The change in plan assets included the following components (in thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Fair value of assets at January 1.......................... $11,386  $11,494
   Actual return on plan assets...............................     925      438
   Employer contribution......................................     --       --
   Benefits paid..............................................    (566)    (546)
                                                               -------  -------
     Fair value of assets at December 31...................... $11,745  $11,386
                                                               =======  =======
</TABLE>

  The change in funded status included the following components (in
thousands):

<TABLE>
<CAPTION>
                                                              2000      1999
                                                            --------  --------
   <S>                                                      <C>       <C>
   Benefit obligation...................................... $(10,688) $(10,285)
   Plan assets at fair value...............................   11,745    11,386
   Unrecognized net actuarial gain.........................     (961)     (959)
                                                            --------  --------
     Prepaid pension cost.................................. $     96  $    142
                                                            ========  ========
</TABLE>

  The net pension cost included the following components (in thousands):

<TABLE>
<CAPTION>
                                                            2000   1999   1998
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Service cost--benefits earned during the period......... $ --   $ --   $ --
   Interest cost on projected benefits obligations.........   768    749    731
   Expected earnings on plan assets........................  (723)  (729)  (720)
                                                            -----  -----  -----
     Total net periodic pension cost....................... $  45  $  20  $  11
                                                            =====  =====  =====
</TABLE>

  The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.50%, 7.75% and 6.75% for 2000,
1999 and 1998, respectively. The expected long-term rate of return on assets
was 6.5% for 2000, 1999 and 1998.

                                      49
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (b) Defined Contribution Plan

  The Company also has a defined contribution plan, which has been qualified
under Section 401(k) of the Internal Revenue Service Code (the Savings Plan).
During 1995, the predecessor mortuary received a favorable letter of
determination from the Internal Revenue Service regarding the Savings Plan.
The Savings Plan permits participation by all employees of the Company who
have completed six months of continuous service, subject also to their entry
into the Savings Plan on enrollment dates of January 1 or July 1 of each year.
Participants may defer up to 15% of their compensation (subject to certain
limitations). In addition, to the amount of compensation deferred by
participants, the Company matches 50% of up to $4,000 contributed per year per
participant. Additionally, the Company may contribute to the trust for each
Plan year, beginning with the Plan year beginning January 1, 1997, such
amounts as the Board of Directors shall determine in its sole discretion. The
Company's contribution to this Savings Plan on behalf of the participants
amounted to $486,000 and $472,000 for the year ended December 31, 2000 and
1999, respectively.

 (c) Supplemental Employee Retirement Plan

  Three senior officers of Roses, the predecessor mortuary, had employment
agreements, which obligated Roses to provide these three employees with a
supplemental employee retirement plan (SERP). This non-qualified supplemental
pension plan covering certain employees provides for incremental pension
payments from Roses' funds so that the total pension payments would more
realistically approximate amounts that would have been payable from the Roses'
principal pension plan if it were not for limitations imposed by income tax
regulations. In conjunction with the Acquisition Transaction, the Company
assumed the SERP liability. The annual lifetime benefit is based upon a
percentage of salary during the final five years of employment, offset by
several other sources of income, up to age 62, at which time the benefit
becomes payable to the participant.

  The change in SERP benefit obligation included the following components (in
thousands):

<TABLE>
<CAPTION>
                                                               2000     1999
                                                              -------  -------
   <S>                                                        <C>      <C>
   Benefit obligation at January 1........................... $ 3,846  $ 4,234
   Interest Cost.............................................     291      282
   Actuarial loss (gain).....................................     122     (495)
   Benefits paid.............................................    (175)    (175)
                                                              -------  -------
     Benefit obligation at December 31....................... $ 4,084  $ 3,846
                                                              =======  =======

  The change in SERP plan assets included the following components (in
thousands):

<CAPTION>
                                                               2000     1999
                                                              -------  -------
   <S>                                                        <C>      <C>
   Fair value of assets at January 1......................... $   --   $   --
   Employer contributions....................................     175      175
   Benefits paid.............................................    (175)    (175)
                                                              -------  -------
     Fair value of assets at December 31..................... $   --   $   --
                                                              =======  =======

  The change in SERP funded status included the following components (in
thousands):

<CAPTION>
                                                               2000     1999
                                                              -------  -------
   <S>                                                        <C>      <C>
   Benefit obligation........................................ $(4,084) $(3,846)
   Unrecognized net actuarial gain...........................  (1,262)  (1,415)
                                                              -------  -------
     Accrued pension cost.................................... $(5,346) $(5,261)
                                                              =======  =======
</TABLE>

                                      50
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The net SERP pension cost included the following components (in thousands):

<TABLE>
<CAPTION>
                                                            2000   1999   1998
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Service cost at end of year............................. $ --   $ --   $ --
   Interest cost...........................................   291    282    275
   Gain....................................................   (40)   (18)   (30)
                                                            -----  -----  -----
     Total net pension cost................................ $ 251  $ 264  $ 245
                                                            =====  =====  =====
</TABLE>

  The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.50%, 7.75% and 6.75% for 2000,
1999 and 1998, respectively. The expected long-term rate of return on assets
was 6.5% for 2000, 1999 and 1998.

  To fund the SERP obligations, the Company has procured whole-life insurance
policies. The Company is the owner and beneficiary of these policies with an
aggregate face amount of $7.0 million. The cash surrender value of the
Company's share of the policies is reflected in the consolidated balance
sheets under other assets and amounted to $2,021,000 and $1,649,000 as of
December 31, 2000 and 1999, respectively.

 (d) Board of Trustees' Plan

  The Association had a retirement plan (the Trustees' Plan) covering each
eligible member of the Association's Board of Trustees (Trustee). Per terms of
the Asset Purchase Agreement, the Company has assumed this liability. As a
result of the Acquisition Transaction, the Trustees' plan was frozen as of
December 31, 1996. Participants became fully vested upon the freezing of the
Plan.

  The Company has accrued the present value of these benefits. The Company
Plan is subject to and in compliance with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).

  The change in benefit obligation included the following components (in
thousands):
<TABLE>
<CAPTION>
                                                                  2000    1999
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Benefit obligation at January 1.............................. $1,726  $1,926
   Service cost.................................................    --      --
   Interest cost................................................    120     122
   Actuarial loss...............................................     34      28
   Benefits paid................................................   (350)   (350)
                                                                 ------  ------
     Benefit obligation at December 31.......................... $1,530  $1,726
                                                                 ======  ======

  The change in plan assets included the following components (in thousands):
<CAPTION>
                                                                  2000    1999
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Fair value of assets at January 1............................ $  --   $  --
   Employer contributions.......................................    350     350
   Benefits paid................................................   (350)   (350)
                                                                 ------  ------
     Fair value of assets at December 31........................ $  --   $  --
                                                                 ======  ======
</TABLE>

                                      51
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The change in funded status included the following components (in
thousands):
<TABLE>
<CAPTION>
                                                               2000     1999
                                                              -------  -------
   <S>                                                        <C>      <C>
   Benefit obligation........................................ $(1,530) $(1,726)
   Unrecognized net actuarial loss...........................     302      284
   Additional liability......................................    (302)    (284)
                                                              -------  -------
     Accrued pension cost.................................... $(1,530) $(1,726)
                                                              =======  =======
</TABLE>

  The net pension cost included the following components (in thousands):

<TABLE>
<CAPTION>
                                                              2000  1999  1998
                                                              ----- ----- -----
   <S>                                                        <C>   <C>   <C>
   Service cost at end of year............................... $ --  $ --  $ --
   Interest cost.............................................   120   122   140
   Gain......................................................    16    16     3
   Prior service cost........................................   --    --    --
                                                              ----- ----- -----
     Total net pension cost.................................. $ 136 $ 138 $ 143
                                                              ===== ===== =====
</TABLE>

  The weighted average discount rate used in determining the actual present
value of the projected benefit obligation was 7.50% for 2000, 7.75% for 1999
and 6.75% for 1998.

 (e) Deferred Compensation

  Certain retired senior executives of the Association participated in a
nonqualified supplemental deferred compensation program. Per terms of the
Asset Purchase Agreement, the Company has assumed this liability. Annual
payments are immaterial and are expensed as paid.

(14) Funeral Service Trust Agreements

  The Company sells, on a limited basis, Funeral Service Trust Agreements to
consumers (the "Trustor"). These trust agreements are sold generally on an
installment basis and funds derived therefrom earn income subject to certain
limitations. Trusts may be terminated at any time with all principal and
accumulated net income being distributed to the Trustor. The Trustor may at
any time apply the trust amount to the purchase price of funeral services and
arrangements furnished by the Company and/or to cemetery property, services
and commodities provided by the Association. The amounts relating to these
trusts are not included in the accompanying consolidated financial statements;
however, administration fees earned by the Company are reflected in the
consolidated statements of operations.

(15) Commitments under Lease Agreements

  As of December 31, 2000, the future minimum lease obligation pursuant to
operating lease agreements is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       Operating
                                                                        leases
                                                                       ---------
       <S>                                                             <C>
       Year ending December 31:
         2001.........................................................  $  629
         2002.........................................................     577
         2003.........................................................     240
                                                                        ------
           Total minimum lease obligation.............................  $1,446
                                                                        ======
</TABLE>


                                      52
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Rental expense under operating lease agreements for the years ended December
31, 2000, 1999 and 1998 was $877,000, $856,000 and $778,000, respectively.

(16) Purchase Commitments

  In September 1992, the predecessor cemetery (the Association) and the local
County Sanitation District (the District) entered into an agreement (the
Agreement) whereby the Association agreed to construct a reclaimed water
storage reservoir (the Reservoir) with a capacity of 1.2 million gallons, one-
half of which would be made available to the District for its use at a site
located adjacent to the cemetery. The cost of the Reservoir, which was
completed during 1994, totaled $471,000. The Company is obligated, under this
Agreement, as successor to the Association.

  The District has agreed to pay its proportionate share of the capital costs
associated with the Company's construction of the Reservoir. The District's
share of such costs is based on the proportion of the Reservoir's designed
capacity required for the Company to provide reclaimed water storage for the
District. Annual payment of such amounts will be equal to 1/20th of the
District's share and will reduce the annual payment made by the Company to the
District for its share of the reclaimed water transmission system described
above.

  The District agreed to construct a reclaimed water transmission system to
transport reclaimed water from its existing water reclamation plant to the
Company's Reservoir. The reclaimed water transmission system was completed in
1997. The Company has agreed to pay its proportionate share of the capital
costs incurred by the District in constructing the reclaimed water
transmission system. Such proportionate share will be determined based on the
percentage of peak flow design capacity required by the Company to the total
peak flow design capacity of the transmission facilities. The Company's
proportionate share is approximately $1,900,000. The Company's annual payment
of such costs is to be equal to 1/20th of its proportionate share of the
capital costs.

  The Company and the District have also agreed to reimburse the other for
operating and maintenance costs associated with the Reservoir and the
reclaimed water transmission system based on criteria outlined in the
Agreement.

(17) Commitments and Other Matters

 (a) Transaction with the International Buddhist Progress Society

  During 1994, the predecessor cemetery sold the exclusive interment rights on
an undeveloped parcel of land located on the property to the International
Buddhist Progress Society (IBPS), an unrelated organization. In exchange for
the interment rights, IBPS agreed to pay the predecessor cemetery $1,405,000,
of which $160,000 was received as a deposit during 1994. It was determined
that because, among other matters, the interment rights were sold on a parcel
of land that was not ready for the purpose for which it was sold, the earnings
process was not complete and revenue and expense recognition relating to the
transaction should be deferred until such time IBPS has completed a
significant portion of the project. In 1999, the construction of the
columbarium was completed and ready for inurnments. Accordingly, the Company
recorded the sale in the fourth quarter of 1999. The $1,245,000 unpaid portion
of the sales price is to be paid in quarterly installments beginning April
2000 with the final payment due January 2003.

  Subsequent to the year ended December 31, 2000, IBPS notified the Company
that it would exercise its option to build a second columbarium on a 2.7 acre
site for $2.0 million payable in full when the option is exercised.

                                      53
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (b) General

  The Company has employment agreements with its executive officers, the terms
of which expire at various dates. Such agreements provide for minimum salary
levels, as well as incentive bonuses, which are payable if specified
management goals are attained.

 (c) Phantom Equity Appreciation Plan

  In June 2000 the Board of Directors of the Rose Hills Company met in a
special session and approved the Rose Hills Phantom Equity Appreciation Plan
(Plan). The purpose of the Plan is to promote the interests of the Company and
its stockholders by attracting and retaining officers and other key employees
and motivate such individuals to maximize stockholder value by awarding
opportunities based upon future appreciation in the value of the Company.

  The Plan established a bonus pool, the aggregate amount of which shall be
equal to ten (10) percent of the excess of (i) the product of six times EBITDA
for the exit year of the Plan (2003) over the product of six times EBITDA for
the base year of the Plan (1997), and (ii) all debt for the exit year of the
Plan over the base year. As of December 31, 2000 the Company accrued
approximately $.6 million for potential payments under the plan. Under the
terms of the Plan a "Committee" was formed consisting of three Board Members
to administer, interpret, and make individual awards under the Plan. The Plan
contains annual vesting provisions based on time and performance measures.
Vesting accelerates upon a change in control where any party acquires over 50%
of the outstanding stock of Rose Hills Holdings, Corp.

 (d) Potential Change in Control

  In November 2000 Loewen and Blackstone reached a tentative agreement where
Loewen will acquire 100% of Blackstone's interest in Rose Hills Holdings,
Corp. The tentative agreement is ultimately subject to approval by the U.S.
Bankruptcy Court that has jurisdiction over the Loewen Bankruptcy proceedings.

(18) Subsequent Event

  On March 20, 2001, the Board of Directors resolved, in contemplation of
Loewen's acquisition of 100% of Blackstone's Rose Hills Holding Corp. stock,
to award specific amounts to certain members of management a bonus opportunity
under the Phantom Equity Appreciation Plan upon a change in control. In the
event that the change in control occurs on or prior to December 31, 2001, the
Phantom Equity Appreciation Plan will be terminated and only the bonus
opportunity will be paid under the Plan. The aggregate amount of the bonus
opportunity award will not exceed $2.5 million. If a change in control as
contemplated does not occur on or before December 31, 2001 the awards expire
and the Phantom Equity Appreciation Plan will continue as originally intended.

(19) Contingencies

  The Company is involved in certain matters of threatened and filed
litigation, none of which, in the judgment of management, will have a material
impact on its consolidated financial position or results of operations.

  Management is aware that Rose Hills' cemetery may have been contaminated
when a portion of the cemetery was used to dispose of waste products prior to
1978. The cost to remediate the waste disposal area is not known; however,
under the terms of the asset purchase agreement, the Seller assumed all
liability to

                                      54
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

remediate the property. The Company and the Association are currently in
discussions regarding a final remediation plan acceptable to the local water
board agency.

  During August and September 2000, the Company discovered that there had been
some land movement in a portion of Rose Hills Memorial Park. The affected area
represents approximately 13 acres of the Park's approximately 1,418 total
acres, and consists of approximately 12,000 interment sites. The Company has
hired outside geo-technical and engineering consultants to study the affected
area, to identify the underlying cause and the extent of the land movement,
and to make recommendations with regard to both short-term and long-term
remediation and stabilization measures. While the Company and its consultants
are continuing to assess the situation, the Company currently believes that
accumulated rainfall and drainage conditions may have contributed to the land
movement.

  The Company's consultants advised that the affected area could continue to
move, particularly in the event of heavy rainfall during the winter months.
Accordingly, during October 2000, the Company began to take some intermediate
remediation measures, including the installation of additional dewatering
wells in the affected area and the relocation to other areas of the Park (at
the Company's expense) of approximately 140 interred remains that were in the
most severely impacted portion of the affected area. Such expenses could
increase if significant further movement is detected in the affected area or
if additional families request the relocation of interred remains from the
affected area.

  The Company expects the geo-technical study to be completed by April 2001.
Until it receives a final report from its consultants, the Company cannot
determine or give assurances as to the cause or extent of the land movement,
the cost of short-term and long-term remediation and stabilization measures,
or whether the affected area can be restored to a condition that is suitable
for interments. The Company intends to seek reimbursement from its Endowment
Care Fund (ECF) for a significant portion of the repair, maintenance and
remediation costs associated with the affected area.

  The Company estimated that total direct costs of relocating interred remains
in the entire affected area could approximate $1.0 million. In 2000, the
Company applied for and received approximately $0.5 million from the ECF for
costs related to the initial relocation of interred remains and installation
of additional dewatering wells. As of December 31, 2000 the ECF had available
$2.1 million in reserves available for remediation and relocation expenses.

  In connection with the November 19, 1996 Acquisition Transaction, the Rose
Hills Memorial Park cemetery land was subject to a significant step-up in
assessed value by the County of Los Angeles. Prior to the Transaction, the
Cemetery was operated as a not-for profit corporation and was largely exempt
from property taxes. In connection with the Transaction, the Company obtained
an independent appraisal of the fair value of the undeveloped and unsold
cemetery property. In early 1998, the Company also engaged an independent
property tax consultant to prepare an estimate of the fair value of the
property to assist in the process.

  In July 2000, the County of Los Angeles completed its property tax
reassessment reflecting its opinion of the fair value of Rose Hills' cemetery
property at the Transaction date. The County placed a fair value on the
cemetery property that is approximately 60% higher than the independent
appraisal prepared by the property tax consultant and approximately 50% higher
than the fair market value computed by the independent appraiser at the time
of the Transaction. The Company filed an assessment appeal with the Los
Angeles County Assessor, however, the supplemental tax based on the
reassessment must be paid during the appeal process. The total supplemental
property tax assessed by the County for the period November 1996 to September
2000 is approximately $2.5 million greater than the amount accrued by the
Company using the independent property tax appraisal. A large portion of the
supplemental tax bill is payable, interest-free, over four years.

                                      55
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company believes, based in part on the advice of its property tax
advisors, that it can obtain a significant reduction in assessed value during
the appeal process. However, there is no assurance that the appeal will
succeed. In the event the Company does not prevail upon appeal, the Company
will pursue other administrative procedures, including filing for a reduction
in assessed value under California's Proposition 8, which requires the County
to reduce assessed values when declines deemed other than temporary occur.

(20) Segment Information

  The Company's reportable segments are comprised of the two businesses it
operates, each of which offers different products and services: funeral homes
and cemeteries. The funeral home segment is an aggregation of funeral home and
funeral plan operations.

  The funeral homes offer a full range of funeral services, encompassing the
collection of remains, registration of death, professional embalming, use of
funeral home facilities, sale of caskets and other merchandise, and
transportation to the place of worship, funeral chapel, cemetery or
crematorium. In addition to providing at-need funeral services, the Company
sells insurance contracts for which it receives commission revenue.

  The cemeteries assist families in making burial arrangements and offer a
complete line of cemetery products (including a selection of burial spaces,
burial vaults, lawn crypts, caskets, memorials, niches and mausoleum crypts),
the opening and closing of graves and cremation services. The majority of
cemetery revenue is from pre-need sales.

  The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company sells entirely to
external customers. The Company evaluates performance based on earnings from
operations of the respective businesses. The Company does not allocate income
taxes or other corporate expenses to the operating segments. Segment
information for 1999 and years previous, do not reflect any adjustment for the
effects of SAB 101.

<TABLE>
<CAPTION>
                                                     Funeral  Cemetery  Total
   (In thousands)                                    -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Revenues from external customers:
     2000........................................... $ 32,299 $ 44,284 $ 76,583
     1999...........................................   33,248   52,744   85,992
     1998...........................................   31,923   49,361   81,284
   Gross profit:
     2000...........................................    8,587   12,401   20,988
     1999...........................................   10,903   18,356   29,259
     1998...........................................   11,263   17,153   28,416
   Depreciation:
     2000...........................................    2,697    1,576    4,273
     1999...........................................    2,411    1,557    3,968
     1998...........................................    1,660    1,299    2,959
   Total assets:
     2000...........................................   96,015  195,181  291,196
     1999...........................................  100,796  197,634  298,430
   Capital Expenditures:
     2000...........................................    1,694    2,775    4,469
     1999...........................................    1,741    1,341    3,082
     1998...........................................    2,288    2,392    4,680
</TABLE>

                                      56
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table reconciles gross profit of reportable segments to (loss)
income before income taxes:

<TABLE>
<CAPTION>
                                                    2000      1999      1998
                                                  --------  --------  --------
   <S>                                            <C>       <C>       <C>
   Gross profit of reportable segments..........  $ 20,988  $ 29,259  $ 28,416
     Corporate general and administrative
      expenses..................................    (7,582)   (7,143)   (7,399)
     Amortization of intangible assets..........    (3,704)   (3,707)   (3,752)
                                                  --------  --------  --------
   Total income from operations.................     9,702    18,409    17,265
     Interest expense...........................   (15,729)  (15,979)  (16,526)
     Finance income.............................     2,763     2,411     2,280
     Income from settlement agreement...........       --      2,500       --
                                                  --------  --------  --------
       (Loss) income before taxes and cumulative
        effect of change in accounting
        principle...............................  $ (3,264) $  7,341  $  3,019
                                                  ========  ========  ========
</TABLE>

  The following table reconciles total assets of reportable segments to
consolidated total assets:

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
   <S>                                                        <C>      <C>
   Assets of reportable segments............................. $291,196 $298,430
   Cash in corporate bank accounts...........................    8,171    2,150
   Deferred tax asset........................................    3,550    3,508
   Corporate capital assets..................................      --       --
   Deferred finance costs....................................    5,777    7,534
   Other.....................................................    1,767    4,599
                                                              -------- --------
     Total consolidated assets............................... $310,461 $316,221
                                                              ======== ========
</TABLE>

                                       57
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
           (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(22) Quarterly Financial Data

<TABLE>
<CAPTION>
Year Ended December 31, 2000(1)                  First   Second  Third   Fourth
-------------------------------                  ------  ------  ------  ------
<S>                                              <C>     <C>     <C>     <C>
Sales and Services:
  Funeral.......................................  9,137   7,108   7,864   8,190
  Cemetery...................................... 10,825  10,940   9,352  13,167
                                                 ------  ------  ------  ------
    Total....................................... 19,962  18,048  17,216  21,357
Gross Profit:
  Funeral.......................................  3,224   1,549   1,990   1,824
  Cemetery......................................  3,017   3,634   2,687   3,063
                                                 ------  ------  ------  ------
    Total.......................................  6,241   5,183   4,677   4,887
Net Loss........................................ (7,460)    (65) (1,861)   (968)
                                                 ======  ======  ======  ======
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31, 1999                            First  Second Third  Fourth
----------------------------                            ------ ------ ------ ------
<S>                                                     <C>    <C>    <C>    <C>
Sales and Services:
  Funeral..............................................  8,954  8,028  7,523  8,743
  Cemetery............................................. 12,263 12,784 12,538 15,159
                                                        ------ ------ ------ ------
    Total.............................................. 21,217 20,812 20,061 23,902
Gross Profit:
  Funeral..............................................  3,398  2,403  2,198  2,904
  Cemetery.............................................  4,463  5,116  4,223  4,554
                                                        ------ ------ ------ ------
    Total..............................................  7,861  7,519  6,421  7,458
Net Income.............................................  2,380    731    270    316
                                                        ====== ====== ====== ======
</TABLE>
--------
(1) The first, second and third quarters of fiscal 2000 have been restated
    from the Company's respective Quarterly Reports on Form 10-Q to reflect
    the Company's change in accounting principle effective January 1, 2000.

                                      58
<PAGE>

                      ROSE HILLS COMPANY AND SUBSIDIARIES
            (A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                         Balance at Charged to Charged to                Balance at
                         beginning  costs and     other                    end of
      Description        of period   expenses  accounts(1) Deductions(2)   period
      -----------        ---------- ---------- ----------- ------------- ----------
                                         (in thousands of dollars)
<S>                      <C>        <C>        <C>         <C>           <C>
Allowance for contract
 cancellations and
 doubtful accounts:
 Current:
  Year ended December
   31, 2000 ............   1,338        269        (80)       (1,015)        807
  Year ended December
   31, 1999 ............   1,127      1,248         32        (1,069)      1,338
  Year ended December
   31, 1998 ............   1,253      1,325        (77)       (1,374)      1,127

 Long-term:
  Year ended December
   31, 2000 ............   2,041        933       (321)       (1,346)      1,749
  Year ended December
   31, 1999 ............   1,433      3,858         98        (3,348)      2,041
  Year ended December
   31, 1998 ............   1,594      1,686        (98)       (1,749)      1,433
</TABLE>
--------
(1) Primarily consists of reclassifications to other accounts.

(2)Uncollected receivables written off, net of recoveries.

                                       59
<PAGE>

                                  Signatures

  Pursuant to the requirements of Section 13 or 15(d) 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.

                                          Rose Hills Company

                                                 /s/ Kenton C. Woods
                                          _____________________________________
                                                     Kenton C. Woods
                                           Executive Vice President, Finance,
                                                Chief Financial Officer,
                                                 Secretary and Treasurer

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                 Signature                            Title                 Date
                 ---------                            -----                 ----

<S>                                         <C>                        <C>
            /s/ Dillis R. Ward              President, Chief Executive March 23, 2001
___________________________________________  Officer and Director
              Dillis R. Ward

           /s/ Kenton C. Woods              Executive Vice President,  March 23, 2001
___________________________________________  Chief Financial Officer,
              Kenton C. Woods                Secretary and Treasurer
                                             (Principal Financial
                                             Officer)

           /s/ Mary C. Guzman               Vice President, Controller March 23, 2001
___________________________________________  (Principal Accounting
              Mary C. Guzman                 Officer)

          /s/ Dennis C. Poulsen             Chairman and Director      March 23, 2001
___________________________________________
             Dennis C. Poulsen

           /s/ Howard A. Lipson             Director                   March 23, 2001
___________________________________________
             Howard A. Lipson

            /s/ Chinh E. Chu                Director                   March 23, 2001
___________________________________________
               Chinh E. Chu

            /s/ David I. Foley              Director                   March 23, 2001
___________________________________________
              David I. Foley

              /s/ John Lacey                Director                   March 23, 2001
___________________________________________
                John Lacey

             /s/ Bradley Stam               Director                   March 23, 2001
___________________________________________
               Bradley Stam

           /s/ Michael G. Weeden            Director                   March 23, 2001
___________________________________________
             Michael G. Weeden
</TABLE>

                                      60