<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, 1996

                                      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                    (I.R.S. Employer
of 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 24, 2000, was 1,000.

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<PAGE>

                               TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
  Item
 Number                                                                    Page
 ------                                                                    ----
 <C>    <S>                                                                <C>
  1.    BUSINESS .......................................................     3
  2.    PROPERTIES .....................................................     8
  3.    LEGAL PROCEEDINGS ..............................................     9
  4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS ............     9

                                    PART II

  5.    MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS ........    10
  6.    SELECTED FINANCIAL DATA ........................................    10
  7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS .........................................    12
  7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....    17
  8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................    17
  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE ..........................................    17

                                    PART III

 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .............    18
 11.    EXECUTIVE COMPENSATION .........................................    19
 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..    20
 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................    21

                                    PART IV

 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
        ................................................................    24
</TABLE>

                                       2
<PAGE>

                                    PART I

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 "Mortuary") and
purchasing certain assets and assuming certain liabilities of Rose Hills
Memorial Park Association and Workman Mill Company (the "Association" and the
assets and liabilities purchased there from, the "Cemetery"). Also, in
connection with the acquisition, a subsidiary of The Loewen Group Inc. (The
Loewen Group Inc. collectively with its affiliates, "Loewen"), a shareholder
of RH Holdings, contributed 14 funeral homes and 2 funeral home cemetery
combination properties (the "Satellite Properties"). As a result of these
acquisitions (collectively "Acquisition Transaction"), the Company is the
successor to the operations of the predecessor Mortuary and Cemetery.

  The Cemetery and the Mortuary (collectively, "Rose Hills") are located on
the grounds of the Cemetery, Rose Hills Memorial Park. Rose Hills is the
largest single location cemetery 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. The Cemetery and Mortuary have been continuously operating since
1914 and 1956, respectively. As a result of the Acquisition Transaction the
Company owns a strategic assembly of cemeteries and funeral homes in the
greater Los Angeles area.

  In 1997, the integration of the Satellite Properties with Rose Hills
effected through the Acquisition Transaction enabled the Company to begin to
take advantage of the benefits of "hub and spoke clustering,' including
opportunities to share personnel, vehicles and other key resources, and
implement revenue enhancing cross-marketing programs. In addition, the Company
intends to leverage Rose Hills' outstanding reputation in the region by using
the Rose Hills name at many of the Satellite Properties.

ACQUISITION TRANSACTION

  On September 19, 1996, the Company entered into an Agreement and Plan of
Merger with Roses, Inc. (the "Merger Agreement") providing 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, ("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 the assets and assume the
liabilities constituting 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, 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.

                                       3
<PAGE>

  In connection with the Acquisition Transaction, (i) Blackstone and Loewen
contributed to RH Holdings and RH Holdings contributed to the Company $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) in cash; (ii) the Company acquired the Mortuary in consideration
of the payment of $59.9 million in cash (subject to downward adjustment under
certain circumstances) after giving effect to the repayment of outstanding
debt of the Mortuary; (iii) the Company paid a cash purchase price for the
Cemetery in the amount of $166.3 million in cash (subject to downward
adjustment under certain circumstances); borrowings under the Bank Credit
Agreement was entered into; and (vi) the sale of the Senior Subordinated Notes
due 2004 was consummated. (See Item 7, "Liquidity and Capital Resources.")

THE FUNERAL SERVICE AND CEMETERY INDUSTRY AND LOCAL CHARACTERISTICS

  The Company believes that the death care industry has attractive fundamental
long-term characteristics. In the last 15 years, demand 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 continued 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 15 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. The funeral service and cemetery
industry has been characterized by low business risk compared with most other
businesses. According to preliminary figures from The Dun & Bradstreet
Corporation, the average business failure rate in the United States is
approximately 88 per 10,000. The failure rate of the funeral service and
crematoria industry is approximately 19 per 10,000, 78% lower than the average
rate and among the lowest of all industries. This low failure rate can be
attributed to a number of factors, including stable demand in the industry,
positive demographic trends and the low rate of new market entrants due to the
length of time required to establish community acceptance.

  In the last several decades several large "consolidators", who have sought
to make profits by acquiring a large number of smaller funeral homes and
cemeteries, have emerged. 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, who competes directly in the Company's market,
announced plans to significantly curtail its acquisition activity. The second
largest consolidator and approximately 20% owner of the Company, The Loewen
Group Inc., filed for protection from its creditors under Chapter 11 of the
United States Bankruptcy Code on June 1, 1999, eliminating its own acquisition
strategy. The third largest Consolidator, Stewart Enterprises, Inc. also
announced significant reductions in its acquisition strategy. The curtailment
of acquisitions by the large consolidators is likely to reduce their expansion
in the Company's immediate market area. In addition, Management believes the
reduction in acquisitions have reduced acquisition multiples for funeral 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 9.6 million people (over 3
million households) in 1997. Approximately 18% of this population was age 55
or older, 14% age 65 or older, and 5% 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. Early data
for 1999 indicate a 3% increase in deaths for Los Angeles County.

                                       4
<PAGE>

 Mortuary Operations

  The Mortuary 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. The Mortuary has the current
capacity to provide over 30 funeral services per day. In 1999, the Mortuary
performed approximately 5,100 funeral calls.

  The Mortuary began operations in 1956, when the Association recognized that
additional revenue opportunity existed in funeral operations. As the
division's success continued, the Mortuary was spun off in 1976 as a taxable,
for profit, wholly-owned subsidiary of Rose Hills Memorial Park Association
("the Association"). In 1990, the Association sold the Mortuary business to
senior management in a leveraged buyout transaction. During the period from
October 1989 through November 19, 1996, pursuant to a Management Agreement,
the Mortuary also operated the Cemetery.

  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 but does not recognize funeral service revenue related to
the contracted services until such services are provided, although it does
recognize commission income and related 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. Prior to 1987, the Mortuary also
offered trust-backed and debenture-backed pre-need products.

  Other funeral home locations consist of 14 funeral homes and two combination
properties located in Los Angeles, San Bernardino and northern Orange Counties
which 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 1999,
total revenues from at-need services accounted for 90% of mortuary revenue and
34% of total Company revenue. The remaining 10% of mortuary revenue is derived
from insurance commissions and trust income. 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 19 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, 415 of which have been
developed and sold, 291 of which are developed 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 8,700 occurred in 1999. 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.

                                       5
<PAGE>

  Pre-need sales of cemetery interment rights and other related products and
services are recognized as revenue when the customer contracts are signed with
concurrent recognition of related costs.

  The Company voluntarily trusts 100% of pre-need cemetery service revenue
when the sales contracts are 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
included in the consolidated financial statements.

  The Company funds its obligation to maintain cemetery grounds by placing a
portion, generally $60 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 newly
constructed Sky Rose Chapel, a 350 seat chapel and mausoleum designed by
architect Fay Jones) 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:

  .(i) Granted IBPS the interment rights with respect to 7.5 acres of
       Cemetery property and agreed to contribute to IBPS's development of a
       16,000 square foot columbarium and surrounding stupa gardens; and

  .(ii) Granted IBPS a seven-year option to build a second columbarium on an
        adjacent 2.7 acre site.

  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 has 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 1999, approximately 62% of cemetery revenue and 39% total Company revenue
was derived from pre-need sales. 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
19 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 reap 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. In the Los Angeles area the large
consolidators control approximately 20% of the funeral market.

                                       6
<PAGE>

  In 1999, 20% of the Rose Hills funeral business was cremation. In the Los
Angeles area over 35% of funeral services were cremations. The Company's
traditional funeral and cemetery operations face increasing competition from
non-traditional cremation and alternative service firms. The Company believes
it can capitalize on its reputation and name to compete with less well known
companies through its own alternative service strategy.

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"), and 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 pre-need cemetery and funeral 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.
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. 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. In connection with the Cemetery
and Mortuary, management is aware of certain areas, including a solid waste
disposal area used to dump used rubbish, green waste and used motor oil in the
1970's, that will require remediation. However, pursuant to an Environmental
Compliance Agreement entered into between the Association and the Company, the
Association has agreed to pay or indemnify the Company for certain costs
relating to such remediation.

  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.


                                       7
<PAGE>

  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.

EMPLOYEES

  As of December 31, 1999, the Company had 963 employees. Management believes
that the Company's relationship with its employees is good.

  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 9th
Circuit Court of Appeals. On December 15, 1999, the United States 9th Circuit
Court of Appeals reviewed the case and upheld the original unfavorable
decision. The Company is currently working to comply with the original orders
and although the financial impact for compliance has not been finalized,
management believes it will not have a material adverse effect on the
Company's financial condition.

ITEM 2. PROPERTIES.

  The property on which the Cemetery is located consists of approximately
1,418 acres, 408 of which have been developed and sold as cemetery property,
295 of which are developed unsold cemetery property and the remaining 715 of
which have been permitted as cemetery property. 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 the Company
constructed Sky Rose Chapel, a 26,490 square foot chapel and mausoleum
facility.

  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 in Los Angeles County, 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 $.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.


                                       8
<PAGE>

  The Satellite Properties, which were conveyed 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 Homes..........................  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 Mortuaries(1)..  West Hollywood
Colton Funeral Chapel..........................  Colton
Grove Colonial Mortuary........................  San Bernardino
Richardson-Peterson Mortuary...................  Ontario
Harbor Lawn(2).................................  Costa Mesa
Melrose Abbey (including Angels Lawn
 Cemetery(3)...................................  Anaheim
</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.

  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.

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.

                                       9
<PAGE>

                                    PART II

ITEM 5. MARKET FOR COMMON STOCK 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 December 31,
1999 and for each of the five years in the five-year period ending December
31, 1999. 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 the
Mortuary and Cemetery (for the period from January 1, 1996 to November 18,
1996). Comparative financial information as of and for the period ended
November 18, 1996 and the year ended December 31, 1995 have been included on a
historical basis for the predecessor Mortuary and Cemetery and are 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 and 1995 data is proforma in that
generally accepted accounting principles 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 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, 1999 and 1998 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 year ended December
31, 1995 and 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.

                                      10
<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.

<TABLE>
<CAPTION>
                                                                                                Proforma
                                                                Predecessor                 Predeccessor
                         For the Year For the Year For the Year   Company                   For the year
                            Ended        Ended        Ended     Pro forma    Company   Pro       ended
                         December 31, December 31, December 31,   1/01/96   11/19/96 forma   December 31,
                             1999         1998         1997      11/18/96   12/31/96  1996       1995
                         ------------ ------------ ------------ ----------- -------- ------  ------------
                                                          (in millions)
<S>                      <C>          <C>          <C>          <C>         <C>      <C>     <C>
INCOME STATEMENT DATA
Total Revenue...........     88.4         83.6         70.7        42.9         7.1    50.0      47.4
Operating Income........     20.6         19.5         14.7         5.1         1.3     6.4       7.2
Net Income (Loss).......      3.7          1.0         (1.8)        1.1        (0.5)    0.6       3.4
OTHER FINANCIAL DATA
EBITDA(1)...............     34.6         28.9         23.4         6.2         2.4     8.6      11.0
Cash flows from:
  Operating Activities..      7.9          4.1          1.6         7.4         5.1    12.5       2.2
  Investing Activities..     (3.4)        (5.8)        (2.7)       (2.7)     (246.6) (249.3)     (4.5)
  Financing Activities..     (4.0)        (0.1)        (3.4)       (3.7)      249.4   245.7      (2.2)
BALANCE SHEET DATA
Total Assets............    317.8        321.9        312.6         N/A       317.8   317.8      77.1
Total Debt(2)...........     71.5         74.5         74.0         N/A        75.0    75.0      19.5
</TABLE>
--------
(1) EBITDA is defined as income (loss) before income taxes 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 generally accepted accounting principles 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) Total Debt is defined as funded debt comprising bank borrowings.

                                      11
<PAGE>

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

RESULTS OF OPERATIONS

  The following table sets forth certain income statement data as a percentage
of sales for the Company's operations.

<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                                ----------------------------
                                                  1999      1998      1997
                                                --------  --------  --------
   <S>                                          <C>       <C>       <C>
   Sales and services Funeral sales and
    services ..................................     37.6%     38.2%     45.9%
    Cemetery sales and services ...............     62.4%     61.8%     54.1%
    Total sales and services ..................    100.0%    100.0%    100.0%
   Gross profit:
    Funeral sales and services.................     32.9%     35.4%     39.3%
    Cemetery sales and services ...............     37.6%     37.6%     32.7%
     Total gross profit .......................     35.8%     36.7%     35.7%
   General and administrative expenses ........      8.3%      8.9%      9.5%
   Amortization ...............................      4.2%      4.5%      5.3%
   Interest expense ...........................     17.8%     19.8%     23.2%
</TABLE>

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

  Consolidated revenues increased 5.7% to $88.4 million for the year ended
December 31, 1999 compared to $83.6 million for the year ended December 31,
1998. Consolidated gross profit totaled $31.7 million in 1999 compared to
$30.7 million in 1998. As a percentage of revenue, consolidated gross profit
percentage decreased to 35.8% in 1999 from 36.7% in 1998.

 Funeral Operations:

  Revenue from funeral operations increased 4.1% to $33.3 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. The decrease is similar to what has been experienced throughout
the death care industry as a result of the declining death rates in the United
States. 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 from $1.6 million in 1998 to
$2.3 million in 1999 or 43.8%. The significant increase over 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 35.4% to 32.9%
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.

 Cemetery Operations:

  Cemetery revenue increased 6.8% over last year to $55.1 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 and was comparable to
prior year. Total interments for the year were slightly ahead of last 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.

                                      12
<PAGE>

  Income from operations as a percentage of sales remained constant between
1998 and 1999 at 37.6%. 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.

  Corporate general and administrative expense approximated prior year at $7.4
million. As a percentage of total revenue, corporate general and
administrative expenses decreased from 8.9% 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 generally accepted accounting principles or as a measure of a
company's profitability or liquidity.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

  Consolidated revenues increased 18.4% to $83.6 million for the year ended
December 31, 1998 compared to $70.6 million for the year ended December 31,
1997.

 Funeral Operations:

  Revenue from funeral operations decreased 1.2% to $32.0 million in 1998
compared to $32.4 million in 1997. At-need funeral revenue increased by $.6
million or 2.0% from 1997. At-need funeral services average revenue per case
increased 2.0% from the prior year. Total case count declined slightly to
8,939 in 1998 compared to 9,033 in 1997. Pre-need funeral service revenue
decreased from $2.6 million in 1997 to $1.6 million in 1998 or 38.5%. The
unfavorable variance is due to the change in pre-need insurance products in
April 1998.

  Income from operations for the funeral segment decreased from 39.3% to 35.4%
as a percentage of sales due primarily to the decline in pre-need insurance
commission revenue and related additional administrative costs incurred as a
result of the change in insurance products. The Company's strategy is to
increase commission income levels to previous years results. Subsequent to
year end the Company negotiated its insurance general agent agreements with
its previous vendor.

 Cemetery Operations:

  Revenue from cemetery operations increased 35.0% over last year to $51.6
million. Almost half of the increase was due to an increase in pre-need
property sales, which was largely due to an increase in average lot price
attributed to the sale of upscale properties. The remaining variance is due
primarily to an increase in pre-need merchandise and service sales volume.

  Income from operations for the cemetery segment increased from 32.7% to
37.6% as a percentage of related sales. Compared to 1997, the cemetery
operations experienced unfavorable variances in direct cemetery sales
commissions from 17% to 23% and cemetery merchandise costs from 9.1% to 13.7%.
These unfavorable variances were offset by an increase in prices and an
increase in leverage of existing fixed and semi-variable overhead.

                                      13
<PAGE>

  Corporate general and administrative expenses increased from $6.7 million to
$7.4 million. The increase was due primarily to non-recurring legal and
related settlement costs. As a percentage of total revenue, corporate general
and administrative expenses have decreased from 9.5% for the year ended
December 31, 1997 to 8.9% for the year ended December 31, 1998.

  EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales),
increased to $28.9 million for 1998 from $23.4 million for 1997. The increase
in EBITDA of $5.5 million was primarily a result of (i) an increase in pre-
need contract sales and (ii) an increase in leverage of existing corporate
overhead. 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 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, 1999, the Company had net working capital of $9.5 million and a
current ratio of 1.67 compared to net working capital of $2.5 million and
current ratio of 1.12 at December 31, 1998.

  Net cash provided by operating activities was $7.9 million for the year
ended December 31, 1999, compared to $4.1 million for the same period in 1998.
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 1998 is due principally to a reduction in the growth of pre-need
receivables and service trust accounts from 1998 and 1997. 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 1999 of approximately $3.7 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.

  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. 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
Revolving Credit 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")

                                      14
<PAGE>

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
there from, the Company's total outstanding indebtedness was approximately
$151.5 million as of December 31, 1999. The Company also had the entire $25.0
million of borrowing capacity under the Bank Revolving Facility available as
of December 31, 1999. 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, 2002. 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 have 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 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, 1999, 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 2000, which includes $2.3 million in internal growth initiatives
and $2.7 million for maintenance capital expenditures.

NEW ACCOUNTING PRONOUNCEMENTS

 SAB101

  In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("Bulletin"). The Bulletin provides the
staff's views on the application of existing generally accepted accounting
principles to revenue recognition in financial statements. The Bulletin states
that industry

                                      15
<PAGE>

practice would not override these views. The Company has followed industry
practice in recognizing revenues and is in the process of determining whether
any of the industry practice is outside of the guidelines contained in this
Bulletin. If any changes are required, they would probably be reflected in the
first interim financial statements of 2000.

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, make capital
expenditures, address Y2K issues, 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.

    a) 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:

    1. 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.

    2. Performances of endowment care and trust funds.

      The Company includes 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.

    3. The level of prearranged funeral sales in prior periods.

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

    b) In addition to the factors discussed above, earnings may be affected
  by other factors such as:

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

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

                                      16
<PAGE>

    3. Changes in interest rates, which can increase or decrease the amount
       the Company pays on borrowings with variable rates of interest,
       although this risk is somewhat mitigated by a rate Collar Agreement.
       See Item 7(a).

    4. 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.

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

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

    7. Unanticipated legal proceedings and unanticipated outcomes of legal
       proceedings.

    8. Changes in accounting policies and practices adopted voluntarily or
       required to be adopted by generally accepted accounting principles.

  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 has market risk in interest rate
exposure, but manages the exposure through its interest rate Collar Agreements
which effectively set maximum and minimum interest rates on the $75.0 million
of senior debt.

  The Company has entered into interest rate Collar Agreements, 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 Collar Agreement is
based on three-month LIBOR. The Collar Agreement at December 31, 1999, as
estimated by a dealer, was a favorable value of $85,000.

  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 nonperformance by the
other parties to the interest rate Collar Agreements. However, the Company
does not anticipate nonperformance by the other party, and no material loss
would be expected from nonperformance of such counter party.

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.

                                      17
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The Company's current executive officers and directors, and their ages as of
March 24, 2000, are as follows:

<TABLE>
<CAPTION>
Name                     Age                           Position
----                     ---                           --------
<S>                      <C> <C>
Gary P. Baker...........  52 Senior Vice President, Operations

Chinh E. Chu............  33 Director

Kimberley K. Cleaver....  35 Senior Vice President, Sales

David I. Foley..........  32 Director

John S. Lacey...........  56 Director

Howard A. Lipson........  36 Director

Dennis C. Poulsen ......  57 Chairman of the Board, Director

Bradley D. Stam.........  52 Director

Dillis R. Ward..........  63 President and Chief Executive Officer, Director

Michael G. Weedon.......  46 Director

Kenton C. Woods.........  45 Senior Vice President of Finance and Chief Financial Officer,
                              Secretary and Treasurer
</TABLE>

  The business experience of each of the executive officers and directors is
set forth below.

   Gary P. Baker is the Senior Vice President, Operations for Rose Hills
Company. Mr. Baker has over 30 years of service to Rose Hills in all aspects
of funeral service.

   Chinh E. 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.
He currently serves on the Board of Directors of Prime Succession, Inc.

   Kimberley K. Cleaver joined the Company as Executive Vice President, Sales
in November of 1997. Prior to that, Ms. Cleaver served in senior management
positions with Stewart Enterprises, Inc. in Texas.

   David I. 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.

   Howard A. Lipson is Senior Managing Director of The Blackstone Group L.P.,
which he joined in 1988. Prior to joining Blackstone, Mr. Lipson was a member
of the Mergers and Acquisitions Group of Salomon Brothers Inc. He currently
serves on the Board of Directors of UCAR International Inc., Volume Services,
Inc., AMF Group, Inc., Ritvik Holdings, Inc., and Prime Succession, Inc.

   John S. Lacey became Director effective March 10, 2000. Mr. Lacey is also
Chairman of the Board and Director of Loewen since December 1998.

   Bradley D. Stam became Director effective March 10, 2000. Mr. Stam is
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. Prior to that time, he
was a partner with a Seattle law firm.

   Dennis C. Poulsen became the Chairman of the Company November 19, 1996. Mr.
Poulsen joined Rose Hills in 1981 and became President in 1984. Prior to
joining the Company, Mr. Poulsen was employed by INA

                                      18
<PAGE>

Corporation and Transamerica Corporation, and is past director of the American
Cemetery Association. Mr. Poulsen is a member of the American, California and
Los Angeles Bar Associations. His community activities include serving as a
Director and Chairman of the Los Angeles Chamber of Commerce in 1997.

   Paul Wagler resigned as director effective August 10, 1999.

   Dillis R. Ward became the President of the Company effective October 1,
1997. On August 11, 1998 he became Chief Executive Officer. Prior to this, Mr.
Ward was a Regional President, West Region of Loewen effective August 1, 1996.

   Michael Weedon is Senior Vice President, Trust and Insurance for Loewen
since February 2000. He has been in various senior management capacities with
Loewen since November 1997. From 1996 to 1997, Mr. Weedon was a private
business consultant and investor. Prior to that time, Mr. Weedon served as
Chief Operating Officer of Viridian Inc. in Fort Saskatchewan, Alberta.

   Kenton C. Woods became Senior Vice President and Chief Financial Officer in
May 1997. Prior to that, Mr. Woods served in senior financial positions at
Baskin-Robbins including Vice President-Finance and Chief Financial Officer.
Mr. Woods also spent 10 years with KPMG LLP.

   Under the Shareholders' Agreement described in Item #13 below, 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 and 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.

   Directors of the Company will receive no compensation for their service as
Directors or for service on committees of the Board except for the
reimbursement of expenses.

ITEM 11. EXECUTIVE COMPENSATION.

   Summary Compensation Table

   The following table sets forth for the fiscal year ended December 31, 1999
the compensation paid by the Company to its Chief Executive Officer and each
of the other most highly compensated executive officers of the Company (c):

<TABLE>
<CAPTION>
                                                                   All Other
         Name and Principal Position         Year Salary   Bonus  Compensation
         ---------------------------         ---- ------- ------- ------------
   <S>                                       <C>  <C>     <C>     <C>
   Dillis E. R. Ward.......................  1999 250,000 100,000      --
    President & Chief Executive Officer,     1998 257,692 106,250      --
                                             1997  15,348

   Kenton C. Woods.........................  1999 160,847  64,172      --
    Senior Vice President & Chief Financial  1998 161,088  65,952
    Officer                                  1997  89,108  24,052      --

   Gary P. Baker...........................  1999 132,679  26,250      --
    Senior Vice President--Operations        1998 122,635  26,563      --
                                             1997 100,000  15,000      --

   Kimberley K. Cleaver....................  1999 523,616     --       --
    Senior Vice President--Sales             1998 439,479     --       --
                                             1997  60,390     --       --
</TABLE>

                                      19
<PAGE>

Employment Agreements

  The Company has entered into employment agreements with Mr. Ward, Mr. Woods
and Mr. Baker. Mr. Ward's agreement calls for an annual salary of $250,000,
with annual increases at the discretion of the Board, plus an annual cash
bonus based on Company performance. Mr. Woods' agreement provides for an
annual salary of $160,000 with annual increases at the discretion of the Board
plus an annual cash bonus based on Company performance. Mr. Baker's agreement
provides for an annual salary of $131,000 with annual increases at the
discretion of the Board plus an annual cash bonus based on Company
performance. Mr. Ward, Mr. Woods and Mr. Baker's employment agreements also
provide that if either is terminated without "cause" (as defined in the
agreement) the executive will receive a multiple of his annual salary (Mr.
Ward two years and Mr. Woods and Mr. Baker each one year) plus a portion of
the annual bonus depending upon what time the termination became effective
during the year. Mr. Ward's agreement provides he will be entitled to a long-
term incentive bonus at any time that Loewen purchases all of the shares of
common stock of Rose Hills Holdings Corp. owned by Blackstone, provided that
certain EBITDA targets are achieved. Such bonus will equal $500,000 if such
purchase occurs prior to 2002 and will be increased by $100,000 each year
thereafter up to a maximum of $900,000.

  Effective April 1, 1999, the Company entered into an employment agreement
with Ms. Cleaver which provides for an annual salary based on a percentage of
certain at-need and pre-need cemetery and insurance sales. In addition, Ms.
Cleaver's agreement calls for certain adjustments to her annual commissions
based on meeting annual Board approved expense ratios.

  Effective January 1, 1999, the Board extended Mr. Poulsen's term as
Chairman. His appointment is automatically renewed annually until such time
the Board agrees to elect a new Chairman. Concurrent with his extension, the
Company extended his consulting agreement which calls for the payment of up to
$100,000 during 1999, including certain expenses. In addition, Mr. Poulsen is
a participant in the Company's Supplemental Employee Retirement Plan.

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 24, 2000 regarding
the beneficial ownership of the common stock of RH Holdings:

<TABLE>
<CAPTION>
                                                                      Percentage
                                                              Number   of Owner
                                                                of      Common
   Name and Address of Beneficial Owner                       Shares    Stock
   ------------------------------------                       ------- ----------
   <S>                                                        <C>     <C>
   Blackstone entities(1)(6)................................. 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(5) .....................................     --      --
   Dillis R. Ward(5) ........................................     --      --
   All directors and executive officers as a group(6)........     --      --
</TABLE>
--------
(1) The 795.455 shares are held collectively by Blackstone Capital Partners II
    Merchant Banking Fund L.P., Blackstone Rose Hills Offshore Capital
    Partners L.P., and Blackstone Family Investment Partnership II L.P. 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 directly and indirectly wholly-owned subsidiary of
    LWN.

                                      20
<PAGE>

(3) Messrs. Chu, Foley and Lipson are affiliated with Blackstone in the
    capacities described under Item 10 above. Each such person's business
    address is c/o The Blackstone Group L.P., 345 Park Avenue, New York, N.Y.
    10154.
(4) Messrs. Lacey, Stam and Weedon are affiliated with Loewen in the capacity
    described under Item 10 above. Each such person's business address is c/o
    The Loewen Group Inc., 4126 Norland Avenue, Burnaby, B.C. V5G 3S8.
(5) Mr. Poulsen's and Mr. Ward's business address is c/o Rose Hills Company,
    3888 South Workman Mill Road, Whittier, CA 90601.
(6) Certain officers of the Issuer hold a limited partnership interest in RHI
    Management Direct L.P. ("RHIMD"), which is the holder of 10.2273 shares
    (approximately 1.02%) of RH Holdings common stock; however, such officers
    do not have voting or dispositive power with respect to such shares. A
    Blackstone entity, PSI P&S Corp, is the general partner of RHIMD.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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.

                                      21
<PAGE>

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
the fourth anniversary of the Acquisition Closing Date until but excluding 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 the sixth anniversary
of the Acquisition Closing Date until but excluding 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 the LWN and LGI and LN Sub filed for protection from its
creditors under Chapter 11 of the U.S. Bankruptcy Code. Loewen indicated in
its 1999 annual report on Form 10-K that it had written down its investment in
the Rose Hills Holdings Corp. and it is was unlikely that the call would be
exercised. As of March 25, 2000, LWN has not submitted a plan of
reorganization to the U.S. Bankruptcy Court indicating its plan with respect
to the various shareholder agreements. Accordingly, at this time there can be
no assurance that either the Call Option or the Put Option will be exercised.

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

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 below under Payment of Certain Fees and Expenses;' 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.

Administrative Services Agreement

  In connection with the Acquisition, the Company engaged Loewen to provide
certain administrative services and share certain resources (Loewen, in such
capacity, being the "Administrative Services Provider") pursuant to the
Administrative Services Agreement. Pursuant to the Administrative Services
Agreement, Loewen has undertaken some of the Company's administrative
functions, including: accounting services, computer, telecommunications,
general operations support, legal services, environmental compliance,
regulatory compliance, employee training and corporate development. In
addition, Loewen currently provides management expertise in planning MIS,
sales, tax, and fund management strategy. The Company also benefits under the
Administrative Services Agreement from access to some of Loewen's vendor
agreements.

  As compensation for services provided under the Administrative Services
Agreement, the Administrative Services Provider is 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 Administration Services Agreement. The
Company is also generally required (in certain cases subject to approval in
advance by Blackstone) to reimburse the Administrative Services Provider 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.

                                      22
<PAGE>

  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 and it is unlikely it will request services
from Loewen. However, if Loewen should exercise its right to assume the
Agreement, the Company could be required to pay the annual service fee whether
or not any actual benefit is derived.

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

Payment of Certain Fees and Expenses

  From the Acquisition Closing Date until the date on which Loewen or
Blackstone exercises the Call Option or the Put Option, respectively, pursuant
to the Put/Call Agreement, 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.

Formation of RHIMD; Loans to Management

  In connection with the Acquisition, on the Acquisition Closing Date, RHIMD
purchased approximately 1.02% of the RH Holdings common stock (the "RHIMD-
Owned Stock"). Limited partnership interests in RHIMD has subsequently been
allocated to certain officers of the Company (and "RHIMD Limited Partners").

  In order to effect such purchase, on the Acquisition Closing Date, the
Company made a loan to RHIMD 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. The loan to certain
officers of the Company is evidenced by a note bearing interest at an annual
rate of 9% and secured by their limited partnership interest in RHIMD.

                                      23
<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...............................................   27
Consolidated Balance Sheets as of December 31, 1999 and 1998...............   28
Consolidated Statements of Operations for the Years ended December 31,
 1999, 1998 and 1997.......................................................   29
Consolidated Statements of Cash Flows for the Years ended December 31,
 1999, 1998 and 1997.......................................................   30
Consolidated Statements of Stockholder's Equity for the Years ended
 December 31, 1999, 1998 and 1997..........................................   31
Notes to Consolidated Financial Statements.................................   32

2. Financial Statement Schedule
   Schedule II--Valuation and Qualifying Accounts..........................   52
</TABLE>

                                       24
<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.
</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>
   Exhibit
   Number    Description
   -------   -----------
   <C>       <S>
   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.

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

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

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

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

   10.14**** --Employment Agreement, dated March 23, 1999 by and between Rose
               Hills Company and Kimberly 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**** --Rose Hills Company 401(k) Savings Plan as Amended. Effective
               December 1, 1999.

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

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

   23.2***   --Consent of KPMG LLP

   27****    --Financial Data Schedule
</TABLE>

(c) Reports on Form 8K

  None
--------
   * Incorporated by reference to the Exhibits to the Company's Registration
     Statement on Form S-4 (Registration No. 333--21411).

  ** 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, 1998, filed on March 24, 1999.

**** Filed Herewith.

                                       26
<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 generally accepted auditing
standards. 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, 1999 and 1998 and
the results of their operations and their cash flows for the years ended
December 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles. 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.

                                          KPMG LLP

Los Angeles, California
February 17, 2000

                                      27
<PAGE>

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

                          CONSOLIDATED BALANCE SHEETS

                           December 31, 1999 and 1998
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                               1999     1998
                                                             -------- --------
<S>                                                          <C>      <C>
                           ASSETS
Current assets:
 Cash and cash equivalents.................................. $  2,150 $  1,645
 Accounts receivable, net of allowances.....................   11,805   11,601
 Inventories................................................      991      979
 Prepaid expenses and other current assets..................    5,277    4,701
 Deferred tax asset.........................................    3,508    4,085
                                                             -------- --------
    Total current assets....................................   23,731   23,011
Long-term receivables, net of allowances....................   18,729   15,709
Cemetery property, at cost..................................   77,003   75,318
Property and equipment, net.................................   59,292   65,978
Goodwill....................................................  121,629  124,877
Deferred finance charges....................................    7,407    9,036
Trust assets................................................    7,329    5,085
Other assets................................................    2,692    2,919
                                                             -------- --------
    Total assets............................................ $317,812 $321,933
                                                             ======== ========

            LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
 Short-term borrowings...................................... $    --  $  2,000
 Accounts payable and accrued liabilities...................   10,377   16,355
 Current portion of long-term debt..........................    3,832    2,133
                                                             -------- --------
    Total current liabilities...............................   14,209   20,488
Retirement plan liabilities.................................    6,990    7,147
Deferred tax liability......................................    8,271    6,455
Subordinated notes payable..................................   80,000   80,000
Bank senior-term loan.......................................   68,513   71,507
Other long-term debt........................................    1,913    2,070
Other liabilities...........................................    5,927    5,974
                                                             -------- --------
    Total liabilities....................................... $185,823 $193,641
                                                             -------- --------
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 earnings (deficit).............................    2,435   (1,262)
                                                             -------- --------
    Total stockholder's equity..............................  131,989  128,292
                                                             -------- --------
    Total liabilities and stockholder's equity.............. $317,812 $321,933
                                                             ======== ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       28
<PAGE>

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

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   1999      1998      1997
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Sales and services:
 Funeral sales and services..................... $ 33,277  $ 31,959  $ 32,392
 Cemetery sales and services....................   55,126    51,618    38,253
                                                 --------  --------  --------
    Total sales and services....................   88,403    83,577    70,645
                                                 --------  --------  --------
Cost of sales and services:
 Funeral sales and services.....................   22,339    20,660    19,661
 Cemetery sales and services....................   34,395    32,207    25,744
                                                 --------  --------  --------
    Total cost of sales and services............   56,734    52,867    45,405
                                                 --------  --------  --------
    Gross profit................................ $ 31,669  $ 30,710  $ 25,240
General and administrative expenses.............    7,352     7,420     6,726
Amortization of purchase price in excess of net
 assets acquired and other intangibles..........    3,707     3,752     3,776
                                                 --------  --------  --------
    Income from operations......................   20,610    19,538    14,738
Income from settlement agreement................    2,500       --        --
Interest expense, net...........................  (15,769)  (16,519)  (16,411)
                                                 --------  --------  --------
    Income (loss) before taxes..................    7,341     3,019    (1,673)
Income tax expense..............................    3,644     1,985        95
                                                 --------  --------  --------
    Net income (loss)........................... $  3,697  $  1,034  $ (1,768)
                                                 ========  ========  ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       29
<PAGE>

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

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1999, 1998 and 1997
                                 (In thousands)

<TABLE>
<CAPTION>
                                                      1999     1998     1997
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
Cash flows from operating activities:
 Net income (loss).................................. $ 3,697  $ 1,034  $(1,768)
                                                     -------  -------  -------
 Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
  Depreciation and amortization.....................   9,432    8,603    7,712
  Amortization of cemetery property.................   3,828    2,615    2,451
  Provision for bad debts and sales cancellation....   5,106    3,011    1,959
  Provision for deferred taxes......................   2,433    1,906       81
  Loss on disposal of property, plant and
   equipment........................................     260        9      --
  Changes in assets and liabilities, net of effects
   of Acquisition Transaction:
   Increase in accounts receivable..................  (8,330) (14,254)  (4,537)
   Increase in inventories..........................     (12)     (99)      (6)
   Increase in prepaid expenses and other current
    assets..........................................    (354)  (1,902)    (133)
   Decrease (increase) in accounts payable and
    accrued liabilities.............................  (5,891)   4,401   (3,676)
   Decrease in retirement plan liabilities..........    (157)    (242)    (227)
   Increase in other assets and liabilities.........  (2,106)  (1,012)    (251)
                                                     -------  -------  -------
     Total adjustments..............................   4,209    3,036    3,373
                                                     -------  -------  -------
     Net cash provided by operating activities......   7,906    4,070    1,605
                                                     -------  -------  -------
Cash flows from investing activities:
 Capital expenditures...............................  (3,691)  (5,080)  (2,138)
 Cash paid for acquisitions, net of cash received...     --      (776)     --
 Proceeds from disposal of property.................     250       39      --
 Additions to goodwill..............................     --       --      (522)
                                                     -------  -------  -------
     Net cash used in investing activities..........  (3,441)  (5,817)  (2,660)
                                                     -------  -------  -------
Cash flows from financing activities:
 Proceeds from (repayments of) borrowings under Bank
  Credit Agreement..................................  (2,000)     507   (1,500)
 Decrease in other long-term debt...................  (1,452)     (51)    (597)
 Addition to deferred finance charges...............     --       --      (934)
 Principal payments of capital lease obligations....    (508)    (526)    (352)
                                                     -------  -------  -------
     Net cash used in financing activities..........  (3,960)     (70)  (3,383)
                                                     -------  -------  -------
     Net increase (decrease) in cash and cash
      equivalents...................................     505   (1,817)  (4,438)
Cash and cash equivalents at beginning of period....   1,645    3,462    7,900
                                                     -------  -------  -------
Cash and cash equivalents at end of period.......... $ 2,150  $ 1,645  $ 3,462
                                                     =======  =======  =======
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
  Interest.......................................... $14,193  $14,730  $15,217
  Income taxes......................................     --       859    1,219
                                                     -------  -------  -------
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.

                                       30
<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, 1999, 1998 and 1997
                    (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 loss......................      --           --       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
                                  =====     ========    =======     ========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       31
<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, 1999 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 generally
accepted accounting principles (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 to be 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 (subject to downward
adjustment under certain circumstances) 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

                                      32
<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 1998 and 1997 consolidated
financial statements to conform to the 1999 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 and other related products and
services are recognized as revenue when the customer contracts are signed with
concurrent recognition of related costs. 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.

 (d) Prearranged Funeral Services

  Prearranged 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,

                                      33
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

such as the amount of funeral cost coverage sold, the age of the insured and
the volume of monthly sales activity. Insurance commissions earned are
recognized as income 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 prearranged 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, 1999 and December 31,
1998, allowance for sales cancellations totaled $2,981,000 and $2,246,000,
respectively. A provision of $4,685,000, $2,071,000, and $1,747,000 was
charged to cemetery sales to provide for estimated future cancellations for
the years ended December 31, 1999, 1998 and 1997, 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, 1999 and 1998, the allowance for doubtful accounts totaled
$398,000 and $314,000, respectively.

  Finance income earned on long-term receivables is recognized on a current
basis. Total finance income earned was $2,410,000, $2,300,000 and $1,400,000
for 1999, 1998 and 1997.

 (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.

                                      34
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (h) Property, Plant and Equipment

  Property, plant 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, 1999 and 1998, accumulated amortization
was $10,304,000 and $7,007,000, respectively. During 1997, certain amounts
were added to goodwill for preacquisition contingencies identified during the
one-year period following the acquisition date.

 (j) Covenants Not to Compete

  Covenants not to compete 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, 1999 and 1998, accumulated amortization of covenants
not to compete was $1,320,000 and $892,000, 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, 1999 and
1998, accumulated amortization of these costs was $5,092,000 and $3,462,000,
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
in accordance with Statement of Financial Accounting Standards No. 109 (SFAS
No. 109). Under the asset and liability method, deferred tax

                                      35
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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. Under SFAS No. 109, 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.

 (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 follows SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
which requires impairment losses to be recognized 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. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount.

 (p) Earnings (Loss) per Share

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

 (q) Pension and Other Postretirement Plans

  On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 132, Employers Disclosures about Pension and Other
Postretirement Benefits. SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. SFAS No. 132 does not change
the method of accounting for such 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.

(3) Acquisitions

  At December 22, 1998, the Company acquired certain assets and liabilities of
the Home of Peace Memorial Park. Home of Peace is a Los Angeles, California
cemetery established in 1855, which consists of approximately 32 acres, some
of which is still available for future development. Cash paid for the
transaction amounted to

                                      36
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

approximately $776,000, which represents the difference between $1,100,000 in
assets and $324,000 in liabilities. As the amount paid was equal to the
estimated fair market asset value less liabilities, goodwill was not recorded.

  The results of operations of Home of Peace for the period December 22, 1998
through December 31, 1998 were not material to the financial statements of
Rose Hills Company and therefore, were not included with the results of
operations for the Company for the year ended December 31, 1998.

(4) Prepaid Expenses and other current assets

  Prepaid expenses and other current assets consist of the following at
December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                   1999   1998
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Due from insurance companies.................................. $1,239 $1,351
   Due from Funeral Service Trust................................     35    393
   Due from Endowment Care Fund..................................    825  1,050
   Taxes Receivable..............................................    --   1,082
   Prepaid insurance.............................................    278    271
   Other.........................................................  2,900    554
                                                                  ------ ------
     Prepaid expenses and other current assets................... $5,277 $4,701
                                                                  ====== ======
</TABLE>

(5) Property, Plant and Equipment

  Property, plant and equipment consist of the following at December 31, 1999
and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Land........................................................ $ 8,261 $ 9,036
   Buildings and improvements..................................  41,395  41,064
   Furniture, fixtures and equipment...........................   7,155   6,540
   Vehicles....................................................   2,107   1,578
   Computers and computer software.............................   5,718   5,023
   Construction in progress....................................   4,064   8,224
                                                                ------- -------
     Total property, plant and equipment.......................  68,700  71,465
   Less accumulated depreciation...............................   9,408   5,487
                                                                ------- -------
     Property, plant and equipment, net........................ $59,292 $65,978
                                                                ======= =======
</TABLE>

                                      37
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(6) Accounts Payable and Accrued Liabilities

  Accounts payable and accrued liabilities consist of the following at
December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Trade payables.............................................. $   189 $   819
   Interest....................................................   1,248   1,371
   Property and other taxes....................................   2,191   1,469
   Payroll and related costs...................................   1,760   1,442
   Other payables..............................................     990   7,578
   Other accrued expenses......................................   3,999   3,676
                                                                ------- -------
                                                                $10,377 $16,355
                                                                ======= =======
</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.

  The notational 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 notational 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% for the
period commencing January 2, 1997 through December 1, 2000. The Collar
Agreement is based on three-month LIBOR. The fair value of the Collar
Agreement at December 31, 1999 and 1998 as estimated by a dealer, was a
favorable $85,000 and an unfavorable $808,000, respectively.

  The counterparty 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 nonperformance by the
other parties to the interest rate Collar Agreements. However, the Company
does not anticipate nonperformance by the other party, and no material loss
would be expected from nonperformance 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, 1999 and 1998, amounts owed to the Fund, but not yet
due or collected from customers, amounted to $1,977,000 and $1,809,000,
respectively. The Fund's assets are invested under the direction of the Board
of Trustees of the Fund. The principal of the fund generally cannot be
withdrawn by the Company and therefore is not included on the consolidated
balance sheet.

                                      38
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The change in net assets of the Fund, net of amounts required to be withheld
under state law, is paid by the Fund to the Company and is used for the care,
maintenance and embellishment of the cemetery. As allowable by state law, a
portion of the undistributed capital gains of the Fund 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 Fund and transferred to the Company are reported in the
consolidated statements of operations and amounted to $3,605,000 and
$3,767,000 for the years then ended, respectively.

  Total assets of the Fund are $58,304,000 and $61,458,000 at December 31,
1999 and 1998, respectively, and consist primarily of cash and investments
carried at fair market value. Total liabilities of the Fund are $1,023,000 and
$1,570,000 at December 31, 1999 and 1998, respectively, and consist of amounts
payable to the Company. Total net assets of $57,281,000 and $59,915,000 at
December 31, 1999 and 1998, respectively, resulted primarily from Fund
deposits received or receivable from customers, capital gains (net of
transfers to reserves) and holding losses experienced by the Fund.

 (b) Special Care Fund

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

  Total assets of the SCF Fund are $5,099,000 and $2,529,000 at December 31,
1999 and 1998, respectively, and consist primarily of cash and investments
carried at fair market value. Total liabilities of the SCF are $42,000 and
$27,000 at December 31, 1999 and 1998, respectively, and consist of amounts
payable to the Company. Total net assets of $5,057,000 and $2,502,000 at
December 31, 1999 and 1998, respectively, resulted primarily from SCF deposits
received or receivable from customers, capital gains (net of transfers to
reserves) holding losses experienced by the SCF.

(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, 1999 and 1998, 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.

                                      39
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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, 1999 mature
as follows (in thousands):

<TABLE>
<CAPTION>
     Date                                                                 Amount
     ----                                                                 ------
     <S>                                                                  <C>
     Prior to February 1, 1999...........................................  $693
     February 1, 2000....................................................    70
                                                                           ----
         Total...........................................................  $763
                                                                           ====
</TABLE>

(10) Income Taxes

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

<TABLE>
<CAPTION>
                                                             1999   1998  1997
                                                            ------ ------ -----
     <S>                                                    <C>    <C>    <C>
     Current:
      Federal.............................................. $  792 $  --  $ --
      State................................................    419     79    14
                                                            ------ ------ -----
         Total current.....................................  1,211     79    14
                                                            ------ ------ -----
     Deferred:
      Federal..............................................  2,105  1,502   (10)
      State................................................    328    404    91
                                                            ------ ------ -----
         Total deferred....................................  2,433  1,906    81
                                                            ------ ------ -----
         Total income tax.................................. $3,644 $1,985 $  95
                                                            ====== ====== =====
</TABLE>

  Differences between the provision for income taxes (benefit) and income
taxes at the statutory Federal income tax rate are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           1999   1998   1997
                                                          ------ ------  -----
     <S>                                                  <C>    <C>     <C>
     Expected Federal tax (benefit)...................... $2,496 $1,027  $(569)
     Net tax effects of:
      Goodwill amortization..............................    712    709    640
      State taxes, net of Federal benefit................    428    319     87
      Other..............................................      8    (70)   (63)
                                                          ------ ------  -----
         Actual income tax............................... $3,644 $1,985  $  95
                                                          ====== ======  =====
</TABLE>

                                      40
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The components of the net deferred tax balances at December 31, 1999 and
1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               1999     1998
                                                              -------  -------
     <S>                                                      <C>      <C>
     Deferred tax assets:
      Operating reserves..................................... $   --   $ 1,105
      Retirement benefits....................................   1,585    1,521
      Other reserves.........................................   2,280    2,921
      Net operating loss.....................................     --       332
      Other..................................................     228      130
                                                              -------  -------
         Total deferred tax assets...........................   4,093    6,009
                                                              -------  -------
     Deferred tax liabilities:
      Acquisition step ups...................................  (2,977)  (2,977)
      Goodwill amortization..................................  (3,244)  (2,121)
      Depreciation...........................................  (1,772)  (2,418)
      Land...................................................    (863)    (863)
                                                              -------  -------
         Total deferred tax liability........................  (8,856)  (8,379)
                                                              -------  -------
         Net deferred tax liability.......................... $(4,763) $(2,370)
                                                              =======  =======
</TABLE>

  Based upon the level of historic taxable income and projections for future
taxable income over the periods, 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, 1999.

(11) Related Party Transactions

  (a) Administrative Services Agreement

  In connection with the Acquisition Transaction, as described 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 is 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 is entitled to receive from the
Company, a minimum fee (the Administrative Services Fee) payable monthly in
arrears and in an aggregate amount equal to $250,000 (subject to specified
annual increases). The Company is 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, 1999, 1998 and, 1997, the Company had recorded
approximately $258,000, $250,000 and $323,000 for Administrative Services Fee,
respectively.

  As of December 31, 1999 and 1998, the Company had payables (receivables) to
Loewen as follows:

<TABLE>
<CAPTION>
                                                                1999     1998
                                                              -------- --------
   <S>                                                        <C>      <C>
   Administrative Sales Agreement............................ $289,000 $584,000
   Other.....................................................  400,000  (79,000)
                                                              -------- --------
   Total payable to Loewen................................... $689,000 $505,000
</TABLE>

                                      41
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company is currently negotiating resolution to certain disputed items
included in the 1999 amount payable to Loewen.

  On June 1, 1999 The Loewen Group Inc. (including Loewen Group International,
Inc.) voluntarily filed for creditor protection under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. In
connection with this filing, in December 1999, the Company filed a Proof of
Claim totaling approximately $730,000.

 (b) Escrow Transaction

  In connection with the October 1999 sale of a vacant land parcel, previously
owned by Loewen, the entire sales price remains 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 believes the Company is the legal
owner of the property, that it has the right to receive the proceeds from the
sale. The Company and Loewen are currently negotiating a global settlement for
the release of funds in escrow and amounts due to Loewen and the Company under
its Proof of Claim noted heretofor. The ultimate resolution of the matter may
be resolved by the U.S. Bankruptcy Court assigned to Loewen's Chapter 11
filing. There can be no assurance that the court will rule in the Company's
favor. In the event of an unfavorable court ruling, the Company will incur a
$1.0 million loss on disposal of the asset.

 (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 December 31, 1999 and 1998.

 (d) Insurance Commissions

  In 1999 and 1998, the Company earned insurance commissions totaling
approximately $482,000 and $1,000,000 respectively, 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, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  --------
     <S>                                                    <C>       <C>
     Borrowings outstanding under Bank Credit Agreement,
      due 2003............................................. $ 71,513  $ 72,507
     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 2000 through 2007...    1,436     2,214
     Long term portion of capital lease obligations........    1,309       989
                                                            --------  --------
                                                             154,258   155,710
     Less current portion..................................   (3,832)   (2,133)
                                                            --------  --------
     Long-term debt........................................ $150,426  $153,577
                                                            ========  ========
</TABLE>

                                      42
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  At December 31, 1999, annual maturities of long-term debt consisted of the
following (in thousands):

<TABLE>
     <S>                                                                <C>
     Year ending December 31:
       2000............................................................ $  3,832
       2001............................................................    7,706
       2002............................................................    9,598
       2003............................................................   52,785
       2004............................................................   80,250
       Thereafter......................................................       87
                                                                        --------
                                                                        $154,258
                                                                        ========
</TABLE>

 Acquisition Transaction Debt

  Concurrent with the consummation of the Acquisition Transaction, the Company
entered into 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 used to partially
finance the Acquisition Transaction, as described in note 1, to prefund
certain capital expenditures and to refinance existing indebtedness of the
Mortuary and (2) a senior secured revolving credit facility (the Revolving
Credit Facility) in an aggregate principal amount of $25.0 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.

  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, 1999.

  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, 1999, the Company was paying interest at the Adjusted
Eurodollar Rate (6.125%) plus 2.750% 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, 1999, the Company had no borrowings under the
Revolving Credit Facility.

                                      43
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Concurrent with the consummation of the Acquisition Transaction, the Company
issued $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 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, 1999.

  The Company assumed liabilities under notes payable and noncompete
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 noncompete
agreements consist of the net present value of future payments discounted at
9.00%.

(13) Retirement Plans

 (a) Defined Benefit Plan

  As a result of the Acquisition Transaction, the Retirement Plan for
Employees of Rose Hills Mortuary, L.P. (the Plan) was frozen as of December
31, 1996. 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.

  The Company has funded or 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). During 1995, the
Company Plan received a favorable letter of determination from the IRS.

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

<TABLE>
<CAPTION>
                                                                1999     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Benefit obligation at January 1............................ $11,250  $10,701
   Service cost...............................................     --       --
   Interest cost..............................................     749      731
   Actuarial (gain)/loss......................................  (1,168)     330
   Benefits paid..............................................    (546)    (512)
                                                               -------  -------
     Benefit obligation at December 31........................ $10,285  $11,250
                                                               =======  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                1999     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Fair value of assets at January 1.......................... $11,494  $11,249
   Actual return on plan assets...............................     438      757
   Employer contribution......................................     --       --
   Benefits paid..............................................    (546)    (512)
                                                               -------  -------
     Fair value of assets at December 31...................... $11,386  $11,494
                                                               =======  =======
</TABLE>

                                      44
<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>
                                                              1999      1998
                                                            --------  --------
   <S>                                                      <C>       <C>
   Benefit obligation...................................... $(10,285) $(11,250)
   Plan assets at fair value...............................   11,386    11,494
   Unrecognized net actuarial (gain) loss..................     (959)      (82)
                                                            --------  --------
     Prepaid pension cost.................................. $    142  $    162
                                                            ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                            1999   1998   1997
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Service cost--benefits earned during the period......... $ --   $ --   $ --
   Interest cost on projected benefits obligations.........   749    731    712
   Expected earnings on Company plan assets................  (729)  (720)  (702)
                                                            -----  -----  -----
     Total net periodic pension cost....................... $  20  $  11  $  10
                                                            =====  =====  =====
</TABLE>

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

 (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 up to 100% of the first $300 contributed and
50% of the next $3,400 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 $472,000 and $391,000
for the year ended December 31, 1999 and 1998, 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 nonqualified 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.

                                      45
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                                  1999    1998
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Benefit obligation at January 1.............................. $4,234  $4,656
   Interest cost................................................    282     276
   Actuarial (gain)/loss........................................   (495)   (508)
   Benefits paid................................................   (175)   (190)
                                                                 ------  ------
     Benefit obligation at December 31.......................... $3,846  $4,234
                                                                 ======  ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   1999   1998
                                                                   -----  -----
   <S>                                                             <C>    <C>
   Fair value of assets at January 1.............................. $ --   $ --
   Participant contributions......................................   175    190
   Benefits paid..................................................  (175)  (190)
                                                                   -----  -----
     Fair value of assets at December 31.......................... $ --   $ --
                                                                   =====  =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                               1999     1998
                                                              -------  -------
   <S>                                                        <C>      <C>
   Benefit obligation........................................ $(3,845) $(4,234)
   Unrecognized net actuarial (gain)/loss....................  (1,416)    (938)
                                                              -------  -------
     Accrued pension cost.................................... $(5,261) $(5,172)
                                                              =======  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                            1999   1998   1997
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Service cost at end of year............................. $ --   $ --   $ --
   Interest cost...........................................   282    275    321
   Settlement or curtailment cost..........................   (18)   (30)   (26)
                                                            -----  -----  -----
     Total net pension cost................................ $ 264  $ 245  $ 295
                                                            =====  =====  =====
</TABLE>

  The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% and 6.75% for 1999 and
1998, respectively. The expected long-term rate of return on assets was 6.5%
for 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 $1,649,000 and $1,319,000 as of
December 31, 1999 and 1998, 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.

                                      46
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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>
                                                                  1999    1998
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Benefit obligation at January 1.............................. $1,926  $2,434
   Service cost.................................................    --      --
   Interest cost................................................    122     140
   Actuarial (gain) loss........................................     28    (298)
   Benefits paid................................................   (350)   (350)
                                                                 ------  ------
     Benefit obligation at December 31.......................... $1,726  $1,926
                                                                 ======  ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   1999   1998
                                                                   -----  -----
   <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>

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

<TABLE>
<CAPTION>
                                                               1999     1998
                                                              -------  -------
   <S>                                                        <C>      <C>
   Benefit obligation........................................ $(1,726) $(1,926)
   Unrecognized net actuarial (gain)/loss....................     284      272
                                                              -------  -------
     Accrued pension cost.................................... $(1,442) $(1,654)
                                                              =======  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                              1999  1998  1997
                                                              ----- ----- -----
   <S>                                                        <C>   <C>   <C>
   Service cost at end of year............................... $ --  $ --  $ --
   Interest cost.............................................   122   140   179
   Gain......................................................    16     3    33
   Prior service cost........................................   --    --    --
                                                              ----- ----- -----
     Total net pension cost.................................. $ 138 $ 143 $ 212
                                                              ===== ===== =====
</TABLE>

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

 (e) Deferred Compensation

  In addition, 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.

                                      47
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(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 there from 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 income.

(15) Commitments under Lease Agreements

  As of December 31, 1999, 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:
       2000...........................................................  $  777
       2001...........................................................     567
       2002...........................................................     436
       2003...........................................................     115
                                                                        ------
         Total minimum lease obligation...............................  $1,895
                                                                        ======
</TABLE>

  Rental expense under operating lease agreements for the years ended December
31, 1999, 1998 and 1997 was $856,000, $778,000 and $719,000, 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 to be 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.

                                      48
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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 repaid in quarterly installments beginning April
2000 with the final payment due January 2003.

 (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.

(18) 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 remediate the property.

(19) Segment Information

  The company has adopted FASB No. 131 Disclosure about Segments of an
Enterprise and Related Information which uses a "management approach" for
determining the way the Company reports information about its operating
segments.

  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.

                                      49
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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.

<TABLE>
<CAPTION>
                                                     Funeral  Cemetery  Total
   (In thousands)                                    -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Revenues from external customers:
     1999........................................... $ 33,277 $ 55,126 $ 88,403
     1998...........................................   31,959   51,618   83,577
     1997...........................................   32,392   38,253   70,645
   Gross profit:
     1999...........................................   10,938   20,731   31,669
     1998...........................................   11,288   19,422   30,710
     1997...........................................   12,731   12,509   25,240
   Interest revenue (included in revenues):
     1999...........................................      --     6,189    6,189
     1998...........................................      --     6,071    6,071
     1997...........................................      --     4,934    4,934
   Depreciation:
     1999...........................................    2,411    1,557    3,968
     1998...........................................    1,660    1,299    2,959
     1997...........................................    1,268    1,025    2,293
   Total assets:
     1999...........................................  101,180  198,156  299,336
     1998...........................................  107,462  190,012  297,474
     1997...........................................  109,791  172,503  282,294
</TABLE>

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

<TABLE>
<CAPTION>
                                                   1999      1998      1997
                                                 --------  --------  --------
   <S>                                           <C>       <C>       <C>
   Gross profit of reportable segments.......... $ 31,669  $ 30,710  $ 25,240
     Corporate general and administrative
      expenses..................................   (7,352)   (7,420)   (6,726)
     Amortization of intangible assets..........   (3,707)   (3,752)   (3,776)
                                                 --------  --------  --------
   Total income from operations.................   20,610    19,538    14,738
     Interest expense...........................  (15,769)  (16,519)  (16,411)
     Income from settlement agreement...........    2,500       --        --
                                                 --------  --------  --------
       Income (loss) before taxes............... $  7,341  $  3,019  $ (1,673)
                                                 ========  ========  ========
</TABLE>

                                      50
<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 total assets of reportable segments to
consolidated total assets:

<TABLE>
<CAPTION>
                                                                1999     1998
                                                              -------- --------
   <S>                                                        <C>      <C>
   Assets of reportable segments............................. $299,336 $297,474
   Cash in corporate bank accounts...........................    2,150    1,645
   Deferred tax asset........................................    3,508    4,085
   Corporate capital assets..................................      --     7,933
   Deferred finance costs....................................    7,407    9,036
   Other.....................................................    5,411    1,760
                                                              -------- --------
     Total consolidated assets............................... $317,812 $321,933
                                                              ======== ========
</TABLE>

                                       51
<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, 1999 ............   1,127      1,248        32         (1,069)      1,338
  Year ended December
   31, 1998 ............   1,253      1,325       (77)        (1,374)      1,127
  Year ended December
   31, 1997 ............   1,082        862       147           (838)      1,253

 Long-term:
  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
  Year ended December
   31, 1997 ............   1,377      1,097       187         (1,067)      1,594
</TABLE>
--------
(1) Primarily consists of reclassifications to other accounts.
(2) Uncollected receivables written off, net of recoveries.

                                       52
<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
                                              Senior 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 24, 2000
___________________________________________  Officer and Director
              Dillis R. Ward

           /s/ Kenton C. Woods              Senior Vice President,     March 24, 2000
___________________________________________  Chief Financial Officer,
              Kenton C. Woods                Secretary and Treasurer
                                             (Principal Financial
                                             Officer)

           /s/ Mary C. Guzman               Vice President, Controller March 24, 2000
___________________________________________  (Principal Accounting
              Mary C. Guzman                 Officer)

          /s/ Dennis C. Poulsen             Chairman and Director      March 24, 2000
___________________________________________
             Dennis C. Poulsen

           /s/ Howard A. Lipson             Director                   March 24, 2000
___________________________________________
             Howard A. Lipson

            /s/ Chinh E. Chu                Director                   March 24, 2000
___________________________________________
               Chinh E. Chu

            /s/ David I. Foley              Director                   March 24, 2000
___________________________________________
              David I. Foley

                                            Director                   March   , 2000
___________________________________________
                John Lacey

                                            Director                   March   , 2000
___________________________________________
               Bradley Stam

           /s/ Michael G. Weeden            Director                   March 24, 2000
___________________________________________
             Michael G. Weeden
</TABLE>


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