Alderwoods 10Q 2005 Q2 Quarterly report

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

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 12 weeks (fiscal quarter) ended June 18, 2005
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission file number 000-33277

ALDERWOODS GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware	52-1522627
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
311 Elm Street, Suite 1000, Cincinnati, Ohio (Address of principal executive offices)	45202 (Zip Code)

Registrant's telephone number, including area code:513-768-7400

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No o

APPLICABLE ONLY TO CORPORATE ISSUERS

At July 16, 2005, there were 40,183,805 shares of Common Stock outstanding.

ALDERWOODS GROUP, INC.

			Page
Part I.	FINANCIAL INFORMATION
	Item 1.	FINANCIAL STATEMENTS:
		CONSOLIDATED BALANCE SHEETS as of June 18, 2005 and January 1, 2005	1
		CONSOLIDATED STATEMENTS OF OPERATIONS for the 12 and 24 Weeks Ended June 18, 2005 and June 19, 2004	2
		CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the 24 Weeks Ended June 18, 2005	3
		CONSOLIDATED STATEMENTS OF CASH FLOWS for the 12 and 24 Weeks Ended June 18, 2005 and June 19, 2004	4
		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS	5
	Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
	Item 4.	CONTROLS AND PROCEDURES	46
	FORWARD-LOOKING STATEMENTS AND RISK FACTORS		47
Part II.	OTHER INFORMATION
	Item 1.	LEGAL PROCEEDINGS	54
	Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	54
	Item 6.	EXHIBITS	55
SIGNATURES			59

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALDERWOODS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

Expressed in thousands of dollars
except number of shares

		June 18, 2005			January 1, 2005
		(unaudited)
ASSETS
Current assets
	Cash and cash equivalents	$	11,990		$	9,379
	Receivables, net of allowances		72,510			66,445
	Inventories		16,914			16,730
	Other		9,416			27,622
	Assets held for sale		—			82,056

			110,830			202,232
Pre-need funeral receivables and trust investments			333,931			336,030
Pre-need cemetery receivables and trust investments			307,354			311,654
Cemetery property			117,589			119,042
Property and equipment			534,200			540,255
Insurance invested assets			271,663			250,785
Deferred income tax assets			7,536			8,161
Goodwill			321,075			321,134
Cemetery perpetual care trust investments			245,930			246,052
Other assets			42,593			37,082

		$	2,292,701		$	2,372,427

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable and accrued liabilities	$	129,995		$	140,662
	Current maturities of long-term debt		2,620			9,083
	Liabilities associated with assets held for sale		—			61,428

			132,615			211,173
Long-term debt			407,247			454,557
Deferred pre-need funeral and cemetery contract revenue			88,966			82,971
Non-controlling interest in funeral and cemetery trusts			547,999			553,617
Insurance policy liabilities			238,164			214,745
Deferred income tax liabilities			32,503			20,357
Other liabilities			20,899			21,954

			1,468,393			1,559,374

Non-controlling interest in perpetual care trusts			244,604			257,141
Stockholders' equity
	Common stock, $0.01 par value, 100,000,000 shares authorized, 40,183,805 issued and outstanding (January 1, 2005 — 40,017,454)		402			400
	Capital in excess of par value		741,648			740,210
	Accumulated deficit		(188,371	)		(213,588	)
	Accumulated other comprehensive income		26,025			28,890

			579,704			555,912

		$	2,292,701		$	2,372,427

See accompanying notes to the interim consolidated financial statements

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Expressed in thousands of dollars
except per share amounts and number of shares

		12 Weeks Ended						24 Weeks Ended
		June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
Revenue
	Funeral	$	110,501		$	106,306		$	234,514		$	228,247
	Cemetery		43,914			38,271			82,218			74,827
	Insurance		22,363			17,704			43,931			36,110

			176,778			162,281			360,663			339,184

Costs and expenses
	Funeral		90,416			83,443			184,529			176,500
	Cemetery		36,640			32,834			69,824			64,384
	Insurance		21,532			17,219			41,818			34,723

			148,588			133,496			296,171			275,607

			28,190			28,785			64,492			63,577
General and administrative expenses			1,702			9,559			12,346			21,257
Provision for asset impairment			(408	)		(1,499	)		(1,627	)		572

			1,294			8,060			10,719			21,829

Income from operations			26,896			20,725			53,773			41,748
Interest on long-term debt (Note 3)			7,013			13,499			14,528			18,763
Other expense (income), net			(44	)		1,776			(5,843	)		678

Income before income taxes			19,927			5,450			45,088			22,307
Income taxes			7,001			2,185			18,193			7,773

Net income from continuing operations			12,926			3,265			26,895			14,534
Discontinued operations (Note 10)
	Loss from discontinued operations		(579	)		(8,116	)		(1,412	)		(17,218	)
	Income taxes		266			1,625			266			(1,046	)

Net loss from discontinued operations			(845	)		(9,741	)		(1,678	)		(16,172	)

Net income (loss)		$	12,081		$	(6,476	)	$	25,217		$	(1,638	)

Basic earnings per Common share:
	Net income from continuing operations	$	0.32		$	0.08		$	0.67		$	0.36
	Net loss from discontinued operations		(0.02	)		(0.24	)		(0.04	)		(0.40	)

	Net income (loss)	$	0.30		$	(0.16	)	$	0.63		$	(0.04	)

Diluted earnings per Common share:
	Net income from continuing operations	$	0.31		$	0.08		$	0.65		$	0.35
	Net loss from discontinued operations		(0.02	)		(0.24	)		(0.04	)		(0.39	)

	Net income (loss)	$	0.29		$	(0.16	)	$	0.61		$	(0.04	)

Basic weighted average number of shares outstanding (thousands)			40,108			39,997			40,078			39,993

Diluted weighted average number of shares outstanding (thousands)			41,390			41,297			41,375			41,169

See accompanying notes to the interim consolidated financial statements

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)

Expressed in thousands of dollars except number of shares

				Shares	Common Stock Par Value		Capital in Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2005				40,017,454	$	400	$	740,210	$	(213,588	)	$	28,890		$	555,912
Comprehensive income:
	Net income									25,217						25,217
	Other comprehensive income (loss):
		Foreign currency translation adjustment, net of income taxes of $nil											(1,822	)		(1,822	)
		Unrealized gain on insurance invested assets, net of income taxes of $148											275			275
			Less: reclassification adjustments for realized gains on insurance invested assets included in net income, net of income taxes of $153										(285	)		(285	)
		Unrealized loss on derivatives, net of income taxes of $nil											(593	)		(593	)
			Less: reclassification adjustments for realized gains on derivatives included in net income, net of income taxes of $nil										(440	)		(440	)

Comprehensive income																578,264
Common stock issued:
	Stock issued as compensation in lieu of cash			5,101		–		63								63
	Stock issued under equity incentive plan			161,250		2		1,375								1,377

Balance at June 18, 2005				40,183,805	$	402	$	741,648	$	(188,371	)	$	26,025		$	579,704

See accompanying notes to the interim consolidated financial statements

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Expressed in thousands of dollars

			12 Weeks Ended						24 Weeks Ended
			June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
CASH PROVIDED BY (APPLIED TO)
Operations
	Net income (loss)		$	12,081		$	(6,476	)	$	25,217		$	(1,638	)
	Loss from discontinued operations, net of tax			845			9,741			1,678			16,172
	Items not affecting cash
		Depreciation and amortization		10,958			8,947			21,095			18,100
		Amortization of debt issue costs		745			777			1,650			1,420
		Insurance policy benefit reserves		12,088			9,076			22,652			17,587
		Provision for asset impairment		(408	)		(1,499	)		(1,627	)		572
		Gain on disposal of business assets		(72	)		(409	)		(5,903	)		(1,495	)
		Deferred income taxes		6,303			(619	)		12,749			4,953
	Premium on long-term debt repurchase			—			1,110			282			1,110
	Other, including net changes in other non-cash balances			(13,824	)		12,998			(6,852	)		(18,232	)

Net cash provided by continuing operations				28,716			33,646			70,941			38,549
Net cash provided by (used in) discontinued operations				(811	)		6,488			(601	)		7,367

				27,905			40,134			70,340			45,916

Investing
	Proceeds on disposition of business assets			670			1,374			11,158			12,088
	Purchase of property and equipment			(11,709	)		(5,310	)		(16,314	)		(9,279	)
	Purchase of insurance invested assets			(17,170	)		(12,793	)		(65,231	)		(36,857	)
	Proceeds on disposition and maturities of insurance invested assets			9,712			7,952			47,491			23,602

	Net cash used in continuing operations			(18,497	)		(8,777	)		(22,896	)		(10,446	)
	Net cash provided by (used in) discontinued operations			6,744			751			7,906			(126	)

				(11,753	)		(8,026	)		(14,990	)		(10,572	)

Financing
	Increase in long-term debt			—			—			5,151			24,675
	Repayment of long-term debt			(22,136	)		(19,272	)		(59,208	)		(53,296	)
	Issuance of Common stock			1,107			9			1,375			9

	Net cash used in continuing operations			(21,029	)		(19,263	)		(52,682	)		(28,612	)
	Net cash used in discontinued operations			(11	)		(48	)		(57	)		(138	)

				(21,040	)		(19,311	)		(52,739	)		(28,750	)

Increase (decrease) in cash and cash equivalents				(4,888	)		12,797			2,611			6,594
Cash and cash equivalents, beginning of period				16,878			35,409			9,379			41,612

Cash and cash equivalents, end of period			$	11,990		$	48,206		$	11,990		$	48,206

See accompanying notes to the interim consolidated financial statements

ALDERWOODS GROUP, INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Tabular amounts expressed in thousands of dollars except per share amounts)

NOTE 1. NATURE OF OPERATIONS

Alderwoods Group, Inc., a Delaware corporation ("Alderwoods Group" and, together with its subsidiaries unless the context otherwise requires, the "Company"), is the second-largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of June 18, 2005, the Company operated 623 funeral homes, 73 cemeteries and 60 combination funeral homes and cemeteries throughout North America.

The Company's funeral operations encompass making funeral and cremation arrangements on an at-need or pre-need basis. The Company's funeral operations offer a full range of funeral services, including the collection of remains, registration of death, professional embalming, use of funeral home facilities, sale of caskets and other merchandise and transportation to a place of worship, funeral chapel, cemetery or crematorium.

The Company's cemetery operations 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, mausoleum crypts and other merchandise), the opening and closing of graves and cremation services.

The Company's insurance operations sell a variety of insurance products, primarily to fund pre-need funeral services.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The interim consolidated financial statements include the accounts of Alderwoods Group, its subsidiaries and operations controlled by the Company through sales and management agreements. All subsidiaries are wholly owned, except for a few companies with small minority interests. The interim consolidated financial statements also include the accounts of the funeral trusts, cemetery merchandise and service trusts and perpetual care trusts, and several pooled investment funds created for such trusts in which the Company has a variable interest and is the primary beneficiary.

All significant inter-entity balances and transactions have been eliminated in the consolidated financial statements. The interim consolidated financial statements have been prepared using the U.S. dollar and are presented in accordance with United States generally accepted accounting principles ("GAAP").

The interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which in management's opinion are necessary for a fair presentation of the financial results as of June 18, 2005, and for the 12 and 24 weeks ended June 18, 2005, and June 19, 2004. The interim consolidated financial statements have been prepared on a basis consistent with the accounting policies described in the Company's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the U.S. Securities and Exchange Commission ("SEC") and should be read in conjunction therewith.

The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year or for any other interim period.

Use of estimates

The preparation of the interim consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. As a result, actual amounts could significantly differ from those estimates.

Stock option plan

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"), Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123," ("FAS No. 148"), established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. However, as allowed by FAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described below, and has adopted the disclosure requirements of FAS No. 123 and FAS No. 148.

The Company applies the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, including FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25," to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Any compensation expense recorded is charged against operations over the service period, which generally matches the option vesting period. No stock-based employee compensation cost was recorded for the 24 weeks ended June 18, 2005, or the 24 weeks ended June 19, 2004, as all options granted under the Company's plans had an exercise price equal to or greater than the market value of the underlying Common stock on the grant date. The following table illustrates the effect on net income and net income per share, if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation.

		12 Weeks Ended						24 Weeks Ended
		June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
Net income (loss), as reported		$	12,081		$	(6,476	)	$	25,217		$	(1,638	)
Total stock-based employee compensation expense determined under fair value-based method, net of tax			(382	)		(649	)		(948	)		(1,285	)

Pro forma net income (loss)		$	11,699		$	(7,125	)	$	24,269		$	(2,923	)

Net income (loss) per Common share:
	Basic, as reported	$	0.30		$	(0.16	)	$	0.63		$	(0.04	)
	Basic, pro forma		0.29			(0.18	)		0.61			(0.07	)
	Diluted, as reported		0.29			(0.16	)		0.61			(0.04	)
	Diluted, pro forma		0.28			(0.17	)		0.59			(0.07	)

Comparability

Certain comparative amounts have been reclassified to conform to the presentation adopted in the current year, including, among other things, the reclassification of assets held for sale as discontinued operations.

Recent accounting standards

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("FAS No. 123R"). FAS No. 123R requires companies to recognize compensation expense in an amount equal to the fair value of the share-based payment (including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans) issued to employees. FAS No. 123R applies to all transactions involving issuance of equity by a company in exchange for goods and services, including employee services. FAS No. 123R is effective in the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. The Company will adopt FAS No. 123R in the first fiscal quarter of its 2006 fiscal year and expects to use the modified prospective application method, which results in no restatement of the Company's previously issued annual consolidated financial statements. The adoption of FAS No. 123R using the modified prospective application method is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, "Inventory Costs — an amendment of ARB No. 43, Chapter 4" ("FAS No. 151"). FAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. FAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of FAS No. 151 to have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchange of Non-monetary Assets — an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions" ("FAS No. 153"). The amendments made by FAS No. 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of non-monetary assets that do not have commercial substance. FAS No. 153 is to be applied prospectively and is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company elected to adopt FAS No. 153 on January 1, 2005. The adoption of FAS No. 153 had no material impact on the Company's consolidated financial position, results of operations or cash flows.

NOTE 3. LONG-TERM DEBT

Long-term debt consists of the following:

	June 18, 2005		January 1, 2005
Revolving credit facility (a)	$	—	$	—
Senior secured term loan B due in 2009 (a)(b)		200,707		246,826
7.75% Senior unsecured notes due in 2012 (c)		200,000		200,000
12.25% Senior unsecured notes due in 2009 (d)		—		4,509
Promissory notes and capitalized obligations, certain of which are secured by assets of certain subsidiaries		9,160		12,305

		409,867		463,640
Less, current maturities of long-term debt		2,620		9,083

	$	407,247	$	454,557

(a): In 2003, the Company entered into a senior secured facility (the "Credit Agreement"), which after subsequent amendments, includes a $368,000,000 Senior Secured Term Loan B due in 2009 (the "Term Loan B") and a $75,000,000 revolving credit facility (the "Revolving Credit Facility"), of which $35,000,000 is available in the form of letters of credit.

The Revolving Credit Facility is intended to be used primarily to fund the Company's working capital requirements. The Revolving Credit Facility bears interest at a rate per annum in accordance with graduated pricing based upon the Company's consolidated leverage ratio, and the Company has the option to elect an interest rate equal to either (i) a base rate (6.00% at June 18, 2005), plus 1.5% (based upon the Company's consolidated leverage ratio at June 18, 2005), or (ii) LIBOR (3.44% for the three-month LIBOR at June 18, 2005), plus 2.5% (based upon the Company's consolidated leverage ratio at June 18, 2005). An annual fee of 0.50% is charged on the unused portion of the Revolving Credit Facility. The Revolving Credit Facility matures on September 29, 2008.

Material covenants in the Credit Agreement include a requirement to maintain a minimum interest coverage ratio and fixed charge coverage ratio, a requirement not to exceed a maximum leverage ratio, an annual maximum on capital expenditures and cemetery development, and specified maximum amounts for capital lease obligations, indebtedness, acquisitions, certain investments, and sales of accounts receivable. Outstanding principal amounts and interest accrued and unpaid may, at the election of the requisite lenders, become immediately due and payable and further commitments by the lenders to make loans may, at the election of the requisite lenders, be terminated upon the occurrence of events of default specified in the Credit Agreement. As of June 18, 2005, the Company was in compliance with all covenants and was not in breach of any provision of the Credit Agreement that would cause an event of default to occur. The Credit Agreement is secured by specified real property, and substantially all personal property of Alderwoods Group and specified subsidiaries.

On March 18, 2005, Alderwoods Group, Inc. entered into an amendment to the Credit Agreement. The amendment modifies the Credit Agreement to provide Alderwoods Group, Inc. additional flexibility to introduce an employee stock purchase plan and other long-term incentive plans, increase the letter of credit sub-limit under the Revolving Credit Facility to $35,000,000 from $25,000,000, and make certain other agreed upon changes.

As of June 18, 2005, the amount available under the Revolving Credit Facility was $75,000,000, less $17,722,000 in outstanding letters of credit.

(b): The Term Loan B provides the Company with an option to elect an interest rate equal to either (i) a base rate (6.00% at June 18, 2005), plus 1.00%, or (ii) LIBOR (3.44% for the three-month LIBOR at June 18, 2005), plus 2.00%. The weighted average rate of interest was 5.28% at June 18, 2005. The Term Loan B is repayable in quarterly principal installments from June 18, 2005, to June 13, 2009 (subject to reduction for prepayments) of 0.25% of the aggregate principal amount of the Term Loan B outstanding as of December 3, 2004, with a lump sum payment of the then-outstanding amount on the maturity date. The Company has prepaid the required quarterly principal installments up to and including the third quarter of its 2006 fiscal year.
(c): On August 19, 2004, the Company issued the 7.75% Senior unsecured notes, due in 2012 (the "Eight-Year Senior Unsecured Notes"). Interest accrues at an annual rate of 7.75% and is payable semi-annually on March 15 and September 15 or, if such day is not a business day, the next succeeding business day. At any time prior to September 15, 2007, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes at a redemption price of 107.75% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture governing the Eight-Year Senior Unsecured Notes), if any, with net cash proceeds from specified equity offerings, provided at least 65% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes remains outstanding and the redemption occurs within 90 days of the date of the closing of the specified equity offering. On or after September 15, 2008, the Company may, at its option, redeem all or part of the Eight-Year Senior Unsecured Notes at the redemption prices (expressed as percentages of the stated principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, if redeemed during the twelve-month period beginning on September 15 of the years indicated below:

Year		Percentage
2008		103.875
2009		101.938
2010 and thereafter		100.000

(d): On January 2, 2002, the Company issued the 12.25% Senior unsecured notes, due 2009. On April 21, 2004, the Company repurchased the principal amount of $9,248,000 at a premium of $1,110,000, plus accrued interest. The premium is included in interest expense for the 12 weeks ended June 19, 2004.

On August 19, 2004, the Company repurchased the principal amount of $316,243,000 at a premium of $31,340,000, plus accrued interest pursuant to an offer to purchase and consent solicitation. The premium is included in interest expense for the 16 weeks ended October 9, 2004.

On January 3, 2005, the Company repurchased the remaining principal amount of $4,509,000 at a premium of $282,000, plus accrued interest. The premium is included in interest expense for the 12 weeks ended March 26, 2005.

The Credit Agreement and the Eight-Year Senior Unsecured Notes are guaranteed by substantially all of Alderwoods Group's wholly-owned U.S. subsidiaries, other than Alderwoods Group's insurance

subsidiaries and other specified excluded subsidiaries. Alderwoods Group, the parent company, has no independent assets or operations, and the guarantees of its guarantor subsidiaries are full and unconditional, and joint and several.

In certain change of control situations, Alderwoods Group is required to make an offer to purchase the then-outstanding Eight-Year Senior Unsecured Notes at a price equal to 101% of their stated principal amount, plus accrued and unpaid interest to the applicable repurchase date and Liquidated Damages, if any.

The Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes restrict the Company's ability to engage in asset sales. The Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes prohibit dispositions of assets unless the assets disposed of fulfill the requirements of specified exceptions. The indenture governing the Eight-Year Senior Unsecured Notes excepts, among other exceptions, assets with a fair market value less than $5,000,000. One specified exception contained in the Credit Agreement is dispositions of any of a group of identified "discontinued assets;" another is dispositions of assets not exceeding $35,000,000 book value in the aggregate over the life of the Credit Agreement, provided that (i) the consideration received is at least equal to fair market value and (ii) not less than 75% of the consideration is paid in cash or cash equivalents. Within 270 days of the receipt of net proceeds from any such asset sale, the Company has the ability to apply such net proceeds at its option (or as otherwise required) to invest in non-current operating assets (or enter into agreements for such investment which agreements are consummated within 360 days of such receipt of asset sale proceeds). Up to $10,000,000 of such net proceeds in any fiscal year (but not in excess of $40,000,000 in the aggregate over the term of the Credit Agreement) may be applied to make capital expenditures. To the extent the Company receives net proceeds in excess of additional specified thresholds and such excess is not applied to invest in non-current operating assets or make capital expenditures as described in the two immediately preceding sentences, the Company must make mandatory repayments under the Credit Agreement and, after all indebtedness under the Credit Agreement has been repaid, offer to purchase the Eight-Year Senior Unsecured Notes at a purchase price equal to 100.00% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages, if any.

Covenants in the Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes restrict, and under specified circumstances prohibit, the payment of dividends by the Company.

In connection with the issuance of the Eight-Year Senior Unsecured Notes, the Company entered into a registration rights agreement, pursuant to which the Company was required, on or prior to May 16, 2005, to file an exchange offer registration statement on an appropriate form under the Securities Act of 1933 with the SEC. On May 12, 2005, the Company filed the exchange offer registration statement with the SEC. The registration statement was subsequently declared effective by the SEC on June 7, 2005. On June 8, 2005, the Company commenced an exchange offer (the "Exchange Offer") pursuant to which holders of the Eight-Year Senior Unsecured Notes were given the opportunity to exchange their outstanding notes for new notes with substantially identical terms covered by the exchange offer registration statement. The Company consummated the Exchange Offer on July 18, 2005.

NOTE 4. LEGAL CONTINGENCIES

Funeral Consumers Alliance, Inc. et al v. Alderwoods Group, Inc. et al; In the United States District Court for the Northern District of California; Case No. C0501804. This lawsuit, filed in April 2005 and served on the Company in May 2005, is a purported class action on behalf of all persons and entities that have purchased caskets in the United States. The suit names as defendants the Company and four other public companies involved in the funeral or casket industry. The plaintiffs allege that defendants violated federal and state antitrust laws by engaging in anticompetitive practices with respect to sales of caskets and overcharged for caskets. The lawsuit seeks injunctions, an unspecified amount of monetary damages and treble damages. Since this lawsuit is in its preliminary stages, no discovery has occurred, and we cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

Ralph Fancher et al v. Alderwoods Group, Inc. et al; In the United States District Court, Eastern District of Tennessee at Greenville; Case No. 2:05CV145. This lawsuit, filed and served on the Company in May 2005, makes claims similar to those made in the Funeral Consumers Alliance lawsuit, again purporting to allege a national class action and seeking relief which would be essentially duplicative of that sought in the Funeral Consumers Alliance lawsuit. Since this lawsuit is in its preliminary stages, no discovery has occurred, and the Company cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

Maria Magsarili, et al v. Alderwoods Group, Inc. et al; In the United States District Court, Northern District of California; Case No. C052792MEJ. This lawsuit, filed and served on the Company in July 2005, makes claims similar to those made in the Funeral Consumers Alliance lawsuit and Fancher lawsuit described above, purporting to allege a national class action and seeking relief which would be essentially duplicative of the other two suits. Since this lawsuit is in its preliminary stages, no discovery has occurred, and the Company cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

Richard Sanchez el al v. Alderwoods Group, Inc. et al; In the Superior Court of the State of California, for the County of Los Angeles, Central District; Case No. BC328962. This lawsuit, filed in February 2005 and served on the Company in April 2005, seeks to certify a nationwide class on behalf of all plaintiffs who purchased funeral goods and services from the Company. Plaintiffs allege that federal and California regulations and statutes required the Company to disclose its markups on all items obtained from third parties in connection with funeral service contracts and that the failure to make certain disclosures of markups resulted in breach of contract and other legal claims. Plaintiffs seek to recover an unspecified amount of monetary damages, attorneys' fees, costs and unspecified "injunctive and declaratory relief." Since this lawsuit is in its preliminary stages, no discovery has occurred, and the Company cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

In addition, the Company is party to other legal proceedings in the ordinary course of business, and does not expect the outcome of these proceedings, individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or liquidity.

NOTE 5. SUPPLEMENTARY STATEMENTS OF CASH FLOWS DISCLOSURE

Supplemental disclosures related to the statement of cash flows consist of the following:

			12 Weeks Ended						24 Weeks Ended
			June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
Decrease (increase) in assets:
	Receivables, net of allowances
		Trade	$	4,352		$	6,136		$	11,483		$	10,082
		Other		(14,991	)		(5,069	)		(14,385	)		(6,666	)
	Inventories			(199	)		(1,359	)		(254	)		(1,962	)
	Prepaid expenses			1,043			(765	)		17,149			(3,642	)
	Cemetery property			(3,139	)		(1,007	)		(4,076	)		(2,026	)
	Other assets			(1,460	)		(1,043	)		(3,547	)		(5,041	)
Increase (decrease) in liabilities:
	Accounts payable and accrued liabilities			906			7,777			(10,501	)		(19,441	)
	Net effect of pre-need receivables and deferred revenue			(1,590	)		7,420			2,933			13,321
	Other liabilities			3,634			198			(2,892	)		4,518
	Insurance policy liabilities			(244	)		489			767			870
	Other changes in non-cash balances			(2,136	)		221			(3,529	)		(8,245	)

			$	(13,824	)	$	12,998		$	(6,852	)	$	(18,232	)

Supplemental information:
	Interest paid		$	3,008		$	5,203		$	14,864		$	22,449
	Income taxes paid, net of refunds			1,741			2,401			2,132			2,819
	Bad debt expense			633			875			1,166			1,837
Non-cash investing and financing activities:
	Stock issued in connection with the settlement of certain unsecured claims			—			—			—			31
	Stock issued as compensation in lieu of cash			48			39			63			84
	Restricted cash investing and financing activities:
		Purchases of funeral, cemetery, and perpetual care trust investments		249,159			38,923			356,433			67,690
		Proceeds on disposition and maturities of funeral, cemetery, and perpetual care trust investments		265,648			43,601			413,116			71,100
		Increase in non-controlling interests in funeral, cemetery and perpetual care trusts		11,758			13,004			23,346			23,016
		Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts upon fulfillment of pre-need contracts		22,397			10,946			36,411			23,881

NOTE 6. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

		June 18, 2005			January 1, 2005
Receivables, net of allowances:
	Customer receivables	$	58,596		$	68,721
	Allowance for doubtful accounts		(10,239	)		(12,029	)
	Other		24,153			9,753

		$	72,510		$	66,445

Pre-need funeral receivables and trust investments:
	Customer receivables	$	37,264		$	37,146
	Allowance for contract cancellations and refunds		(16,251	)		(17,287	)
	Funeral trust investments		284,286			288,928
	Amounts receivable from funeral trusts, net of allowances		28,632			27,243

		$	333,931		$	336,030

Pre-need cemetery receivables and trust investments:
	Customer receivables	$	67,439		$	64,130
	Unearned finance income		(6,064	)		(5,759	)
	Allowance for contract cancellations and refunds		(18,993	)		(17,538	)
	Cemetery merchandise and service trust investments		264,972			270,821

		$	307,354		$	311,654

Cemetery property:
	Developed land and lawn crypts	$	36,954		$	37,623
	Undeveloped land		30,924			30,685
	Mausoleums		49,711			50,734

		$	117,589		$	119,042

Property and equipment:
	Land	$	161,136		$	166,252
	Buildings and improvements		372,787			368,501
	Automobiles		12,723			13,014
	Furniture, fixtures and equipment		61,670			54,432
	Computer hardware and software		24,576			23,310
	Accumulated depreciation and amortization		(98,692	)		(85,254	)

		$	534,200		$	540,255

Other assets:
	Intangible assets	$	16,948		$	15,060
	Debt issue costs		8,856			10,339
	Notes receivable		3,105			2,696
	Other		13,684			8,987

		$	42,593		$	37,082

Accounts payable and accrued liabilities:
	Trade payables	$	13,924	$	19,847
	Interest		5,381		7,210
	Accrued liabilities		15,609		32,423
	Accrued insurance		17,316		18,058
	Accrued taxes		48,822		44,785
	Other		28,943		18,339

		$	129,995	$	140,662

Deferred pre-need contract revenue:
	Funeral	$	70,136	$	69,098
	Cemetery		18,830		13,873

		$	88,966	$	82,971

Other liabilities:
	Perpetual care liability	$	7,546	$	7,490
	Other		13,343		14,464

		$	20,899	$	21,954

NOTE 7. SEGMENT REPORTING

The Company's reportable segments are comprised of the three businesses it operates, each of which offers different products and services: funeral homes, cemeteries and insurance. There has been no change in the basis of this segmentation, accounting policies of the segments or the basis of measurement of segment profit or loss from that disclosed in the Company's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the SEC.

The Company sells primarily to external customers, though any intersegment sales or transfers occur at market price. The Company evaluates performance based on income from operations of the respective businesses.

For the 12 Weeks Ended:		Funeral		Cemetery		Insurance		Other			Consolidated
Revenue earned from external sales:
	June 18, 2005	$	110,501	$	43,914	$	22,363	$	—		$	176,778
	June 19, 2004	$	106,306	$	38,271	$	17,704	$	—		$	162,281
Income from operations:
	June 18, 2005	$	20,493	$	7,275	$	830	$	(1,702	)	$	26,896
	June 19, 2004	$	24,361	$	5437	$	485	$	(9,558	)	$	20,725
Depreciation and amortization:
	June 18, 2005	$	5,724	$	3,970	$	26	$	1,238		$	10,958
	June 19, 2004	$	5,440	$	2,768	$	27	$	712		$	8,947

For the 24 Weeks Ended:		Funeral		Cemetery		Insurance		Other			Consolidated
Revenue earned from external sales:
	June 18, 2005	$	234,514	$	82,218	$	43,931	$	—		$	360,663
	June 19, 2004	$	228,247	$	74,827	$	36,110	$	—		$	339,184
Income from operations:
	June 18, 2005	$	50,254	$	13,752	$	2,113	$	(12,346	)	$	53,773
	June 19, 2004	$	51,003	$	10,615	$	1,387	$	(21,257	)	$	41,748
Depreciation and amortization:
	June 18, 2005	$	11,436	$	7,255	$	66	$	2,338		$	21,095
	June 19, 2004	$	10,919	$	5,688	$	74	$	1,419		$	18,100
Total assets at:
	June 18, 2005	$	1,110,654	$	817,683	$	298,295	$	66,069		$	2,292,701
	January 1, 2005	$	1,154,019	$	878,349	$	272,823	$	67,236		$	2,372,427
Goodwill at:
	June 18, 2005	$	321,075	$	—	$	—	$	—		$	321,075
	January 1, 2005	$	321,134	$	—	$	—	$	—		$	321,134

The following table reconciles earnings from operations of reportable segments to total income and identifies the components of "Other" segment earnings from operations:

		12 Weeks Ended						24 Weeks Ended
		June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
Earnings from operations of funeral, cemetery and insurance segments		$	28,598		$	30,283		$	66,119		$	63,005
Other expenses of operations:
	General and administrative expenses	$	(1,702	)	$	(9,558	)	$	(12,346	)	$	(21,257	)

Income from operations		$	26,896		$	20,725		$	53,773		$	41,748

NOTE 8. CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION

The following presents the condensed consolidating guarantor financial information as of June 18, 2005 and January 1, 2005 and for the 12 and 24 weeks ended June 18, 2005 and June 19, 2004 for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the 7.75% senior unsecured notes due in 2012, and the Company's subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Canadian and Puerto Rican subsidiaries, insurance subsidiaries and certain domestic subsidiaries that are prohibited by law from guaranteeing the 7.75% senior unsecured notes due in 2012.

Alderwoods Group, Inc.
Condensed Consolidating Balance Sheets (unaudited)
Expressed in thousands of dollars

				June 18, 2005
				Parent Company		Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
ASSETS
	Cash and cash equivalents			$	—	$	8,728		$	3,262		$	—		$	11,990
	Other current assets				—		84,906			13,934			—			98,840
	Pre-need funeral receivables and trust investments				—		257,650			287,005			(210,724	)		333,931
	Pre-need cemetery receivables and trust investments				—		284,632			271,316			(248,594	)		307,354
	Property and equipment and cemetery property				—		548,238			103,551			—			651,789
	Insurance invested assets				—		—			271,663			—			271,663
	Goodwill				—		272,225			48,850			—			321,075
	Investment in subsidiaries				1,036,643		(105,639	)		—			(931,004	)		—
	Cemetery perpetual care trust investment				—		700			245,230			—			245,930
	Other assets				8,856		19,972			21,301			—			50,129

			Total assets	$	1,045,499	$	1,371,412		$	1,266,112		$	(1,390,322	)	$	2,292,701

LIABILITIES AND STOCKHOLDERS' EQUITY
	Liabilities:
		Current liabilities		$	42,179	$	68,724		$	19,092		$	—		$	129,995
		Current maturities of long-term debt			—		2,580			40			—			2,620
		Intercompany, net of investments in and advances to affiliates			22,893		(79,087	)		197,293			(141,099	)		—
		Long-term debt			400,707		6,517			23			—			407,247
		Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts			—		527,027			569,257			(459,319	)		636,965
		Insurance policy liabilities			—		—			238,164			—			238,164
		Other liabilities			16		46,260			7,126			—			53,402
	Non-controlling interest in perpetual care trusts				—		—			244,604			—			244,604
	Stockholders' equity				579,704		799,391			(9,487	)		(789,904	)		579,704

			Total liabilities and stockholders' equity	$	1,045,499	$	1,371,412		$	1,266,112		$	(1,390,322	)	$	2,292,701

Alderwoods Group, Inc.
Condensed Consolidating Balance Sheets
Expressed in thousands of dollars

				January 1, 2005
				Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
ASSETS
	Cash and cash equivalents			$	—		$	6,385		$	2,994		$	—		$	9,379
	Other current assets				—			98,759			12,038			—			110,797
	Assets held for sale				—			31,695			72,649			(22,288	)		82,056
	Pre-need funeral receivables and trust investments				—			261,568			292,069			(217,607	)		336,030
	Pre-need cemetery receivables and trust investments				—			283,435			271,003			(242,784	)		311,654
	Property and equipment and cemetery property				—			557,671			101,626			—			659,297
	Insurance invested assets				—			—			250,785			—			250,785
	Goodwill				—			274,691			46,443			—			321,134
	Investment in subsidiaries				995,959			(98,582	)		—			(897,377	)		—
	Cemetery perpetual care trust investment				—			827			245,225			—			246,052
	Other assets				10,339			15,926			18,978			—			45,243

			Total assets	$	1,006,298		$	1,432,375		$	1,313,810		$	(1,380,056	)	$	2,372,427

LIABILITIES AND STOCKHOLDERS' EQUITY
	Liabilities:
		Current liabilities		$	42,827		$	84,062		$	13,773		$	—		$	140,662
		Current maturities of long-term debt			4,509			2,838			1,736			—			9,083
		Intercompany, net of investments in and advances to affiliates			(43,793	)		(28,860	)		184,458			(111,805	)		—
		Liabilities associated with assets held for sale			—			24,515			59,201			(22,288	)		61,428
		Long-term debt			446,826			7,708			23			—			454,557
		Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts			—			521,111			575,868			(460,391	)		636,588
		Insurance policy liabilities			—			—			214,745			—			214,745
		Other liabilities			16			29,410			12,885			—			42,311
	Non-controlling interest in perpetual care trusts				—			—			257,141			—			257,141
	Stockholders' equity				555,913			791,591			(6,020	)		(785,572	)		555,912

			Total liabilities and stockholders' equity	$	1,006,298		$	1,432,375		$	1,313,810		$	(1,380,056	)	$	2,372,427

Alderwoods Group, Inc.
Condensed Consolidating Statement of Operations (unaudited)
Expressed in thousands of dollars

		12 Weeks Ended June 18, 2005
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	134,168		$	42,610		$	—		$	176,778
Costs and expenses			—			109,596			38,992			—			148,588
General and administrative expenses			(181	)		(12,990	)		14,873			—			1,702
Provision for asset impairment			—			(408	)		—			—			(408	)

Income (loss) from operations			181			37,970			(11,255	)		—			26,896
Interest on long-term debt			6,798			216			(22	)		21			7,013
Intercompany charges			2,938			4,273			(7,211	)		—			—
Other expense (income), net			—			(197	)		153			—			(44	)

Income (loss) before income taxes			(9,555	)		33,678			(4,175	)		(21	)		19,927
Income taxes			(839	)		22,685			258			(15,103	)		7,001

Net income (loss) from continuing operations			(8,716	)		10,993			(4,433	)		15,082			12,926

Equity in subsidiaries			20,799			(890	)					(19,909	)		—
Discontinued operations
	Income (loss) from discontinued operations		—			(703	)		103			21			(579	)
	Income taxes		—			—			266			—			266

	Net income (loss) from discontinued operations		—			(703	)		(163	)		21			(845	)

Net income (loss)		$	12,083		$	9,400		$	(4,596	)	$	(4,806	)	$	12,081

Alderwoods Group, Inc.
Condensed Consolidating Statement of Operations (unaudited)
Expressed in thousands of dollars

		12 Weeks Ended June 19, 2004
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	126,019		$	36,262		$	—		$	162,281
Costs and expenses			—			100,859			32,637			—			133,496
General and administrative expenses			—			(1,075	)		10,634			—			9,559
Provision for asset impairment			—			(1,531	)		32			—			(1,499	)

Income (loss) from operations			—			27,766			(7,041	)		—			20,725
Interest on long-term debt			14,060			368			43			(972	)		13,499
Intercompany charges			2,026			2,035			(4,061	)		—			—
Other expense (income), net			—			1,974			(198	)		—			1,776

Income (loss) before income taxes			(16,086	)		23,389			(2,825	)		972			5,450
Income taxes			1,810			10,259			364			(10,248	)		2,185

Net income (loss) from continuing operations			(17,896	)		13,130			(3,189	)		11,220			3,265

Equity in subsidiaries			11,421			(5,027	)		—			(6,394	)		—
Discontinued operations
	Loss from discontinued operations		—			(4,478	)		(2,666	)		(972	)		(8,116	)
	Income taxes		—			798			827			—			1,625

	Net loss		—			(5,276	)		(3,493	)		(972	)		(9,741	)

Net income (loss)		$	(6,475	)	$	2,827		$	(6,682	)	$	3,854		$	(6,476	)

Alderwoods Group, Inc.
Condensed Consolidating Statement of Operations (unaudited)
Expressed in thousands of dollars

		24 Weeks Ended June 18, 2005
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	274,526		$	86,137		$	—		$	360,663
Costs and expenses			—			219,541			76,630			—			296,171
General and administrative expenses			(262	)		(14,124	)		26,732			—			12,346
Provision for asset impairment			—			(1,606	)		(21	)		—			(1,627	)

Income (loss) from operations			262			70,715			(17,204	)		—			53,773
Interest on long-term debt			14,108			402			18			—			14,528
Intercompany charges			5,147			10,756			(15,903	)		—			—
Other expense (income), net			—			(6,124	)		281			—			(5,843	)

Income (loss) before income taxes			(18,993	)		65,681			(1,600	)		—			45,088
Income taxes			(663	)		46,640			1,511			(29,295	)		18,193

Net income (loss) from continuing operations			(18,330	)		19,041			(3,111	)		29,295			26,895

Equity in subsidiaries			43,548			(812	)		—			(42,736	)		—
Discontinued operations
	Loss from discontinued operations		—			(1,248	)		(164	)		—			(1,412	)
	Income taxes		—			—			266			—			266

	Net loss from discontinued operations		—			(1,248	)		(430	)		—			(1,678	)

Net income (loss)		$	25,218		$	16,981		$	(3,541	)	$	(13,441	)	$	25,217

Alderwoods Group, Inc.
Condensed Consolidating Statement of Operations (unaudited)
Expressed in thousands of dollars

		24 Weeks Ended June 19, 2004
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	264,302		$	74,882		$	—		$	339,184
Costs and expenses			—			209,843			65,764			—			275,607
General and administrative expenses			2			1			21,254			—			21,257
Provision for asset impairment			—			440			132			—			572

Income (loss) from operations			(2	)		54,018			(12,268	)		—			41,748
Interest on long-term debt			19,848			759			99			(1,943	)		18,763
Intercompany charges			3,606			8,251			(11,857	)		—			—
Other expense (income), net			—			741			(63	)		—			678

Income (loss) before income taxes			(23,456	)		44,267			(447	)		1,943			22,307
Income taxes			1,833			24,403			1,695			(20,158	)		7,773

Net income (loss) from continuing operations			(25,289	)		19,864			(2,142	)		22,101			14,534

Equity in subsidiaries			23,651			(5,620	)		—			(18,031	)		—
Discontinued operations
	Loss from discontinued operations		—			(14,016	)		(1,259	)		(1,943	)		(17,218	)
	Income taxes		—			(2,921	)		1,875			—			(1,046	)

	Net loss from discontinued operations		—			(11,095	)		(3,134	)		(1,943	)		(16,172	)

Net income (loss)		$	(1,638	)	$	3,149		$	(5,276	)	$	2,127		$	(1,638	)

Alderwoods Group, Inc.
Condensed Consolidating Statement of Cash Flows (unaudited)
Expressed in thousands of dollars

	12 Weeks Ended June 18, 2005
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	18,893		$	(11,246	)	$	21,090		$	(21	)	$	28,716
Cash flows from operating activities of discontinuing operations		—			394			(1,226	)		21			(811	)
Cash flows from investing activities of continuing operations		—			(4,657	)		(13,840	)		—			(18,497	)
Cash flows from investing activities of discontinuing operations		—			6,033			711			—			6,744
Cash flows from financing activities of continuing operations		(18,893	)		(633	)		(1,503	)		—			(21,029	)
Cash flows from financing activities of discontinuing operations		—			(11	)					—			(11	)

Increase (decrease) in cash and cash equivalents		—			(10,120	)		5,232			—			(4,888	)
Cash and cash equivalents, beginning of period		—			18,848			(1,970	)		—			16,878

Cash and cash equivalents, end of period	$	—		$	8,728		$	3,262		$	—		$	11,990

Alderwoods Group, Inc.
Condensed Consolidating Statement of Cash Flows (unaudited)
Expressed in thousands of dollars

	12 Weeks Ended June 19, 2004
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	15,511		$	12,671		$	4,492		$	972		$	33,646
Cash flows from operating activities of discontinuing operations		—			5,912			1,601			(1,025	)		6,488
Cash flows from investing activities of continuing operations		—			(3,622	)		(5,155	)		—			(8,777	)
Cash flows from investing activities of discontinuing operations		—			1,471			(720	)		—			751
Cash flows from financing activities of continuing operations		(15,511	)		(3,690	)		(115	)		53			(19,263	)
Cash flows from financing activities of discontinuing operations		—			(48	)					—			(48	)

Increase in cash and cash equivalents		—			12,694			103			—			12,797
Cash and cash equivalents, beginning of period		—			31,748			3,661			—			35,409

Cash and cash equivalents, end of period	$	—		$	44,442		$	3,764		$	—		$	48,206

Alderwoods Group, Inc.
Condensed Consolidating Statement of Cash Flows (unaudited)
Expressed in thousands of dollars

	24 Weeks Ended June 18, 2005
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments		Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	49,534		$	(5,790	)	$	27,197		$	—	$	70,941
Cash flows from operating activities of discontinuing operations		—			661			(1,262	)		—		(601	)
Cash flows from investing activities of continuing operations		—			2,870			(25,766	)		—		(22,896	)
Cash flows from investing activities of discontinuing operations		—			6,127			1,779			—		7,906
Cash flows from financing activities of continuing operations		(49,534	)		(1,516	)		(1,632	)		—		(52,682	)
Cash flows from financing activities of discontinuing operations		—			(9	)		(48	)		—		(57	)

Increase in cash and cash equivalents		—			2,343			268			—		2,611
Cash and cash equivalents, beginning of period		—			6,385			2,994			—		9,379

Cash and cash equivalents, end of period	$	—		$	8,728		$	3,262		$	—	$	11,990

Alderwoods Group, Inc.
Condensed Consolidating Statement of Cash Flows (unaudited)
Expressed in thousands of dollars

	24 Weeks Ended June 19, 2004
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	19,528		$	3,734		$	13,344		$	1,943		$	38,549
Cash flows from operating activities of discontinuing operations		—			5,565			3,879			(2,077	)		7,367
Cash flows from investing activities of continuing operations		—			4,538			(14,984	)		—			(10,446	)
Cash flows from investing activities of discontinuing operations		—			3,413			(3,539	)		—			(126	)
Cash flows from financing activities of continuing operations		(19,528	)		(8,985	)		(233	)		134			(28,612	)
Cash flows from financing activities of discontinuing operations		—			(95	)		(43	)		—			(138	)

Increase (decrease) in cash and cash equivalents		—			8,170			(1,576	)		—			6,594
Cash and cash equivalents, beginning of period		—			36,271			5,341			—			41,612

Cash and cash equivalents, end of period	$	—		$	44,441		$	3,765		$	—		$	48,206

NOTE 9. PROVISION FOR ASSET IMPAIRMENT

In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), the Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. FAS No. 144 requires that long-lived assets to be held and used be recorded at the lower of carrying amount or fair value. Long-lived assets to be disposed of are to be recorded at the lower of carrying amount or fair value, less estimated costs to sell.

During the 12 weeks ended June 18, 2005, as part of the Company's ongoing assessment to ensure that each of the Company's properties fit into the Company's strategy, the Company identified eight funeral homes and one combination property for sale. These properties remain unsold as of June 18, 2005. The carrying amount of these locations was $3,891,000. The fair market values were determined by specific offers or bids, or estimates based on comparable recent sales transactions. The Company has recorded a pre-tax long-lived asset impairment of $250,000 to record those assets available for sale at the lower of carrying amount of fair market value less estimated costs to sell. For the 24 weeks ended June 18, 2005, these properties had funeral home revenues and costs of $947,000 and $866,000 (June 19, 2004 — $773,000

and $774,000), respectively, and cemetery revenues and costs of $196,000 and $167,000 (June 19, 2004 — $252,000 and $206,000), respectively.

The assets of $8,820,000 (January 1, 2005 — $9,576,000) and liabilities of $4,929,000 (January 1, 2005 — $5,545,000) of these locations have not been reclassified to assets held for sale and liabilities associated with assets held for sale in the balance sheet.

During the 12 weeks ended June 18, 2005, the Company also reversed a previous impairment of $639,000 to reflect an adjustment to the carrying amount of real estate previously sold.

During the 12 weeks ended June 19, 2004, the Company reversed a previous impairment of $1,499,000 to remove certain locations from discontinued operations because they were no longer going to be sold, or were going to be sold for higher proceeds as real estate.

The asset impairment provisions include management estimates. As a result, actual results could differ significantly from these estimates.

NOTE 10. DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE

Over the previous three fiscal years, the Company engaged in a substantial strategic market rationalization assessment to dispose of cemetery and funeral operating locations that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The Company will on a smaller scale and over time, continue to assess the Company's portfolio of funeral and cemetery locations to ensure they continue to fit into the Company's strategy (Note 9).

As of June 18, 2005, the Company has completed the strategic market rationalization program except for one cemetery which was classified back to continuing operations during the 12 weeks ended June 18, 2005.

The operating results of discontinued operations are summarized in the following table:

		12 Weeks Ended						24 Weeks Ended
		June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
Revenue
	Funeral	$	394		$	5,573		$	1,853		$	12,427
	Cemetery		144			4,175			598			8,501
	Insurance		—			12,451			—			25,848

		$	538		$	22,199		$	2,451		$	46,776

Gross margin
	Funeral	$	(170	)	$	476		$	(152	)	$	1,037
	Cemetery		(60	)		413			(237	)		396
	Insurance		—			2,374			—			5,181

			(230	)		3,263			(389	)		6,614
Provision for asset impairment			—			10,938			568			22,466
Other expense (income), net			371			(544	)		455			(601	)

Loss from discontinued operations			(601	)		(7,131	)		(1,412	)		(15,251	)
Interest on long-term debt			(22	)		985			—			1,967

Loss from discontinued operations, before tax			(579	)		(8,116	)		(1,412	)		(17,218	)
Income tax provision for discontinued operations			266			1,625			266			(1,046	)

Net loss from discontinued operations		$	(845	)	$	(9,741	)	$	(1,678	)	$	(16,172	)

Depreciation included in gross margin of discontinued operations		$	7		$	153		$	20		$	300

Details of assets held for sale at January 1, 2005, are as follows:

		Funeral		Cemetery		Total
Assets held for sale
	Current assets	$	2,141	$	215	$	2,356
	Pre-need receivables and trust investments		21,818		33,790		55,608
	Cemetery property		—		—		—
	Property and equipment		11,110		—		11,110
	Other assets		209		12,773		12,982

		$	35,278	$	46,778	$	82,056

Liabilities associated with assets held for sale
	Current liabilities	$	67	$	260	$	327
	Deferred pre-need contract revenue		1,971		3,691		5,662
	Non-controlling interest in funeral and cemetery trusts		20,034		34,306		54,340
	Other liabilities		412		687		1,099

		$	22,484	$	38,944	$	61,428

Non-controlling interest in perpetual care trusts		$	—	$	11,819	$	11,819

NOTE 11. INCOME PER SHARE

The basic and diluted income per share computations for net income were as follows:

		12 Weeks Ended					24 Weeks Ended
		June 18, 2005		June 19, 2004			June 18, 2005		June 19, 2004
Income (numerator):
Net income (loss) attributable to Common stockholders		$	12,081	$	(6,476	)	$	25,217	$	(1,638	)

Shares (denominator):
	Basic weighted average number of shares of Common stock outstanding (thousands)		40,108		39,997			40,078		39,993
	Effect of stock options assumed exercised		1,282		1,300			1,297		1,176

Diluted weighted average number of shares of Common stock outstanding (thousands)			41,390		41,297			41,375		41,169

For the 12 and 24 weeks ended June 18, 2005, 2,604,500 employee and director stock options were dilutive to earnings and are included in the computation of diluted earnings per share. Employee and director stock options to purchase 1,762,500 shares of Common stock and warrants to purchase 2,992,000 shares of Common stock were not included in the computation of diluted earnings per share, because they were anti-dilutive.

NOTE 12. SUBSEQUENT EVENT

On July 14, 2005 the Company and certain of its subsidiaries entered into a settlement agreement with, among others, the makers of the notes representing $15 million in aggregate principal amount issued to such subsidiaries as part of the purchase price for the 2001 sale by the predecessor company of its interests in certain Michigan cemeteries. As part of the settlement, the Company received $11.5 million in satisfaction of all outstanding obligations under the notes, including approximately $600,000 in accrued and unpaid interest under the notes. The Company had established an allowance against the full principal amount of the notes at the time of sale of the cemeteries due to concerns over collectability of the notes. For the 12 weeks ended June 18, 2005, the Company has recorded the $10.9 million reduction in the allowance in general and administrative expenses.

On July 21, 2005, the Board of Directors of Alderwoods Group: (1) adopted new employment agreements with each of John S. Lacey, Chairman of the Board, Paul A. Houston, President and Chief Executive Officer, Kenneth A. Sloan, Executive Vice President, Chief Financial Officer, and Ross S. Caradonna, Executive Vice President, Chief Information Officer, in each case to be effective August 1, 2005 and to replace the existing employment agreement with such individual; (2) adopted an amendment to the 2003-2005 Executive Strategic Incentive Plan; and (3) adopted the 2005-2007 Executive Strategic Incentive Plan.

Alderwoods Group is filing, on the date of the filing of this Quarterly Report on Form 10-Q, a Current Report on Form 8-K that contains further details with respect to these actions, as well as certain other recent actions taken by the Board of Directors and the Compensation Committee.

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

Overview

Alderwoods Group, Inc., a Delaware corporation ("Alderwoods Group" and, together with its subsidiaries unless the context otherwise requires, the "Company"), is the second largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of June 18, 2005, the Company operated 623 funeral homes, 73 cemeteries and 60 combination funeral homes and cemeteries throughout North America. As of June 19, 2004, the Company operated 716 funeral homes, 130 cemeteries and 61 combination funeral homes and cemeteries throughout North America.

Alderwoods Group is a holding company owning, directly or indirectly, the capital stock of approximately 207 subsidiaries through which funeral, cemetery and insurance businesses are operated.

The Company provides services and products through three business segments:

Funeral Operations. The Company's funeral operations encompass making funeral and cremation arrangements on an at-need or pre-need basis. The Company's funeral operations offer a full range of funeral services, including the collection of remains, registration of death, professional embalming, use of funeral home facilities, sale of caskets and other merchandise and transportation to a place of worship, funeral chapel, cemetery or crematorium. The Company's funeral operations generally experience higher volumes in the winter months, primarily due to higher incidents of deaths due to illnesses brought on by cold weather.

Cemetery Operations. The Company's cemetery operations 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.

Insurance Operations. The Company operates an insurance subsidiary licensed in a total of 35 states. This insurance subsidiary sells a variety of insurance products, primarily for the funding of pre-need funerals.

Critical Accounting Policies

Accounting policies that the Company believes are both most important to the portrayal of the Company's financial condition and results, and require management's most difficult, subjective or complex judgments are described under Item 7. "— Management's Discussion and Analysis of Financial Condition and Results of Operations" in Alderwoods Group's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the U.S. Securities and Exchange Commission ("SEC"). There have been no changes to the Company's critical accounting policies in the 12 weeks ended June 18, 2005.

Basis of Presentation

The Company's accounting information contained in this Quarterly Report on Form 10-Q is presented on the basis of United States generally accepted accounting principles ("GAAP"). This discussion and analysis of financial condition and results of operations of the Company are based upon and should be read in conjunction with the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q (including the notes thereto).

Results of Operations

Detailed below are the operating results of the Company for the 12 and 24 weeks ended June 18, 2005 and June 19, 2004. The operating results are expressed in dollar amounts as well as relevant percentages, presented as a percentage of revenue.

The following provides a detailed discussion of continuing operations, which consist of those business operations the Company owned and operated both for the entire current and prior fiscal quarters and that the Company plans to retain, and those business operations that have been opened during either the current or prior fiscal quarters and that the Company plans to retain. Discontinued operations consist of those business operations that have been sold or closed during either the current or prior fiscal quarters and the business operations that are currently being offered for sale. As of June 18, 2005, the Company has completed the sale of all the locations classified as discontinued operations in its strategic market rationalization except for one cemetery which was classified back to continuing operations during the 12 weeks ended June 18, 2005. This program is now complete.

The operations of the Company comprise three business segments: funeral homes, cemeteries and insurance. Additional segment information is provided in Note 7 of the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

12 Weeks Ended June 18, 2005 Compared to 12 Weeks Ended June 19, 2004

			12 Weeks Ended
			June 18, 2005			June 19, 2004			June 18, 2005		June 19, 2004
			(in millions)			(in millions)			(percentages)		(percentages)
Revenue
	Funeral		$	110.5		$	106.3		62.5		65.5
	Cemetery			43.9			38.3		24.8		23.6
	Insurance			22.4			17.7		12.7		10.9

		Total	$	176.8		$	162.3		100.0		100.0

Gross margin
	Funeral		$	20.1		$	22.9		18.1		21.5
	Cemetery			7.3			5.4		16.4		14.1
	Insurance			0.8			0.5		3.6		2.8

		Total		28.2			28.8		16.0		17.7

Expenses
	General and administrative			1.7			9.6		0.9		5.9
	Provision for asset impairment			(0.4	)		(1.5	)	(0.2	)	(1.0	)

Income from operations				26.9			20.7		15.3		12.8
Interest on long-term debt and refinancing costs				7.0			13.5		4.0		8.3
Other expense (income), net				—			1.8		—		1.1

Income before income taxes				19.9			5.4		11.3		3.4
Income taxes				7.0			2.2		4.0		1.4

Net income from continuing operations				12.9			3.2		7.3		2.0
Loss from discontinued operations, net of tax				(0.8	)		(9.7	)	(0.5	)	(6.0	)

Net income (loss)			$	12.1		$	(6.5	)	6.8		(4.0	)

Other information for the 12 weeks ended June 18, 2005, and 12 weeks ended June 19, 2004, is summarized in the following table.

						Increase
		June 18, 2005		June 19, 2004		Increase
Continuing Operations:		June 18, 2005		June 19, 2004		(amount)		(percentages)
Funeral — Other Information
Number of funeral services performed			26,693		26,363		330	1.3
	Number of same site funeral services performed		26,660		26,267		393	1.5
Average revenue per funeral service		$	4,140	$	4,033	$	107	2.7
	Same site average revenue per funeral service	$	4,142	$	4,030	$	112	2.8
Pre-need funeral contracts written (in millions)		$	47.0	$	44.1	$	2.9	6.6
Pre-need funeral conversion (percentages)			27		26		1	—
Cemetery — Other Information
Number of cemetery interments			10,984		10,419		565	5.4
Pre-need cemetery contracts written (in millions)		$	24.8	$	21.0	$	3.8	18.3

Continuing Operations

Consolidated revenue of $176.8 million for the 12 weeks ended June 18, 2005, increased by $14.5 million, or 8.9%, compared to the corresponding period in 2004, reflecting increases in all business segment revenues. Consolidated gross margin as a percentage of revenue decreased to 16.0% for the 12 weeks ended June 18, 2005, from 17.7% for the corresponding period in 2004.

Funeral revenue of $110.5 million for the 12 weeks ended June 18, 2005, increased by $4.2 million, compared to $106.3 million for the corresponding period in 2004, primarily as a result of an increase of $107, or 2.7%, in average revenue per funeral service performed and an increase in the number of funeral services performed. The number of funeral services performed during the 12 weeks ended June 18, 2005 increased by 1.3% from the corresponding period in 2004. The increase in average revenue per funeral service performed was achieved through adjusting the pricing and mix of merchandise and services offered to customer families that were designed both to meet customer family needs and to increase average revenues.

On a same site basis funeral revenue was $110.4 million for the 12 weeks ended June 18, 2005, an increase of $4.5 million compared to $105.9 million for the corresponding period in 2004, primarily as a result of an increase of $112, or 2.8%, in average revenue per funeral service performed and an increase of 1.5% in the number of funeral services performed from the corresponding period in 2004.

The number of cremation services performed as a percentage of total services performed increased to 36.9% for the 12 weeks ended June 18, 2005, compared to 34.9% for the corresponding period in 2004, consistent with national trends. The number of cremation services performed may impact funeral revenue, as the average revenue per cremation service is typically lower than the average revenue for a traditional funeral service.

Funeral gross margin as a percentage of revenue decreased to 18.1% for the 12 weeks ended June 18, 2005, compared to 21.5% for the corresponding period in 2004. The decrease in gross margin was primarily due to increased wages, training and advertising costs related to the Company's expanded field management structure and investment in programs designed to build local brand awareness and generate future growth.

Pre-need funeral contracts written for the 12 weeks ended June 18, 2005, were $47.0 million, compared to $44.1 million for the corresponding period in 2004. The Company is continuing its program to increase pre-need sales. For the 12 weeks ended June 18, 2005, 27% of the funeral services performed were derived from the pre-need backlog, compared to 26% during the 12 weeks ended June 19, 2004. The

Company manages the cash impact of its pre-need funeral sales program primarily by offsetting direct costs, including commissions paid to counselors, with either general agency commissions received from third party and related insurance companies or amounts not required to be trusted. Pre-need funeral sales are important, because over time, they build the foundation for future funeral revenue and generate positive cash flow when the funeral service is performed.

Cemetery revenue of $43.9 million for the 12 weeks ended June 18, 2005, was $5.6 million, or 14.6%, higher than cemetery revenue for the corresponding period in 2004, primarily due to increased pre-need space sales of $3.8 million at the Company's Rose Hills subsidiary, combined with an overall increase in the number of cemetery interments.

Cemetery gross margin as a percentage of revenue increased to 16.4% for the 12 weeks ended June 18, 2005, compared to 14.1% for the corresponding period in 2004, primarily due to the increased pre-need space sales and cemetery interments.

Pre-need cemetery contracts written for the 12 weeks ended June 18, 2005, were $24.8 million, compared to $21.0 million for the corresponding period in 2004. The increase in pre-need cemetery contracts written was primarily due to higher sales of cemetery spaces at the Company's Rose Hills subsidiary. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially collected is insufficient to cover the amount required to be trusted, sales commissions, and other direct costs paid out. However, this net cash flow impact is not significant, as the Company sets minimum down payments, maximum terms and sales commission rates to maximize cash flow. The Company believes that pre-need cemetery sales are important, because over time, they generate positive cash flow and build the foundation for future cemetery revenue.

Insurance revenue for the 12 weeks ended June 18, 2005, increased $4.7 million, or 26.6%, compared to the corresponding period in 2004, primarily due to increases in premiums of $4.2 million. Insurance premium revenue is dependent on the level of pre-need funeral contracts written over time that are funded by the Company's insurance subsidiary. Insurance production represents the insurance segment's participation in the Company's pre-need funeral contracts and for the 12 weeks ended June 18, 2005 was $32.3 million compared to $25.9 million for the corresponding period in 2004. Insurance gross margin as a percentage of revenue increased to 3.6% for the 12 weeks ended June 18, 2005, compared to 2.8% for the corresponding period in 2004, primarily due to the revenue increase being at a rate higher than that of the cost increase. The Company expects the insurance gross margin percentage to grow modestly over the near term.

General and administrative expenses for the Company for the 12 weeks ended June 18, 2005, were $1.7 million, or 0.9% of consolidated revenue, compared to $9.6 million, or 5.9% of consolidated revenue for the corresponding period in 2004. The decrease of $7.9 million is primarily due to the reversal of a $10.9 million allowance for doubtful accounts related to the collection subsequent to June 18, 2005 of notes receivable partially offset by a $1.0 million retirement allowance accrual in the 12 weeks ended June 18, 2005. The amounts in the 12 weeks ended June 19, 2004 were reduced by $0.9 million legal claim accrual reversal and $1.2 million for corporate receivable recoveries that were previously fully reserved against.

Interest expense on long-term debt for the 12 weeks ended June 18, 2005, was $7.0 million, reflecting the effect of principal repayments and lower interest rates compared to interest expense of $13.5 million for the corresponding period in 2004, as detailed in the following table:

	12 weeks ended
	June 18, 2005		June 19, 2004
	(in millions)
Tender premium on the repurchase of the 12.25% Senior Unsecured Notes due in 2009	$	—	$	1.1
Amortization of debt issue costs		0.7		0.8
Interest on long-term debt		6.3		12.6
Allocation of interest to discontinued operations		—		(1.0	)

Interest on long-term debt	$	7.0	$	13.5

Income tax expense for the 12 weeks ended June 18, 2005, was $7.0 million compared to $2.2 million for the corresponding period in 2004. The effective rate of tax was 35.1% for the 12 weeks ended June 18, 2005, compared to 40.0% for the 12 weeks ended June 19, 2004. The effective tax rate varied from the statutory tax rate for the 12 weeks ended June 18, 2005, because in certain jurisdictions, there was a decrease in the valuation allowance for which the benefit has not been recognized in income tax expense. The decrease was attributable to the realization of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 which will result in a reduction to goodwill established on January 2, 2002.

At December 31, 2001, the Company had accrued $57.1 million of reorganization costs related to costs incurred during it's predecessor's reorganization, as well as costs incurred in connection with the actual emergence from reorganization proceedings and various related activities. As of June 18, 2005, the balance of $1.7 million of reorganization costs, primarily consisting of an accrual for a legal fee reimbursement, has been included in accounts payable and accrued liabilities

Discontinued Operations

Over the previous three fiscal years, the Company engaged in a strategic market rationalization assessment to dispose of cemetery and funeral operating locations that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The Company will, on a smaller scale and over time, continue to assess the Company's portfolio of funeral and cemetery locations to ensure they continue to fit in the Company's strategy.

The Company had classified all the locations identified in its strategic market rationalization program for disposal as assets held for sale in the consolidated balance sheets and recorded any related operating results, long-lived asset impairment provisions, and gains or losses recorded on disposition as income from discontinued operations. Depreciation and amortization is not recorded once an asset has been identified as held for sale. The Company has also reclassified the prior fiscal periods to reflect any comparative amounts on a similar basis. All discontinued operations financial information presented under the insurance segment relate to Security Plan Life Insurance Company.

During the 12 weeks ended June 18, 2005, the Company sold 17 funeral, two cemetery and four combination locations for gross proceeds of $6.1 million.

24 weeks Ended June 18, 2005 Compared to 24 weeks Ended June 19, 2004

			24 weeks Ended
			June 18, 2005			June 19, 2004			June 18, 2005		June 19, 2004
			(in millions)			(in millions)			(percentages)		(percentages)
Revenue
	Funeral		$	234.5		$	228.2		65.0		67.3
	Cemetery			82.2			74.8		22.8		22.1
	Insurance			43.9			36.1		12.2		10.6

		Total	$	360.6		$	339.1		100.0		100.0

Gross margin
	Funeral		$	50.0		$	51.8		21.3		22.7
	Cemetery			12.4			10.4		15.1		13.9
	Insurance			2.1			1.4		4.8		3.9

		Total		64.5			63.6		17.9		18.8

Expenses
	General and administrative			12.3			21.3		3.4		6.3
	Provision for asset impairment			(1.6	)		0.6		(0.4	)	0.2

Income from operations				53.8			41.7		14.9		12.3
Interest on long-term debt and refinancing costs				14.5			18.8		4.0		5.5
Other expense (income), net				(5.8	)		0.6		(1.6	)	0.2

Income before income taxes				45.1			22.3		12.5		6.6
Income taxes				18.2			7.8		5.0		2.3

Net income from continuing operations				26.9			14.5		7.5		4.3
Loss from discontinued operations, net of tax				(1.7	)		(16.1	)	(0.5	)	(4.7	)

Net income			$	25.2		$	(1.6	)	7.0		(0.5	)

Other information for the 24 weeks ended June 18, 2005, and 24 weeks ended June 19, 2004, is summarized in the following table.

						Increase (decrease)
		June 18, 2005		June 19, 2004		Increase (decrease)
Continuing Operations:		June 18, 2005		June 19, 2004		(amount)			(percentages)
Funeral — Other Information
Number of funeral services performed			56,735		56,800		(65	)	(0.1	)
	Number of same site funeral services performed		56,451		56,564		(113	)	(0.2	)
Average revenue per funeral service		$	4,133	$	4,018	$	115		2.9
	Same site average revenue per funeral service	$	4,137	$	4,015	$	122		3.0
Pre-need funeral contracts written (in millions)		$	90.3	$	84.4	$	5.8		6.9
Pre-need funeral conversion (percentages)			27		26		1		—
Cemetery — Other Information
Number of cemetery interments			22,501		22,623		(122	)	(0.5	)
Pre-need cemetery contracts written (in millions)		$	45.8	$	39.2	$	6.6		16.8

Continuing Operations

Consolidated revenue of $360.6 million for the 24 weeks ended June 18, 2005, increased by $21.5 million, or 6.3%, compared to the corresponding period in 2004, reflecting increases in all business

segment revenues. Consolidated gross margin as a percentage of revenue decreased to 17.9% for the 24 weeks ended June 18, 2005, from 18.8% for the corresponding period in 2004.

Funeral revenue of $234.5 million for the 24 weeks ended June 18, 2005, increased by $6.3 million, compared to $228.2 million for the corresponding period in 2004, primarily as a result of an increase of $115, or 2.9%, in average revenue per funeral service performed, partially offset by a decrease in the number of funeral services performed. The number of funeral services performed during the 24 weeks ended June 18, 2005 decreased by 0.1% from the corresponding period in 2004. The increase in average revenue per funeral service performed was achieved through adjusting the pricing and mix of merchandise and services offered to customer families that were designed both to meet customer family needs and to increase average revenues.

On a same site basis funeral revenue was $233.5 million for the 24 weeks ended June 18, 2005, an increase of $6.4 million compared to $227.1 million for the corresponding period in 2004, primarily as a result of an increase of $122, or 3.0%, in average revenue per funeral service performed, partially offset by a decrease of 0.1% in the number of funeral services performed from the corresponding period in 2004.

The number of cremation services performed as a percentage of total services performed increased to 36.2% for the 24 weeks ended June 18, 2005, compared to 35.0% for the corresponding period in 2004, consistent with national trends. The number of cremation services performed may impact funeral revenue, as the average revenue per cremation service is typically lower than the average revenue for a traditional funeral service.

Funeral gross margin as a percentage of revenue decreased to 21.3% for the 24 weeks ended June 18, 2005, compared to 22.7% for the corresponding period in 2004. The decrease in gross margin was primarily due to increased wages, training and advertising costs related to the Company's expanded field management structure and investment in programs designed to build local brand awareness and generate future growth.

Pre-need funeral contracts written for the 24 weeks ended June 18, 2005, were $90.3 million, compared to $84.4 million for the corresponding period in 2004. The Company is continuing its program to increase pre-need sales. For the 24 weeks ended June 18, 2005, 27% of the funeral services performed were derived from backlog, an increase from 26% in the comparative period in 2004. The Company manages the cash impact of its pre-need funeral sales program primarily by offsetting direct costs, including commissions paid to counselors, with either general agency commissions received from third party and related insurance companies or amounts not required to be trusted. Pre-need funeral sales are important, because over time, they build the foundation for future funeral revenue and generate positive cash flow when the funeral service is performed.

Cemetery revenue of $82.2 million for the 24 weeks ended June 18, 2005, was $7.4 million, or 9.9%, higher than cemetery revenue for the corresponding period in 2004, primarily due to increased space sales of $5.5 million at the Company's Rose Hills subsidiary, combined with an overall increase in the number of cemetary interments and a reduction of $0.7 million in the allowance for cancellation of related customer receivables as a result of analysis of improving collection trends.

Cemetery gross margin as a percentage of revenue increased to 15.1% for the 24 weeks ended June 18, 2005, compared to 13.9% for the corresponding period in 2004 primarily due to the increased pre-need space sales and cemetary interments.

Pre-need cemetery contracts written for the 24 weeks ended June 18, 2005, were $45.8 million, compared to $39.2 million for the corresponding period in 2004. The increase in pre-need cemetery contracts written was primarily due to higher sales of cemetery spaces at the Company's Rose Hills subsidiary. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially collected is insufficient to cover the amount required to be trusted, sales commissions, and other direct costs paid out. However, this cash flow impact is not significant, as the Company sets minimum down

payments, maximum terms and sales commission rates to maximize cash flow. The Company believes that pre-need cemetery sales are important, because over time, they generate positive cash flow and build the foundation for future cemetery revenue.

Insurance revenue for the 24 weeks ended June 18, 2005, increased $7.8 million, or 21.6%, compared to the corresponding period in 2004, primarily due to increases in premiums of $7.2 million. Insurance premium revenue is dependent on the level of pre-need funeral contracts written over time that are funded by the Company's insurance subsidiary. Insurance production represents the insurance segment's participation in the Company's pre-need funeral contracts and for the 24 weeks ended June 18, 2005 was $62.7 million compared to $51.3 million for the corresponding period in 2004. Insurance gross margin as a percentage of revenue increased to 4.8% for the 24 weeks ended June 18, 2005, compared to 3.9% for the corresponding period in 2004, primarily due to the revenue increase being at a rate higher than that of the cost increase. The Company expects the insurance gross margin percentage to grow modestly over the near term.

General and administrative expenses for the Company for the 24 weeks ended June 18, 2005, were $12.3 million, or 3.4% of consolidated revenue, compared to $21.3 million, or 6.3% of consolidated revenue, for the corresponding period in 2004. The decrease of $9.0 million is due primarily to the reversal of a $10.9 million allowance for doubtful accounts related to the collection subsequent to June 18, 2005 of notes receivable and $0.9 million reduction of an accrual on the settlement of the US trustee bankruptcy fee partially offset by a $1.0 million retirement allowance accrual in the 24 weeks ended June 18, 2005. The amounts in the 24 weeks ended 2004 were reduced by a $0.9 million legal claim accrual reversal as the Company obtained approvals for insurance coverage for these costs, and $1.2 million for corporate receivable recoveries that were previously fully reserved against.

Interest expense on long-term debt for the 24 weeks ended June 18, 2005, was $14.5 million, a decrease from the comparative period of $4.3 million, reflecting the effect of principal repayments and lower interest rates compared to the corresponding period in 2004 partially offset by the inclusion in the 24 weeks ended June 19, 2004 of a credit of $7.2 million from the unamortized premium upon the early retirement of the 12.25% Convertible Subordinated Notes due in 2012, as detailed in the following table:

	24 weeks ended
	June 18, 2005		June 19, 2004
	(in millions)
Tender premiums on the repurchase of the 12.25% Senior Unsecured Notes due in 2009	$	0.3	$	1.1
Unamortized premium credited to interest expense on 12.25% Convertible Subordinated Notes due in 2012 that were fully retired		—		(7.2	)
Amortization of debt issue costs		1.7		1.4
Interest on long-term debt		12.5		25.5
Allocation of interest to discontinued operations		—		(2.0	)

Interest on long-term debt	$	14.5	$	18.8

Income tax expense for the 24 weeks ended June 18, 2005, was $18.2 million compared to $7.8 million for the corresponding period in 2004. The effective rate of tax was 40.3% for the 24 weeks ended June 18, 2005, compared to 34.8% for the 24 weeks ended June 19, 2004. The effective tax rate varied from the statutory tax rate for the 24 weeks ended June 18, 2005, because in certain jurisdictions, there was a decrease in the valuation allowance for which the benefit has not been recognized in income tax expense. The decrease was attributable to the realization of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 which will result in a reduction to goodwill established on January 2, 2002.

Discontinued Operations

During the 24 weeks ended June 18, 2005, the Company sold 18 funeral, five cemetery and four combination locations for gross proceeds of $7.3 million.

Pre-need Funeral and Cemetery Backlog for Continuing Operations

The Company's backlog represents pre-need funeral and cemetery arrangements with customer families. These arrangements are subject to trust or insurance funding requirements. The activities in the Company's funeral backlog, excluding the effects of unrealized gains and losses on trust investments, were as follows:

		12 weeks Ended						24 Weeks Ended
		June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
		(in thousands)						(in thousands)
Funeral backlog:
	Beginning balance	$	1,295,227		$	1,224,468		$	1,275,972		$	1,195,972
	Sales, net of cancellations		46,753			40,935			85,019			75,265
	Maturities		(33,871	)		(33,978	)		(68,200	)		(67,603	)
	Net increase in insurance benefits and earnings realized on funeral trust balances		3,578			2,071			8,741			6,339
	Change in cancellation reserve		(4,091	)		1,083			5,395			13,828
	Other		47			(6,248	)		716			4,530

	Ending balance	$	1,307,643		$	1,228,331		$	1,307,643		$	1,228,331

Trust funded		$	345,921		$	351,833		$	345,921		$	351,833
Third party insurance companies			300,756			247,736			300,756			247,736
Subsidiary insurance companies			660,966			628,762			660,966			628,762

		$	1,307,643		$	1,228,331		$	1,307,643		$	1,228,331

The activities in the Company's cemetery backlog, excluding the effects of unrealized gains and losses on trust investments, were as follows:

			12 weeks Ended						24 Weeks Ended
			June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
			(in thousands)						(in thousands)
Cemetery backlog:		��
	Beginning balance		$	264,047		$	260,358		$	262,825		$	259,456
	Sales, net of cancellations			23,057			19,003			44,089			35,769
	Maturities			(22,300	)		(18,306	)		(41,688	)		(35,206	)
	Earnings realized on cemetery trust balances			3,941			2,015			3,635			2,769
	Change in cancellation reserve			1,905			(163	)		1,789			119

	Ending balance		$	270,650		$	262,907		$	270,650		$	262,907

Liquidity and Capital Resources

Cash Flows

The Company derives the majority of its cash from at-need funeral and cemetery revenue. Cash flow is also impacted by the funeral and cemetery pre-need activities. Pre-need funeral and cemetery activities are discussed in detail in Item 1. "Business" in Alderwoods Group's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the SEC.

Net cash from continuing operating activities was $28.7 million for the 12 weeks ended June 18, 2005, compared to $33.6 million for the corresponding period in 2004. The decrease is due primarily to the payment of $9.1 million in connection with the U.S. trustee bankruptcy fee.

Net cash from continuing operating activities was $70.9 million for the 24 weeks ended June 18, 2005, compared to $38.5 million for the corresponding period in 2004. The increase is primarily due to the increase of $15.0 million in withdrawals of excess funds from funeral and cemetery trusts resulting from the Company's ongoing review process, and $16.1 million related to collateral for liability lines of insurance coverage replaced with a letter of credit partially offset by the payment of $9.1 million in connection with the U.S. trustee bankruptcy fee. The Company has substantially completed its ongoing review and withdrawal of excess funds from funeral and cemetery trusts.

The Company's insurance subsidiary is subject to certain state regulations that restrict distributions, loans and advances from the subsidiary to the Company and its other subsidiaries. Dividends are only distributable after regulatory approval is obtained. The cash inflows from operations of the insurance subsidiary are primarily generated from insurance premiums, all of which are invested in insurance invested assets.

Net cash used in continuing investing activities was $18.5 million for the 12 weeks ended June 18, 2005, compared to $8.8 million for the corresponding period in 2004, primarily due to the increase of $6.4 million of increased capital expenditures related to the continued roll out of Alderwoods Rooms and the development of new funeral home properties and $2.6 million in net purchase of insurance invested assets.

Net cash used in continuing investing activities was $22.9 million for the 24 weeks ended June 18, 2005, compared to $10.4 million for the corresponding period in 2004, primarily due to the increase of $7.0 million of increased capital expenditures related to the continued roll out of Alderwoods Rooms, and the development of new funeral home properties and $4.5 million in net purchase of insurance invested assets.

Net cash used in continuing financing activities was $21.0 million for the 12 weeks ended June 18, 2005, compared to $19.3 million for the corresponding period in 2004. The increase of $1.7 million was due

primarily to the net repayment of debt during the 12 weeks ended June 18, 2005, compared to the corresponding period in 2004.

Net cash used in continuing financing activities was $52.7 million for the 24 weeks ended June 18, 2005, compared to $28.6 million for the corresponding period in 2004. The increase of $24.1 million was primarily due to the higher net repayment of debt during the 24 weeks ended June 18, 2005, compared to the corresponding period in 2004.

The net increase in cash from discontinued operations was $5.9 million for the 12 weeks ended June 18, 2005, compared to $7.2 million in the corresponding period in 2004.

For the 24 weeks ended June 18, 2005, the majority of proceeds from the sale of the Company's operating locations and excess real estate was used to further reduce long term debt.

As of June 18, 2005, the Company's cash balance was $12.0 million and the amount available under the Credit Agreement's $75.0 million revolving credit facility (the "Revolving Credit Facility") was $75.0 million, less $17.7 million in outstanding letters of credit. The Company's debt repayment obligation over the next 12 months is $2.6 million and aggregates $230.3 million over the next five years. The Company believes that the Revolving Credit Facility, together with existing cash, cash flow from operations and expected cash proceeds from the sale of discontinued operations, will be sufficient to meet the Company's anticipated capital expenditures, working capital requirements and debt repayment obligations in both the near and intermediate terms.

Long-Term Indebtedness

The change in the Company's carrying amounts of long-term indebtedness is as follows:

Issue		Long-Term Indebtedness Carrying Value January 1, 2005		Net increase (decrease)			Long-Term Indebtedness Carrying Value June 18, 2005
		(in millions)		(in millions)			(in millions)
Revolving credit facility		$	—	$	—		$	—
Senior secured Term Loan B due in 2009			246.8		(46.1	)		200.7
7.75% Senior unsecured notes due in 2012			200.0		—			200.0
12.25% Senior unsecured notes due in 2009			4.5		(4.5	)		—
Promissory notes and capitalized obligations (a)			12.3		(3.1	)		9.2

	Carrying amounts	$	463.6	$	(53.7	)	$	409.9

(a): The change represents the net amount of repayments, decreases in debt, foreign exchange and other adjustments.

The Credit Agreement and the Eight-Year Senior Unsecured Notes are guaranteed by substantially all of Alderwoods Group's wholly-owned U.S. subsidiaries, other than the Alderwoods Group's insurance subsidiaries and certain other excluded subsidiaries. Alderwoods Group, Inc., the parent company, has no independent assets or operations, and the guarantees of its guarantor subsidiaries are full and unconditional, and joint and several.

Financial covenants under the Credit Agreement require the Company to maintain a minimum interest coverage ratio and fixed charge coverage ratio, and not to exceed a maximum leverage ratio. As of June 18, 2005, the Company met all of the financial covenants required by the Credit Agreement.

June 8, 2005, the Company commenced an exchange offer (the "Exchange Offer") pursuant to which holders of the Eight-Year Senior Unsecured Notes were given the opportunity to exchange their outstanding notes for new notes with substantially identical terms covered by the exchange offer registration statement. The Company consummated the Exchange Offer on July 18, 2005.

Contractual Obligations and Commercial Commitments

The following table details the Company's contractual obligations of continuing and discontinued operations as of June 18, 2005. Significant changes to long-term debt are discussed above under "Long-Term Indebtedness."

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(in thousands)
Long-term debt (a)	$	400,707	$	—	$	4,661	$	196,046	$	200,000
Promissory notes and capitalized obligations (a) (b)		9,160		2,620		3,869		957		1,714
Operating leases (c)		42,722		7,956		12,398		7,835		14,533

Total	$	452,589	$	10,576	$	20,928	$	204,838	$	216,247

(a): See Note 3 to the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
(b): Promissory notes and capitalized obligations include amounts payable under non-competition agreements and capitalized lease obligations.
(c): Operating leases are primarily for premises and automobiles and expire over the next one to 28 years.

In addition to the operating leases noted in the table above, as of June 18, 2005, the Company leased approximately 1,236 vehicles under a master operating lease agreement, which has a minimum lease term of 12 months. The Company's practice is to continue these leases on a month-to-month basis after the expiry of the minimum lease term. Lease payments for these vehicles are projected to be $7.7 million over the next 12 months.

The Company issues purchase orders for the supply of goods and services for its operations. As of June 18, 2005, there were no significant or unusual purchase orders outstanding. The Company entered into agreements with certain suppliers of funeral and cemetery merchandise, and office supplies to obtain volume discounts. However, none of these agreements have committed purchase quantities or prices.

The following table details the Company's commercial commitments as of June 18, 2005.

	Amount of Commitment Expiration Per Period
Commercial Commitments	Total Amounts Committed		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(in thousands)
Lines of credit (a)	$	—	$	—	$	—	$	—	$	—
Standby letters of credit (b)		17.7		17.7		—		—		—

Total contractual cash obligations	$	17.7	$	17.7	$	—	$	—	$	—

(a): Relates to the Revolving Credit Facility described more fully in Note 3 to the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. The expiry date of the Revolving Credit Facility is September 29, 2008.
(b): Standby letters of credit primarily relate to surety bonds for various pre-need sales trusting requirements and collateral for liability lines of insurance coverage for various years.

At June 18, 2005, the aggregate fair value of the Company's forward foreign currency exchange contracts and foreign currency option contracts was an asset of $1.0 million. There has been no material change in the Company's forward foreign currency exchange contract and foreign currency option commitments, which are described under Item 7A. "— Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the SEC.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as of June 18, 2005, consist of operating leases noted above under "Contractual Obligations and Commercial Commitments."

Other Information

EBITDA from Continuing Operations

The Company's earnings from continuing operations before interest on long-term debt and refinancing costs, taxes, depreciation and amortization, provision for goodwill impairment and provision for asset impairment ("EBITDA") are presented in the table below and reconciled to the Company's net income (loss) from continuing operations. The Company considers EBITDA to be an important supplemental indicator of operating performance. The Company believes that EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of the operating performance of companies with high yield debt, and the vast majority of companies with high yield debt present EBITDA when reporting their results. The Company believes EBITDA facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting relative interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). It is also one basis, subject to certain modifications, on which compliance with certain of the financial covenants under the Credit Agreement is determined and some payments under certain of the Company's compensation plans are calculated. EBITDA is not a term that has specific meaning in accordance with GAAP and may be calculated differently by other companies. EBITDA is not a measurement of the Company's financial performance under GAAP and should not be considered in isolation, as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP, or otherwise as a measure of a company's profitability, or as an alternative to cash flows from operating activities or otherwise as a measure of the Company's liquidity.

EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. Some of these limitations are:

•: it does not reflect cash expenditures for capital expenditures or contractual commitments;
•: it does not reflect changes in, or cash requirements for, working capital;
•: it does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on indebtedness;
•: although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect cash requirements for such replacements; and
•: other companies, including other companies in the death care industry, may calculate these measures differently than the Company does, limiting their usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to the Company to invest in the growth of its business or reduce its indebtedness.

	12 weeks Ended						24 weeks Ended
	June 18, 2005			June 19, 2004			June 18, 2005			June 19, 2004
	(millions of dollars)						(millions of dollars)
EBITDA from continuing operations:
Net income from continuing operations	$	12.9		$	3.3		$	26.9		$	14.5
Income taxes		7.0			2.2			18.2			7.8
Interest on long-term debt and refinancing costs		7.0			13.5			14.5			18.8
Depreciation		11.0			8.9			21.1			18.1
Provision for asset impairment		(0.4	)		(1.5	)		(1.6	)		0.6

EBITDA from continuing operations	$	37.5		$	26.4		$	79.1		$	59.8

Restrictions

The Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes restrict the Company's ability to engage in asset sales. The Credit Agreement and indenture governing the Eight-Year Senior Unsecured Notes prohibit dispositions of assets unless the assets disposed of fulfill the requirements of specified exceptions. The indenture governing the Eight-Year Senior Unsecured Notes excepts, among other exceptions, assets with a fair market value less than $5.0 million. One specified exception contained in the Credit Agreement is dispositions of any of a group of identified "discontinued assets;" another is dispositions of assets not exceeding $35.0 million book value in the aggregate over the life of the Credit Agreement, provided that (i) the consideration received is at least equal to fair market value and (ii) not less than 75% of the consideration is paid in cash or cash equivalents. Within 270 days of the receipt of net proceeds from any such asset sale, the Company has the ability to apply such net proceeds at its option (or as otherwise required) to invest in non-current operating assets (or enter into agreements for such investment which agreements are consummated within 360 days of such receipt of asset sale proceeds). Up to $10.0 million of such net proceeds in any fiscal year (but not in excess of $40.0 million in the aggregate over the term of the Credit Agreement) may be applied to make capital expenditures. To the extent the Company receives net proceeds in excess of additional specified thresholds and such excess is not applied to invest in non-current operating assets or make capital expenditures as described in the two immediately preceding sentences, the Company must make mandatory repayments under the Credit Agreement and, after all indebtedness under the Credit Agreement has been repaid, offer to purchase the Eight-Year Senior Unsecured Notes at a purchase price equal to 100.0% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture governing the Eight-Year Senior Unsecured Notes), if any.

Covenants in the Credit Agreement and in the indenture governing the Eight-Year Senior Unsecured Notes restrict, and under specified circumstances prohibit, the payment of dividends by Alderwoods Group. The Company is not expecting to pay any dividends on the Common Stock in the foreseeable future.

The Company's insurance subsidiary is subject to certain state regulations that restrict distributions, loans and advances from the subsidiary to the Company and its other subsidiaries. The cash flow used in operations of the insurance subsidiary for the 12 and 24 weeks ended June 18, 2005, was approximately $7.5 million and $17.8 million, respectively, all of which premiums have been used for net purchases of insurance invested assets.

Operating Locations

The Company's number of operating locations by country, state and province as of June 18, 2005, and the overall totals as of June 18, 2005, and January 1, 2005, are summarized in the table below.

		Number of Operating Locations
		Number of Operating Locations			Total Number of Operating Locations
Country, State/Province		Funeral	Cemetery	Combination	Total Number of Operating Locations
Canada
	British Columbia	17	—	1	18
	Alberta	11	—	—	11
	Saskatchewan	23	—	—	23
	Manitoba	3	1	2	6
	Ontario	22	—	—	22
	Quebec	17	—	—	17
	Nova Scotia	8	—	—	8

Total Canadian		101	1	3	105
United States
	Alabama	8	—	1	9
	Alaska	3	—	—	3
	Arizona	5	—	1	6
	Arkansas	3	—	—	3
	California	46	1	7	54
	Colorado	3	1	1	5
	Connecticut	3	—	—	3
	Florida	31	6	8	45
	Georgia	25	6	5	36
	Idaho	4	1	—	5
	Illinois	6	16	3	25
	Indiana	16	4	1	21
	Kansas	7	—	—	7
	Kentucky	1	—	—	1
	Louisiana	21	2	—	23
	Maryland	2	—	—	2
	Massachusetts	13	—	—	13
	Michigan	12	—	—	12
	Minnesota	9	1	1	11
	Mississippi	21	1	3	25
	Montana	4	—	—	4
	Nevada	2	—	1	3
	New Hampshire	4	—	—	4
	New Mexico	5	—	—	5
	New York	38	1	—	39
	North Carolina	26	8	3	37
	Ohio	16	4	1	21
	Oklahoma	18	1	1	20
	Oregon	18	1	3	22
	Pennsylvania	6	—	—	6
	Rhode Island	3	—	—	3
	South Carolina	6	4	3	13
	Tennessee	30	2	5	37
	Texas	58	4	4	66
	Virginia	22	—	—	22
	Washington	21	3	3	27
	West Virginia	3	—	—	3
	Puerto Rico	3	5	2	10

Total United States		522	72	57	651

Overall total, as of June 18, 2005		623	73	60	756

Overall total, as of January 1, 2005		648	79	63	790

As of June 18, 2005, the Company had completed the sale of all locations classified as discontinued operations.

The total number of locations of 790 as of January 1, 2005, includes operating locations that had been classified as discontinued operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the Company's exposure to certain market risks, see Item 7A. "— Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the 52 weeks ended January 1, 2005, as filed with the SEC. As of June 18, 2005, there were no material changes in such matters disclosed in the Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As of the end of the period covered by the report, an evaluation was carried out, under the supervision and with the participation of the Company's management, including the Chief Executive Officer, the Company's principal executive officer (the "CEO"), and the Chief Financial Officer, the Company's principal financial officer (the "CFO"), of the effectiveness of the Company's disclosure controls and procedures as of June 18, 2005. The Company has not completed implementation of the changes it believes are required to remediate the previously reported material weaknesses in internal control over financial reporting related to maintaining an effective control environment (i) over the financial reporting and income tax processes that have resulted in limitation in the capacity of the accounting and tax resources to identify and react in a timely manner to new accounting pronouncements and non-routine and complex business transactions and (ii) at its operating locations that have resulted in the Company not achieving full awareness and consistent compliance with the Company's policies and procedures which are designed to both prevent and detect misstatements at the location level. As a result, the CEO and CFO have concluded that the Company's disclosure controls and procedures were not effective as of June 18, 2005.

In addition to the changes the Company is making as outlined below, the Company has implemented various procedures to correct and/or mitigate the material weaknesses and other deficiencies the Company has identified. The Company believes that the actions it has taken to date in this regard, when taken as a whole, have mitigated the material weaknesses and other deficiencies with respect to the preparation of this Quarterly Report on Form 10-Q such that the information required to be disclosed herein has been recorded, processed, summarized and reported correctly.

Plan for Remediation of Internal Controls Over Financial Reporting

In order to remediate these material weaknesses, the Company is making the following changes:

•: Hiring of additional accounting resources and engaging outside consultants to supplement the internal accounting staff.
•: Implementing a new pre-need trust accounting software system to simplify transaction accounting, as well as to accelerate transaction accounting and analytical capabilities.
•: Implementing a new tax consolidation process to improve the detail and accuracy within the tax function.
•: Reducing the number of taxable entities by reorganizing and merging certain legal entities to simplify tax reporting requirements.
•: Reducing the number of third party trust companies utilized to further simplify trust processing and reporting requirements.
•: Designing and implementing programs and monitoring processes, including location checklists and certifications that are intended to improve awareness of and compliance with the Company's policies and procedures in field locations.
•: Redesigning and implementing revised inventory count procedures.

Changes In Internal Controls Over Financial Reporting

During the second fiscal quarter of 2005 the Company continued implementing a new tax accounting system. The new tax accounting system is designed to improve the accuracy and timing of the state and

entity level calculations required for financial statement disclosure and detailed analysis of the valuation allowance.

During the second fiscal quarter of 2005 the Company continued implementing a new pre-need funeral trust accounting software system. The implementation has involved changes to our processes, and accordingly, has required changes to internal controls.

Other than the changes discussed above, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the Securities Exchange Act of 1934) during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, but not limited to, information regarding the status and progress of the Company's operating activities, the plans and objectives of the Company's management, assumptions regarding the Company's future performance and plans, and any financial guidance provided in this Quarterly Report on Form 10-Q, are forward-looking statements within the meaning of Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of 1934. The words "believe," "may," "will," "estimate," "continues," "anticipate," "intend," "expect" and similar expressions identify these forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Risks and uncertainties that could cause or contribute to such differences include, without limitation, those discussed elsewhere in this Quarterly Report on Form 10-Q and particularly below under "Risk Factors" and above under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

The information appearing in this Quarterly Report on Form 10-Q is accurate only as of the date hereof, as the Company's business, financial condition, results of operations or prospects may have changed after that date. Except as required by law, the Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to the Company and persons acting on its behalf are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this Quarterly Report on Form 10-Q.

Risk Factors

In addition to other information in this Quarterly Report on Form 10-Q, the following important factors, among others, could cause future results to differ materially from estimates, predictions or projections.

Risks Related to the Company's Debt

The Company's significant level of debt and interest payment obligations may restrict future operations and impair the Company's ability to meet debt obligations.

The significant level of debt and demands on the Company's cash resources could have material consequences to the Company's business, including, but not limited to:

•: making it more difficult for the Company to satisfy its financial obligations;

•: reducing the availability of the Company's cash flows to fund its working capital requirements, capital expenditures, acquisitions, investments and other business activities because the Company will be required to use a substantial portion of its cash flows to service its debt obligations;
•: increasing the Company's vulnerability to adverse economic and industry conditions;
•: increasing the Company's exposure to interest rate increases because a portion of the Company's borrowings is at variable interest rates;
•: restricting the Company from making strategic acquisitions or taking advantage of favorable business opportunities;
•: limiting the Company's flexibility in planning for, or reacting to, changes in its business and industry; and
•: placing the Company at a competitive disadvantage when compared to competitors with less relative amounts of debt.

Despite the Company's significant level of debt, the Company is permitted to incur more debt, which could intensify the risks described above.

The Company may be able to incur significant amounts of debt in the future, subject to compliance with its existing financing arrangements. Although the Company's Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes contain restrictions on the incurrence of additional debt, debt incurred in compliance with these restrictions could be significant. If new debt is added to the Company's and its subsidiaries' current debt level, the related risks that the Company faces would be magnified.

The Company may not be able to generate sufficient cash to service all of its debt.

The Company's ability to make payments on and to refinance its debt depends on its ability to generate cash in the future, which will be affected by the death rate and general economic, financial, competitive, legislative, regulatory and other factors beyond the Company's control. The Company cannot assure that its business will generate sufficient cash flows from operations or that future borrowings will be available to it under its Credit Agreement in amounts sufficient to enable it to service its debt at maturity or otherwise, or to fund its other liquidity needs.

If the Company is unable to meet its debt obligations or to fund its other liquidity needs, the Company may need to restructure or refinance its debt. The Company's ability to refinance its debt or obtain additional financing will depend on:

•: its financial condition at the time;
•: restrictions in agreements governing its debt; and
•: other factors, including financial market or industry conditions.

As a result, it may be difficult for the Company to obtain financing on terms that are acceptable to it, or at all. Without this financing, the Company could be forced to sell assets under unfavorable circumstances to make up for any shortfall in its payment obligations. The terms of the Company's Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes limit the Company's ability to sell assets and also restrict the use of proceeds from such a sale. Moreover, substantially all of the Company's assets have been pledged to secure repayment of its debt under the Credit Agreement. In addition, the Company may not be able to sell assets quickly enough or for sufficient amounts to enable it to meet its obligations.

The Company depends on the cash flows from its subsidiaries to meet its obligations.

Alderwoods Group is a holding company with no independent operations. As a result, Alderwoods Group depends on its subsidiaries to provide cash flows necessary to service debt obligations at the Alderwoods Group level. Alderwoods Group's cash flows and its ability to service its debt depends on the earnings of its subsidiaries and on the distribution of earnings, loans or other payments to it by these subsidiaries. The ability of a subsidiary to make any dividend, distribution, loan or other payment to Alderwoods Group or another subsidiary could be subject to statutory or contractual restrictions. For example, Alderwoods Group's insurance subsidiary is subject to state regulation that restrict distributions, loans and advances to Alderwoods Group and other subsidiaries. Payments by a subsidiary to Alderwoods Group or another subsidiary will also be contingent upon earnings and business considerations of such subsidiary. Because Alderwoods Group depends on the cash flows of subsidiaries to meet its obligations, these types of restrictions may impair Alderwoods Group's ability to make scheduled interest and principal payments on its debts.

Restrictive covenants in the Company's Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes may prevent it from pursuing business activities that could otherwise improve its results of operations.

The terms of the Company's Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes limit its ability and the ability of its subsidiaries to, among other things:

•: incur additional debt;
•: pay dividends or make distributions or redeem or repurchase stock;
•: make investments;
•: grant liens;
•: make capital expenditures;
•: enter into transactions with affiliates;
•: sell assets; and
•: acquire the assets of, or merge or consolidate with, other companies.

The Company's Credit Agreement also requires it to maintain financial ratios. Complying with these restrictive covenants and financial ratios, as well as those that may be contained in any future debt agreements, may impair the Company's ability to finance its future operations or capital needs or to take advantage of other favorable business opportunities. The Company's ability to comply with these restrictive covenants and financial ratios will depend on its future performance, which may be affected by events beyond its control. The Company's failure to comply with any of these covenants or restrictions when they apply will result in a default under the particular debt instrument, which could permit acceleration of the debt under that instrument and, in some cases, the acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions. In an event of default, or in the event of a cross-default or cross-acceleration, and if the Company is unable to negotiate a waiver with its lenders, the Company may not have sufficient funds available to make the required payments under its debt. If the Company is unable to repay amounts owed under the terms of the Credit Agreement, the lenders thereunder may be entitled to sell most or substantially all of the Company's assets and the assets of many of its subsidiaries to satisfy its obligations under the Credit Agreement.

Risks Related to the Company

The Company operates in a highly competitive industry.

The North American death care industry primarily consists of small family-owned businesses. The death care industry in the United States is made up of approximately 22,000 funeral homes and 10,500 cemeteries. The Company believes the three largest public operators in the death care industry in the United States based on total revenue and number of locations, are Service Corporation International, Alderwoods Group and Stewart Enterprises, Inc. The Company believes the three largest public death care companies collectively generate approximately 20% of funeral service revenues in the United States. The Company's competition in the markets in which it operates generally arise from one or more of the above public operators in addition to independent operators of funeral homes and cemeteries for at-need and pre-need business. The market share of a single funeral home or cemetery in any community is a function of the name, reputation and location of that funeral home or cemetery although competitive pricing, professional service and attention and well-maintained locations are also important. Gains in market share within a community are usually realized over a number of years, although losses in market share may appear in a shorter time frame.

To compete successfully, the Company's funeral services and cemeteries must maintain good reputations and high professional standards in the industry, as well as offer attractive products and services at competitive prices. In addition, the Company must market itself in such a manner as to distinguish it from its competitors. The Company has historically experienced price competition from independent funeral home and cemetery operators, and from monument dealers, casket retailers, low-cost funeral providers and other non-traditional providers of services or products. The intense competition the Company faces may force it to reduce prices and thereby its profit margins to retain or recapture its market share. If the Company is unable to successfully compete, its financial condition, results of operations and cash flows could be materially and adversely affected.

The Company's investments held in trusts are invested in securities, the value of which is affected by financial market conditions that are beyond its control.

Cemetery revenue is impacted by perpetual care trust net realized investment income, which the Company recognizes to the extent of allowed reimbursement from the trust when it performs cemetery maintenance services. The Company recognizes trust income on funeral and cemetery merchandise and service trust investments when the underlying pre-need funeral and cemetery contract obligations are fulfilled. The level of trust income is largely dependent on yields on the investments made with trust funds, which are subject to financial market conditions and other factors that are beyond the Company's control. Trust income is also affected by the mix of fixed income and equity securities the Company chooses to maintain in the funds, and the Company may not choose the optimal mix for any particular market condition. If earnings from trust funds decline, the Company would likely experience a decline in future revenue and cash flow. In addition, if the trust funds experienced significant investment losses, there would likely be insufficient funds in the trusts to cover the costs of delivering services and merchandise or to maintain cemeteries in the future. The Company would have to cover any such shortfalls with cash flows from operations, which could adversely affect its ability to service debt.

The level of pre-need sales and the terms of the Company's pre-need contracts may adversely impact its results of operations and cash flows.

The Company recently made significant changes to its pre-need sales force organization. The Company cannot assure that the changes it has made will not result in a decline in its pre-need sales or that the Company will continue to be successful in recruiting and retaining qualified sales people. In addition, depending on the terms of the contract, pre-need sales have the potential to have an initial negative impact on cash flows because of the commission paid on the sale and the portion of sales proceeds required to be

placed into trust or escrow. The Company's commission structure emphasizes contracts with positive cash flows; however, the Company cannot assure that in the future it will not enter into pre-need sales that have a negative impact on cash flows, which could impair its ability to service debt. A weakening economy that causes customer families to have less discretionary income could cause a decline in pre-need sales. Declines in pre-need cemetery property sales would reduce current revenue, and declines in other pre-need sales would reduce the Company's pre-need backlog and future revenue and could reduce future market share.

Increasing insurance benefits related to pre-need services funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price guaranteed funeral service.

The Company sells price guaranteed pre-need funeral services at prices prevailing when the agreements are signed. There is no guarantee that the insurance payout or the annuity contract payout will cover future increases in the cost of providing a price guaranteed funeral service, which could have an effect on the Company's profit margins.

Fluctuations in the value of the Canadian dollar could result in currency exchange losses.

A significant portion of the Company's corporate and administrative expenses are payable in Canadian dollars, while most of the Company's revenue is generated in U.S. dollars and the Company reports its financial statements in U.S. dollars. Therefore, a strengthening of the Canadian dollar relative to the U.S. dollar will adversely affect the Company's results of operations. Expenses for the Company's corporate and administrative functions are paid principally in Canadian dollars and have predictable future cash outflows ("Foreign Currency Expenditure"). The Company has a program to hedge the variability in the United States dollar equivalent of a portion of the Foreign Currency Expenditure due to the fluctuation in the exchange rate between the United States dollar and Canadian dollar ("Foreign Currency Hedge Program"). The Company uses forward foreign exchange contracts and foreign exchange option contracts to partially mitigate foreign exchange variability. Under the Foreign Currency Hedge Program, losses or gains in the Company's underlying foreign exchange exposure are partially offset by gains or losses on the forward foreign exchange contracts and foreign exchange option contracts, so as to reduce the magnitude of foreign exchange transaction gains or losses. Any hedging activities the Company undertakes may not be successful in mitigating all of this risk.

The Company's effective income tax rate may vary.

The Company expects that its effective income tax rate for 2005 may vary significantly from the statutory tax rate because (1) income tax benefits may be offset by an increase in the valuation allowance due to the uncertainty regarding the ability to utilize the benefits in the future, (2) the losses incurred in certain jurisdictions may not offset the tax expense in profitable jurisdictions, (3) there are differences between foreign and United States income tax rates and (4) many tax years are subject to audit by different tax jurisdictions, which audits may result in additional taxes payable.

Volatility is possible.

There can be no assurance as to the degree of price volatility in the market for the Common Stock and Warrants. The market price of the Common Stock and Warrants may be subject to significant fluctuations in response to numerous factors, including variations in the Company's annual or quarterly financial results or those of its competitors, changes by financial analysts in their estimates of the future earnings of the Company, conditions in the economy in general or in the death care industry in particular or unfavorable publicity. Additionally, there can be no assurance that the market value of the Common Stock will exceed the exercise price of the Warrants at any time prior to their expiration.

Dividends are not anticipated; payment of dividends is subject to restriction.

The Company is not expecting to pay any dividends on its Common Stock in the foreseeable future. Certain institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their ability to invest in the Company's Common Stock. In addition, covenants in the Credit Agreement and indenture governing the Eight-Year Senior Unsecured Notes restrict, and under certain circumstances prohibit, the payment of dividends by the Company.

Certain provisions in the Company's charter documents have anti-takeover effects.

Certain provisions of the certificate of incorporation and bylaws of the Company, as well as the General Corporation Law of the State of Delaware, may have the effect of delaying, deferring or preventing a change in control of the Company. Such provisions, including those providing for the possible issuance of preferred stock of the Company without stockholder approval, regulating the nomination of directors and eliminating stockholder action by written consent may make it more difficult for other persons, without the approval of the Company's board of directors, to make a tender offer or otherwise acquire substantial amounts of the Company's Common stock or to launch other takeover attempts that a stockholder might consider to be in such stockholder's best interest.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the Company's access to capital and the market price of the Company's Common Stock.

In performing the evaluation of the effectiveness of its internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, management identified two material weaknesses in the Company's internal control over financial reporting as of January 1, 2005. One material weakness identified was that the Company did not maintain an effective control environment over the financial reporting and income tax processes such that there were limitations in the capacity of the accounting and tax resources to identify and react in a timely manner to new accounting pronouncements and non-routine and complex business transactions, certain of which limitations were due to a lack of experienced personnel and turnover in accounting and corporate tax functions. The other material weakness identified was that the Company did not maintain an effective control environment at its operating locations that has resulted in the Company not achieving full awareness and consistent compliance with the Company's policies and procedures which are designed to both prevent and detect misstatements at the location level. Accordingly, management concluded that the Company did not maintain effective internal control over financial reporting as of January 1, 2005. These factors, the Company's ability to remediate the material weaknesses in a timely manner, or other future changes in internal controls could cause investors to lose confidence in the accuracy of the Company's financial statements and could have a material adverse effect on the Company's access to capital and the market price of the Company's Common Stock.

Risks Related to the Company's Industry

Declines in the number of deaths in the Company's markets can cause a decrease in revenues. Changes in the number of deaths are not predictable from market to market or over the short term.

Declines in the number of deaths could cause at-need sales of funeral and cemetery services, property and merchandise to decline, which could decrease revenues. Although the United States Bureau of the Census estimates that the number of deaths in the United States will increase through 2010, longer lifespans could reduce the rate of deaths. Changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in the Company's markets or from quarter to quarter are not predictable.

The growth in the rate of cremations in North America may result in decreased revenue and gross margin.

There is an increasing trend in North America toward cremation. According to the Cremation Association of North America, approximately 29% of all deaths in 2003 in the United States were followed by cremation. This figure has grown at approximately 1% annually since 1997 and is projected to continue to grow at a comparable rate over the next three to five years. Compared to traditional funeral services, cremations have historically generated higher gross profit percentages but lower overall revenues. A substantial increase in the rate of cremations performed by the Company could have a material adverse effect on its financial condition, results of operations and cash flows.

The funeral home and cemetery industry is highly regulated.

The Company's operations are subject to regulation, supervision and licensing under numerous federal, state, provincial and local laws, ordinances and regulations, including extensive regulations concerning trust funds, pre-need sales of funeral and cemetery products and services, environmental matters and various other aspects of the business. The impact of such regulations varies depending on the location of funeral homes and cemeteries. Violations of applicable laws could result in fines or other sanctions to the Company.

From time to time, federal, state, provincial and local regulatory agencies have considered and may enact additional legislation or regulations that could affect the Company by increasing costs and decreasing cash flows. For example, additional legislation or regulations requiring more liberal refund and cancellation policies for pre-need sales of products and services or prohibiting door-to-door or telephone solicitation of potential customer families could adversely impact sales, resulting in lower revenue. Similarly, additional legislation or regulations increasing trust requirements could reduce the amount of cash available to the Company for other purposes. Additional legislation or regulations prohibiting the common ownership of funeral homes and cemeteries in the same market could adversely impact both sales and costs and expenses in the affected markets. If adopted in the states or provinces in which the Company operates, additional legislation or regulations such as these could have a material adverse effect on the Company's financial condition, results of operations and cash flows.

Funeral and cemetery businesses have high fixed costs.

The Company incurs many of the costs of operating and maintaining facilities, land and equipment regardless of the number of funeral services or internments performed. Because the Company cannot necessarily decrease these costs when it experiences lower sales volumes, a decline in sales may cause margins, profits and cash flows to decline at a greater rate than a decline in revenue.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding the Company's legal proceedings, see Note 4 to the Company's interim consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q, which Note 4 is incorporated herein by reference.

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

The 2004 Annual Meeting of stockholders was held on May 4, 2004. The following items of business, as proposed in the Proxy Statement dated as of March 25, 2004, were presented to the stockholders.

Election of Directors

The nine director nominees, information with respect to which was set forth in the Proxy Statement under the captioned "Proposal No. 1 — Election of Directors," were elected. The vote with respect to the election of these directors was as follows (there were no abstentions or broker non-votes with respect to this proposal):

Name (in alphabetical order of last name)	Total Vote For	Total Vote Withheld
Lloyd E. Campbell	31,322,551	648,394
Anthony G. Eames	31,322,536	648,409
Charles M. Elson	31,549,426	421,519
David R. Hilty	31,237,166	733,779
Paul A. Houston	31,669,647	301,298
Olivia F. Kirtley	31,086,859	884,086
John S. Lacey	31,491,708	479,237
William R. Riedl	31,379,383	591,562
W. MacDonald Snow, Jr.	31,236,701	734,244

Employee Stock Purchase Plan

The Alderwoods Group, Inc. Employee Stock Purchase Plan, as described in more detail in the Proxy Statement under the caption "Proposal No. 2 — Approval of Alderwoods Group, Inc. Employee Stock Purchase Plan," was approved. The vote with respect to such proposal was as follows:

Total Vote For		Total Vote Against		Abstentions		Broker Non-votes
22,129,419		694,672		65,105		9,081,749

2005 Equity Incentive Plan

The Alderwoods Group, Inc. 2005 Equity Incentive Plan, as described in more detail in the Proxy Statement under the caption "Proposal No. 3 — Approval of Alderwoods Group, Inc. 2005 Equity Incentive Plan," was approved. The vote with respect to such proposal was as follows:

Total Vote For		Total Vote Against		Abstentions		Broker Non-votes
20,672,224		2,136,214		80,758		9,081,749

ITEM 6. EXHIBITS

Exhibit Number		Description

2.1		Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 99.1 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed September 10, 2001)
2.2		Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.2 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.3		Second Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.3 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.4		Order Approving Modification of Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries and Compromise and Settlement of Claims Filed by Thomas Hardy (incorporated by reference to Exhibit 2.4 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.5		Findings of Fact, Conclusions of Law and Order Confirming Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries, As Modified, dated December 5, 2001 (incorporated by reference to Exhibit 2.5 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.6		Final Order dated December 7, 2001 (incorporated by reference to Exhibit 2.6 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.7		Stock Purchase Agreement dated as of June 17, 2004, by and between Citizens Insurance Company of America and Mayflower National Life Insurance Company (incorporated by reference to Exhibit 2.7 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 26, 2004)
3.1		Certificate of Incorporation of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
3.2		Bylaws of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.1		Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Form 10-12G/A of Loewen Group International, Inc., SEC File No. 000-33277, filed December 17, 2001)
4.2		Equity Registration Rights Agreement among Alderwoods Group, Inc. and certain holders of Common Stock. (incorporated by reference to Exhibit 4.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.3		Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.4		Form of Warrant Certificate (incorporated by reference to Exhibit A to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed on March 28, 2002)

4.5		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo, Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of Alderwoods Group, Inc., SEC file No. 000-33277, filed July 24, 2002)
4.6		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.7		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.8		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.9		Indenture governing the 7³/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
4.10		Indenture governing the 12¹/4% Senior Notes due 2009 (incorporated by reference to Exhibit 10.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.11		First Supplemental Indenture dated as of August 4, 2004, to the Indenture governing the 12¹/4% Senior Notes due 2009 (incorporated by reference to Exhibit 4.11 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
10.1		Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.2		Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)
10.3		Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.4		Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
10.5		Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)

10.6		Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)
*10.7		Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.6 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
*10.8		Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
*10.9		Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.9 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
*10.10		Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Richard J. Scully (incorporated by reference to Exhibit 10.35 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 1, 2003)
*10.11		Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.36 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
*10.12		Amendment No. 1 dated March 16, 2004, to the Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.12 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 10, 2004)
*10.13		Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.37 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
*10.14		Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Aaron Shipper (incorporated by reference to Exhibit 10.1 to Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 12, 2005)
*10.15		Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Mark W. H. Wilson (incorporated by reference to Exhibit 10.2 to Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 12, 2005)
*10.16		Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
*10.17		Alderwoods Group, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3, 2005)
*10.18		Alderwoods Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3, 2005)
*10.19		Director Compensation Plan (incorporated by reference to Exhibit 10.28 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)

*10.20		Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.40 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
*10.21		Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.19 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2005)
10.22		Description of Compensation of Directors (incorporated by reference to Exhibit 10.20 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed April 28, 2005)
10.23		Form of Indemnification Agreement between Alderwoods Group, Inc. and each of its directors and executive officers (incorporated by reference to Exhibit 10.33 to Form S-1/A of Alderwoods Group, Inc., SEC File No. 333-85316, filed July 25, 2002)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

*: Indicates management contract or compensatory plan or arrangement.
**: Filed herewith.

SIGNATURES

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

		ALDERWOODS GROUP, INC.
Dated: July 22, 2005		By:	/s/ KENNETH A. SLOAN Kenneth A. Sloan Executive Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

INDEX TO EXHIBITS

Exhibit Number		Description

2.1		Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 99.1 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed September 10, 2001)
2.2		Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.2 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.3		Second Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.3 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.4		Order Approving Modification of Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries and Compromise and Settlement of Claims Filed by Thomas Hardy (incorporated by reference to Exhibit 2.4 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.5		Findings of Fact, Conclusions of Law and Order Confirming Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries, As Modified, dated December 5, 2001 (incorporated by reference to Exhibit 2.5 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.6		Final Order dated December 7, 2001 (incorporated by reference to Exhibit 2.6 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
2.7		Stock Purchase Agreement dated as of June 17, 2004, by and between Citizens Insurance Company of America and Mayflower National Life Insurance Company (incorporated by reference to Exhibit 2.7 to the Form 10-Q of Alderwoods Group, Inc. SEC File No. 000-33277, filed July 26, 2004)
3.1		Certificate of Incorporation of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
3.2		Bylaws of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.1		Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Form 10-12G/A of Loewen Group International, Inc., SEC File No. 000-33277, filed December 17, 2001)
4.2		Equity Registration Rights Agreement among Alderwoods Group, Inc. and certain holders of Common Stock. (incorporated by reference to Exhibit 4.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.3		Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.4		Form of Warrant Certificate (incorporated by reference to Exhibit A to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed on March 28, 2002)
4.5		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo, Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of Alderwoods Group, Inc. SEC File No. 000-33277, filed July 24, 2002)

4.6		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.7		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.8		Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)
4.9		Indenture governing the 7³/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
4.10		Indenture governing the 12¹/4% Senior Notes due 2009 (incorporated by reference to Exhibit 10.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
4.11		First Supplemental Indenture dated as of August 4, 2004, to the Indenture governing the 12¹/4% Senior Notes due 2009 (incorporated by reference to Exhibit 4.11 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
10.1		Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.2		Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)
10.3		Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.4		Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)
10.5		Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)
10.6		Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)
10.7		Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.6 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)

10.8		Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.9		Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.9 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)
10.10		Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Richard J. Scully (incorporated by reference to Exhibit 10.35 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 1, 2003)
10.11		Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.36 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
10.12		Amendment No. 1 dated March 16, 2004, to the Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.12 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 10, 2004)
10.13		Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.37 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
*10.14		Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Aaron Shipper (incorporated by reference to Exhibit 10.1 to Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 12, 2005)
*10.15		Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Mark W. H. Wilson (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 12, 2005)
10.16		Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
*10.17		Alderwoods Group, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3, 2005)
*10.18		Alderwoods Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3, 2005)
10.19		Director Compensation Plan (incorporated by reference to Exhibit 10.28 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)
10.20		Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.40 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2003)
10.21		Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.19 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2005)
10.22		Description of Compensation of Directors (incorporated by reference to Exhibit 10.20 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed April 28, 2005)
10.23		Form of Indemnification Agreement between Alderwoods Group, Inc. and each of its directors and executive officers (incorporated by reference to Exhibit 10.33 to Form S-1/A of Alderwoods Group, Inc., SEC File No. 333-85316, filed July 25, 2002)

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 31.1

CERTIFICATION

I, Paul A. Houston, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Alderwoods Group, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.

The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d): Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Date: July 22, 2005

By:

/s/ PAUL A. HOUSTON

Paul A. Houston
President, Chief Executive Officer
and Director
(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Kenneth A. Sloan, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Alderwoods Group, Inc.;

2.

3.

4.

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d): Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5.

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Date: July 22, 2005

By:

/s/ KENNETH A. SLOAN

Kenneth A. Sloan
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alderwoods Group, Inc. (the "Company") on Form 10-Q for the twelve weeks ended June 18, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

(1): The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Dated: July 22, 2005	/s/ PAUL A. HOUSTON Paul A. Houston President, Chief Executive Officer and Director (Principal Executive Officer)
	/s/ KENNETH A. SLOAN Kenneth A. Sloan Executive Vice President, Chief Financial Officer (Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 6. EXHIBITS

SIGNATURES
INDEX TO EXHIBITS

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Alderwoods Inactive 10-Q2005 Q2 Quarterly report

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