Alderwoods 10Q 2005 Q3 Quarterly report

QuickLinks -- Click here to rapidly navigate through this document

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 16 weeks (fiscal quarter) ended October 8, 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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

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 November 5, 2005, there were 40,457,125 shares of Common Stock outstanding.

ALDERWOODS GROUP, INC.

			Page
Part I.	FINANCIAL INFORMATION
	Item 1.	FINANCIAL STATEMENTS:
		CONSOLIDATED BALANCE SHEETS as of October 8, 2005 and January 1, 2005	1
		CONSOLIDATED STATEMENTS OF OPERATIONS for the 16 and 40 Weeks Ended October 8, 2005 and October 9, 2004	2
		CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the 40 Weeks Ended October 8, 2005	3
		CONSOLIDATED STATEMENTS OF CASH FLOWS for the 16 and 40 Weeks Ended October 8, 2005 and October 9, 2004	4
		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS	5
	Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	52
	Item 4.	CONTROLS AND PROCEDURES	52
	FORWARD-LOOKING STATEMENTS AND RISK FACTORS		53
Part II.	OTHER INFORMATION
	Item 1.	LEGAL PROCEEDINGS	60
	Item 5.	OTHER INFORMATION	60
	Item 6.	EXHIBITS	60
SIGNATURES			65

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALDERWOODS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

Expressed in thousands of dollars
except number of shares

		October 8, 2005			January 1, 2005
		(unaudited)
ASSETS
Current assets
	Cash and cash equivalents	$	6,333		$	9,379
	Receivables, net of allowances		59,318			66,445
	Inventories		15,972			16,730
	Other		10,530			27,622
	Assets held for sale		—			82,056

			92,153			202,232
Pre-need funeral receivables and trust investments			334,504			336,030
Pre-need cemetery receivables and trust investments			304,202			311,654
Cemetery property			115,732			119,042
Property and equipment			541,047			540,255
Insurance invested assets			284,044			250,785
Deferred income tax assets			11,086			8,161
Goodwill			321,101			321,134
Cemetery perpetual care trust investments			245,327			246,052
Other assets			42,372			37,082

		$	2,291,568		$	2,372,427

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable and accrued liabilities	$	120,057		$	140,662
	Current maturities of long-term debt		2,490			9,083
	Liabilities associated with assets held for sale		—			61,428

			122,547			211,173
Long-term debt			384,296			454,557
Deferred pre-need funeral and cemetery contract revenue			97,494			82,971
Non-controlling interest in funeral and cemetery trusts			544,650			553,617
Insurance policy liabilities			255,198			214,745
Deferred income tax liabilities			31,830			20,357
Other liabilities			21,143			21,954

			1,457,158			1,559,374

Non-controlling interest in perpetual care trusts			245,569			257,141
Stockholders' equity
	Common stock, $0.01 par value, 100,000,000 shares authorized, 40,456,409 issued and outstanding (January 1, 2005 — 40,017,454)		405			400
	Capital in excess of par value		743,131			740,210
	Accumulated deficit		(181,469	)		(213,588	)
	Accumulated other comprehensive income		26,774			28,890

			588,841			555,912

		$	2,291,568		$	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

		16 Weeks Ended						40 Weeks Ended
		October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
Revenue
	Funeral	$	133,158		$	135,797		$	367,672		$	364,044
	Cemetery		52,519			48,979			134,737			123,806
	Insurance		29,105			25,994			73,036			62,104

			214,782			210,770			575,445			549,954

Costs and expenses
	Funeral		116,927			110,500			301,457			287,000
	Cemetery		47,202			43,135			117,026			107,519
	Insurance		27,752			24,399			69,570			59,123

			191,881			178,034			488,053			453,642

			22,901			32,736			87,392			96,312
General and administrative expenses			19,192			14,909			31,539			36,166
Provision for asset impairment			254			(159	)		(1,373	)		413

			19,446			14,750			30,166			36,579

Income from operations			3,455			17,986			57,226			59,733
Interest on long-term debt (Note 3)			8,967			48,731			23,495			67,494
Other expense (income), net			(68	)		(27	)		(5,910	)		651

Income (loss) before income taxes			(5,444	)		(30,718	)		39,641			(8,412	)
Income tax expense (recovery)			(12,349	)		(6,180	)		5,844			1,593

Net income (loss) from continuing operations			6,905			(24,538	)		33,797			(10,005	)
Discontinued operations (Note 10)
	Income (loss) from discontinued operations		—			18,707			(1,412	)		1,489
	Income taxes		—			7,548			266			6,502

Net income (loss) from discontinued operations			—			11,159			(1,678	)		(5,013	)

Net income (loss)		$	6,905		$	(13,379	)	$	32,119		$	(15,018	)

Basic earnings per Common share:
	Net income (loss) from continuing operations	$	0.17		$	(0.61	)	$	0.83		$	(0.25	)
	Net income (loss) from discontinued operations		—			0.28			(0.04	)		(0.13	)

	Net income (loss)	$	0.17		$	(0.33	)	$	0.79		$	(0.38	)

Diluted earnings per Common share:
	Net income (loss) from continuing operations	$	0.16		$	(0.61	)	$	0.81		$	(0.25	)
	Net income (loss) loss from discontinued operations		—			0.28			(0.04	)		(0.13	)

	Net income (loss)	$	0.16		$	(0.33	)	$	0.77		$	(0.38	)

Basic weighted average number of shares outstanding (thousands)			40,456			40,003			40,456			39,997

Diluted weighted average number of shares outstanding (thousands)			42,051			40,003			41,721			39,997

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									32,119						32,119
	Other comprehensive income (loss):
		Foreign currency translation adjustment, net of income taxes of $nil											2,155			2,155
		Unrealized loss on insurance invested assets, net of income taxes of $683											(3,340	)		(3,340	)
			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											192			192
			Less: reclassification adjustments for realized gains on derivatives included in net income, net of income taxes of $nil										(838	)		(838	)

Comprehensive income																585,915
Stock based compensation								43								43
Common stock issued:
	Stock issued as compensation in lieu of cash			7,705		—		106								106
	Stock issued under equity incentive plan			431,250		5		2,772								2,777

Balance at October 8, 2005				40,456,409	$	405	$	743,131	$	(181,469	)	$	26,774		$	588,841

See accompanying notes to the interim consolidated financial statements

ALDERWOODS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Expressed in thousands of dollars

			16 Weeks Ended						40 Weeks Ended
			October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
CASH PROVIDED BY (APPLIED TO)
Operations
	Net income (loss)		$	6,905		$	(13,379	)	$	32,119		$	(15,018	)
	Income (loss) from discontinued operations, net of tax			—			(11,159	)		1,678			5,013
	Items not affecting cash
		Depreciation and amortization		13,778			12,956			34,873			31,057
		Amortization of debt issue costs		915			4,716			2,565			6,136
		Insurance policy benefit reserves		15,957			14,693			38,609			32,280
		Provision for asset impairment		254			(159	)		(1,373	)		413
		Gain on disposal of business assets		(165	)		(56	)		(6,068	)		(1,551	)
		Deferred income taxes		(1,699	)		(5,723	)		11,050			(770	)
	Premium on long-term debt repurchase			—			31,340			282			32,450
	Other, including net changes in other non-cash balances			9,903			4,067			3,054			(14,166	)

Net cash provided by continuing operations				45,848			37,296			116,789			75,844
Net cash provided by (used in) discontinued operations				—			3,322			(601	)		10,690

				45,848			40,618			116,188			86,534

Investing
	Proceeds on disposition of business assets			3,757			2,455			14,916			14,542
	Purchase of property and equipment			(15,507	)		(14,604	)		(31,823	)		(23,881	)
	Purchase of insurance invested assets			(24,794	)		(57,107	)		(90,025	)		(93,964	)
	Proceeds on disposition and maturities of insurance invested assets			6,702			24,794			54,193			48,396

	Net cash used in continuing operations			(29,842	)		(44,462	)		(52,739	)		(54,907	)
	Net cash provided by discontinued operations			—			94,494			7,906			94,368

				(29,842	)		50,032			(44,833	)		39,461

Financing
	Increase in long-term debt			47			365,224			5,199			389,899
	Repayment of long-term debt			(23,111	)		(493,604	)		(82,320	)		(546,900	)
	Issuance of Common stock			1,401			47			2,777			56

	Net cash used in continuing operations			(21,663	)		(128,333	)		(74,344	)		(156,945	)
	Net cash used in discontinued operations			—			(303	)		(57	)		(442	)

				(21,663	)		(128,636	)		(74,401	)		(157,387	)

Decrease in cash and cash equivalents				(5,657	)		(37,986	)		(3,046	)		(31,392	)
Cash and cash equivalents, beginning of period				11,990			48,206			9,379			41,612

Cash and cash equivalents, end of period			$	6,333		$	10,220		$	6,333		$	10,220

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 October 8, 2005, the Company operated 613 funeral homes, 72 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 October 8, 2005, and for the 16 and 40 weeks ended October 8, 2005, and October 9, 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 based compensation plans

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123") and 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 (i) the current market price of the underlying stock exceeds the exercise price, and (ii) the number of shares upon exercise can be determined. Any compensation expense recorded is charged against operations over the service period, which generally matches the option vesting period.

For option grants under the 2002 Equity Plan, no stock-based compensation expense was recorded in the 40 weeks ended October 8, 2005 and October 9, 2004, as all options granted under this plan had an exercise price equal to or greater than the market value of the underlying common stock on the grant date.

In April of 2005, the Company's shareholders approved the 2005 Equity Incentive Plan that permits the grant of options, with or without tandem appreciation rights, and restricted Common stock units. A total of 1,800,000 shares are reserved for grant under the plan.

For the 16 weeks ended October 8, 2005, the Company granted 1,011,000 (of which 6,500 options have been cancelled as of October 8, 2005) options with tandem appreciation rights. The tandem appreciation rights entitle the employee to exchange the employee's option right for a number of shares equal in value to the appreciated value of the options. The exchange of the option for the tandem appreciation right requires an immediate exercise of the tandem appreciation right and will cause the immediate termination of the related option right. An exchange of an option right for a tandem appreciation right may only be made when the relevant option is otherwise exercisable. In applying the intrinsic value-based method, the Company recorded stock-based employee compensation cost of $43,000 because, although the options granted had an exercise price equal to or greater than the market value of the underlying Common stock on the grant date, the number of shares to be issued upon exercise of the option is not determinable as it may be dependent upon the exchange of the option for a tandem appreciation right.

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.

		16 Weeks Ended						40 Weeks Ended
		Oct 8, 2005			Oct 9, 2004			Oct 8, 2005			Oct 9, 2004
Net income (loss), as reported		$	6,905		$	(13,379	)	$	32,119		$	(15,018	)
Total stock-based employee compensation expense determined under fair value-based method, net of tax			(873	)		(649	)		(1,821	)		(1,934	)

Pro forma net income (loss)		$	6,032		$	(14,028	)	$	30,298		$	(16,952	)

Net income (loss) per Common share:
	Basic, as reported	$	0.17		$	(0.33	)	$	0.79		$	(0.38	)
	Basic, pro forma		0.15			(0.35	)		0.75			(0.42	)
	Diluted, as reported		0.16			(0.33	)		0.77			(0.38	)
	Diluted, pro forma		0.14			(0.35	)		0.73			(0.42	)

For the 16 weeks ended October 8, 2005, the Company granted 242,200 (of which 5,400 shares have been cancelled as of October 8, 2005) shares of restricted Common stock to employees. The restricted Common stock does not vest for the first three years after grant. Thereafter, the restricted Common stock vests in years 3 to 10 based upon the share price of the Company's common stock. After three years of service, the restricted Common stock units vest 70% at a $17 share price, and an additional 15% at a $17.50 share price and the final 15% at an $18 share price. Once granted, the restricted Common stock is included in total shares outstanding but is not included in the weighted average number of common shares outstanding in each period used to calculate basic earnings per share until the shares vest.

The 2005-2007 Executive Strategic Incentive Plan, approved by the Board of Directors on July 21, 2005, is a performance based compensation plan designed to motivate and reward the senior management team for achieving shareholder value objectives. The plan provides cash awards to the senior executives based on the Company's stock reaching a threshold target price of $17.00 in December 2007. The amount of the cash award increases the more the stock price exceeds the $17.00 threshold target price. Achieving a stock price of $17.00 results in an aggregate cash award of $5.6 million. Achieving a stock price of $18.00 results in an aggregate cash award of $8.0 million. The aggregate cash award increases by $1.6 million for every $1.00 in stock appreciation beyond $18.00.

No compensation expense was recorded in the 16 weeks ended October 8, 2005 for the restricted Common stock and Executive Strategic Incentive Plan. Beginning in the first fiscal quarter of 2006, the Company will adopt Statement of Financial Accounting Standards No. 123R ("FAS 123R") which will be applicable to the restricted Common stock and Executive Strategic Incentive Plan. The Company is in the process of evaluating the expected impact FAS 123R will have on stock based compensation.

Employee Stock Purchase Plan

In April 2005, the Company's shareholders approved the adoption of a compensatory employee stock purchase plan to provide for the purchase on the open market, to a maximum of 1,100,000 shares of Common stock of the Company. Eligible employees may authorize payroll deductions of up to 5% of their

regular base salary to purchase shares of Common stock of the Company on the open market on a monthly basis. The Company will make a cash contribution to purchase shares of common stock of the Company as additional compensation to each participant equal to 50% of the employee's contribution for that month. For the 16 weeks ended October 8, 2005, a total of 16,620 shares were purchased and distributed to employees at an average price of $16.60 per share and compensation expense of $90,000 was incurred.

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 Company is in the process of evaluating the expected effect of FAS No. 123R using the modified prospective application method on the consolidated financial position, results of operations and 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:

	October 8, 2005		January 1, 2005
Revolving credit facility (a)	$	—	$	—
Senior secured term loan B due in 2009 (a)(b)		178,523		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		8,263		12,305

		386,786		463,640
Less, current maturities of long-term debt		2,490		9,083

	$	384,296	$	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 September 29, 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 (6.75% at October 8, 2005), plus 1.5% (based upon the Company's consolidated leverage ratio at October 8, 2005), or (ii) LIBOR (4.12% for the three-month LIBOR at October 8, 2005), plus 2.5% (based upon the Company's consolidated leverage ratio at October 8, 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 October 8, 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 October 8, 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 (6.75% at October 8, 2005), plus 1.00%, or (ii) LIBOR (4.12% for the three-month LIBOR at October 8, 2005), plus 2.00%. The weighted average rate of interest was 5.75% at October 8, 2005. The Term Loan B is repayable in quarterly principal installments from October 8, 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 fourth 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; was recently transferred to the United States District Court for the Southern District of Texas, Case No. CV3394. To date, six separate class action lawsuits, including,Francis H. Rocha v. Alderwoods Group, Inc. et al, Marcia Berger v. Alderwoods Group, Inc. et al, Maria Magsarili and Tony Magsarili v. Alderwoods Group, Inc. et al, Caren Speizer v. Alderwoods Group, Inc. et al, Frank Moroz v. Alderwoods Group, Inc. et al, and Pioneer Valley Casket Co. v. Alderwoods Group, Inc. et al ("Funeral Consumer Cases") have been consolidated into this case. It is anticipated thatRalph Fancher et al v. Alderwoods Group, Inc. et al (described in greater detail below) will be consolidated if it is re-filed in the United States District Court for the Southern District of Texas.

The Funeral Consumer Cases are purported class actions on behalf of casket consumers throughout the United States. The suits name 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 the sale and pricing of caskets. The consolidated antitrust lawsuits seek injunctions, unspecified amounts of monetary damages, and treble damages. Since the litigation is in its preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes the plaintiff's claims are without merit and intends to vigorously defend itself in these actions.

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, was voluntarily dismissed by plaintiffs and then re-filed in and again dismissed from the United States District Court for the Northern District of California. It is anticipated that plaintiffs will re-file a second time in the United States District Court for the Southern District of Texas, but they have yet to do so. This lawsuit makes claims similar to those made in the Funeral Consumer Cases, again purporting to allege a national class action and seeking essentially duplicative relief. The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

Richard Sanchez et 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." The Company believes the plaintiffs' claims are without merit and intends to vigorously defend itself in this action.

On July 7, 2005, the FTC issued a letter advisory opinion regarding the lawful construction of the term "cash advance item" as used in the Funeral Rule. The FTC opined with regard to a similar lawsuit in Texas state court: "The Commission believes that the court is incorrect in ruling that all goods or services purchased from a third-party vendor are cash advance items. This interpretation sweeps far too broadly, potentially bringing within its scope every component good or service that comprises a funeral. This was not and is not the Commission's intention in the 'cash advance' provisions of the Rule. In our opinion, the

term 'cash advance item' in the Rule applies only to those items that the funeral provider represents expressly to be 'cash advance items' or represents by implication to be procured on behalf of a particular customer and provided to that customer at the same price the funeral provider paid for them." The FTC sets forth its analysis in the remainder of the letter.

We have learned that a number of plaintiffs to these actions have filed a petition against the Federal Trade Commission in the District of Columbia Circuit Court asking the Court to overturn the FTC's July 7, 2005 Advisory Opinion. Based on that filing, the Court in Sanchez has agreed to stay all California proceedings other than plaintiffs' filing an amended complaint. Therefore, no discovery will commence until the Court so instructs or until the District of Columbia Circuit Court rules on the FTC's Advisory Opinion.

In addition to the funeral and casket antitrust lawsuits, the Company has received a Civil Investigative Demand, dated August 4, 2005, from the Attorney General of Maryland on behalf of itself and other undisclosed state attorneys general, who have commenced an investigation of alleged anticompetitive practices in the funeral industry. The Company has also received similar Civil Investigative Demands from the Attorneys General of Florida and Connecticut.

The ultimate outcome of the litigation matters described in this note four cannot be determined at this time. An adverse decision in one or more of such matters could have a material adverse effect on the Company, its financial condition, results of operation and cash flows. The Company intends to aggressively defend the lawsuits.

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:

			16 Weeks Ended						40 Weeks Ended
			October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
Decrease (increase) in assets:
	Receivables, net of allowances
		Trade	$	5,354		$	(2,445	)	$	16,837		$	7,638
		Other		7,768			446			(6,618	)		(6,220	)
	Inventories			1,023			2,246			769			284
	Prepaid expenses			(681	)		767			16,468			(2,874	)
	Cemetery property			(2,960	)		(4,015	)		(7,036	)		(6,042	)
	Other assets			(2,552	)		(10,402	)		(6,100	)		(15,443	)

Increase (decrease) in liabilities:
	Accounts payable and accrued liabilities			(9,064	)		(4,832	)		(19,566	)		(24,273	)
	Net effect of pre-need receivables and deferred revenue			9,377			18,522			12,310			31,843
	Other liabilities			(17	)		(610	)		(2,909	)		4,306
	Insurance policy liabilities			1,077			1,134			1,844			1,605
	Other changes in non-cash balances			578			3,256			(2,945	)		(4,990	)

			$	9,903		$	4,067		$	3,054		$	(14,166	)

Supplemental information:
	Interest paid		$	11,567		$	21,050		$	26,431		$	43,499
	Income taxes paid, net of refunds			806			883			2,937			3,702
	Bad debt expense			1,138			955			2,304			2,792
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			42			44			106			128
	Stock based compensation			43			—			43			—
	Restricted cash investing and financing activities:
		Purchases of funeral, cemetery, and perpetual care trust investments		145,441			28,980			501,874			120,541
		Proceeds on disposition and maturities of funeral, cemetery, and perpetual care trust investments		125,693			33,434			538,809			112,059
		Increase in non-controlling interests in funeral, cemetery and perpetual care trusts		15,222			19,809			38,568			43,934
		Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts upon fulfillment of pre-need contracts		28,760			19,996			65,171			45,864

NOTE 6. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

		October 8, 2005			January 1, 2005
Receivables, net of allowances:
	Customer receivables	$	53,473		$	68,721
	Allowance for doubtful accounts		(10,558	)		(12,029	)
	Other		16,403			9,753

		$	59,318		$	66,445

Pre-need funeral receivables and trust investments:
	Customer receivables	$	35,872		$	37,146
	Allowance for contract cancellations and refunds		(15,627	)		(17,287	)
	Funeral trust investments		284,678			288,928
	Amounts receivable from funeral trusts		29,581			27,243

		$	334,504		$	336,030

Pre-need cemetery receivables and trust investments:
	Customer receivables	$	65,940		$	64,130
	Unearned finance income		(6,025	)		(5,759	)
	Allowance for contract cancellations and refunds		(16,951	)		(17,538	)
	Cemetery merchandise and service trust investments		261,238			270,821

		$	304,202		$	311,654

Cemetery property:
	Developed land and lawn crypts	$	37,729		$	37,623
	Undeveloped land		30,747			30,685
	Mausoleums		47,256			50,734

		$	115,732		$	119,042

Property and equipment:
	Land	$	162,329		$	166,252
	Buildings and improvements		381,956			368,501
	Automobiles		12,495			13,014
	Furniture, fixtures and equipment		65,659			54,432
	Computer hardware and software		27,305			23,310
	Accumulated depreciation and amortization		(108,697	)		(85,254	)

		$	541,047		$	540,255

Other assets:
	Intangible assets	$	18,107		$	15,060
	Debt issue costs		8,709			10,339
	Notes receivable		3,078			2,696
	Other		12,478			8,987

		$	42,372		$	37,082

Accounts payable and accrued liabilities:
	Trade payables	$	19,394	$	19,847
	Interest		2,063		7,210
	Accrued liabilities		18,758		32,423
	Accrued insurance		22,256		18,058
	Accrued taxes		37,829		44,785
	Other		19,757		18,339

		$	120,057	$	140,662

Deferred pre-need contract revenue:
	Funeral	$	71,615	$	69,098
	Cemetery		25,879		13,873

		$	97,494	$	82,971

Other liabilities:
	Perpetual care liability	$	7,689	$	7,490
	Other		13,454		14,464

		$	21,143	$	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 inter-segment sales or transfers occur at market price. The Company evaluates performance based on income from operations of the respective businesses.

For the 16 Weeks Ended:		Funeral		Cemetery		Insurance		Other			Consolidated
Revenue earned from external sales:
	October 8, 2005	$	133,158	$	52,519	$	29,105	$	—		$	214,782
	October 9, 2004	$	135,797	$	48,979	$	25,994	$	—		$	210,770
Income from operations:
	October 8, 2005	$	15,980	$	5,314	$	1,353	$	(19,192	)	$	3,455
	October 9, 2004	$	24,854	$	6,446	$	1,595	$	(14,909	)	$	17,986
Depreciation and amortization:
	October 8, 2005	$	7,718	$	4,597	$	54	$	1,409		$	13,778
	October 9, 2004	$	7,373	$	4,523	$	51	$	1,009		$	12,956

For the 40 Weeks Ended:		Funeral		Cemetery		Insurance		Other			Consolidated
Revenue earned from external sales:
	October 8, 2005	$	367,672	$	134,737	$	73,036	$	—		$	575,445
	October 9, 2004	$	364,044	$	123,806	$	62,104	$	—		$	549,954
Income from operations:
	October 8, 2005	$	66,234	$	19,065	$	3,466	$	(31,539	)	$	57,226
	October 9, 2004	$	75,857	$	17,061	$	2,981	$	(36,166	)	$	59,733
Depreciation and amortization:
	October 8, 2005	$	19,154	$	11,852	$	120	$	3,747		$	34,873
	October 9, 2004	$	18,292	$	10,211	$	125	$	2,429		$	31,057
Total assets at:
	October 8, 2005	$	1,112,540	$	808,070	$	315,000	$	55,958		$	2,291,568
	January 1, 2005	$	1,154,019	$	878,349	$	272,823	$	67,236		$	2,372,427
Goodwill at:
	October 8, 2005	$	321,101	$	—	$	—	$	—		$	321,101
	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:

		16 Weeks Ended						40 Weeks Ended
		October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
Earnings from operations of funeral, cemetery and insurance segments		$	22,647		$	32,895		$	88,765		$	95,899
Other expenses of operations:
	General and administrative expenses		(19,192	)		(14,909	)		(31,539	)		(36,166	)

Income from operations		$	3,455		$	17,986		$	57,226		$	59,733

NOTE 8. CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION

The following presents the condensed consolidating guarantor financial information as of October 8, 2005 and January 1, 2005 and for the 16 and 40 weeks ended October 8, 2005 and October 9, 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.

Condensed Consolidating Balance Sheets (unaudited)

				October 8, 2005
				Parent Company		Guarantors			Non- Guarantors		Consolidating Adjustments			Consolidated Totals
ASSETS
	Cash and cash equivalents			$	—	$	3,977		$	2,356	$	—		$	6,333
	Other current assets				—		69,912			15,908		—			85,820
	Pre-need funeral receivables and trust investments				—		261,228			287,957		(214,681	)		334,504
	Pre-need cemetery receivables and trust investments				—		282,168			267,512		(245,478	)		304,202
	Cemetery property and property and equipment				—		548,062			108,717		—			656,779
	Insurance invested assets				—		—			284,044		—			284,044
	Goodwill				—		272,224			48,877		—			321,101
	Investment in subsidiaries				1,059,299		(99,819	)		—		(959,480	)		—
	Cemetery perpetual care trust investment				—		—			245,327		—			245,327
	Other assets				8,710		17,591			27,157		—			53,458

			Total assets	$	1,068,009	$	1,355,343		$	1,287,855	$	(1,419,639	)	$	2,291,568

LIABILITIES AND STOCKHOLDERS' EQUITY
	Liabilities:
		Current liabilities		$	39,325	$	74,820		$	5,912	$	—		$	120,057
		Current maturities of long-term debt			—		2,469			21		—			2,490
		Intercompany, net of investments in and advances to affiliates			61,304		(105,990	)		192,089		(147,403	)		—
		Long-term debt			378,523		5,750			23		—			384,296
		Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts			—		533,481			568,822		(460,159	)		642,144
		Insurance policy liabilities			—		—			255,198		—			255,198
		Other liabilities			16		42,221			10,736		—			52,973
	Non-controlling interest in perpetual care trusts				—		—			245,569		—			245,569
	Stockholders' equity				588,841		802,592			9,485		(812,077	)		588,841

			Total liabilities and stockholders' equity	$	1,068,009	$	1,355,343		$	1,287,855	$	(1,419,639	)	$	2,291,568

Condensed Consolidating Balance Sheets

				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
	Cemetery property and property and equipment				—			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

Condensed Consolidating Statement of Operations (unaudited)

		16 Weeks Ended October 8, 2005
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	160,248		$	54,534		$	—		$	214,782
Costs and expenses			—			142,139			49,742			—			191,881
General and administrative expenses			—			530			18,662			—			19,192
Provision for asset impairment			—			556			(302	)		—			254

Income (loss) from operations			—			17,023			(13,568	)		—			3,455
Interest on long-term debt			8,841			197			(71	)		—			8,967
Intercompany charges			6,803			14,551			(21,354	)		—			—
Other expense (income), net			—			(227	)		159			—			(68	)

Income (loss) before income taxes			(15,644	)		2,502			7,698			—			(5,444	)
Income taxes			663			4,212			(10,921	)		(6,303	)		(12,349	)

Net income (loss) from continuing operations			(16,307	)		(1,710	)		18,619			6,303			6,905

Equity in subsidiaries			23,212			(425	)		—			(22,787	)		—
Discontinued operations
	Income from discontinued operations		—			—			—			—			—
	Income taxes		—			—			—			—			—

	Net income from discontinued operations		—			—			—			—			—

Net income (loss)		$	6,905		$	(2,135	)	$	18,619		$	(16,484	)	$	6,905

Condensed Consolidating Statement of Operations (unaudited)

		16 Weeks Ended October 9, 2004
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	161,007		$	49,763		$	—		$	210,770
Costs and expenses			—			133,994			44,040			—			178,034
General and administrative expenses			—			1,620			13,289			—			14,909
Provision for asset impairment			—			(535	)		376			—			(159	)

Income (loss) from operations			—			25,928			(7,942	)		—			17,986
Interest on long-term debt			46,356			315			117			1,943			48,731
Intercompany charges			5,673			2,659			(8,332	)		—			—
Other expense (income), net			—			(165	)		138			—			(27	)

Income (loss) before income taxes			(52,029	)		23,119			135			(1,943	)		(30,718	)
Income taxes			(1,833	)		4,435			(41	)		(8,741	)		(6,180	)

Net income (loss) from continuing operations			(50,196	)		18,684			176			6,798			(24,538	)

Equity in subsidiaries			36,817			(778	)		—			(36,039	)		—
Discontinued operations
	Income (loss) from discontinued operations		—			(4,498	)		21,262			1,943			18,707
	Income taxes		—			2,920			4,628			—			7,548

	Net income (loss) from discontinued operations		—			(7,418	)		16,634			1,943			11,159

Net income (loss)		$	(13,379	)	$	10,488		$	16,810		$	(27,298	)	$	(13,379	)

Condensed Consolidating Statement of Operations (unaudited)

		40 Weeks Ended October 8, 2005
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	434,774		$	140,671		$	—		$	575,445
Costs and expenses			—			361,680			126,373			—			488,053
General and administrative expenses			(262	)		(13,591	)		45,392			—			31,539
Provision for asset impairment			—			(1,050	)		(323	)		—			(1,373	)

Income (loss) from operations			262			87,735			(30,771	)		—			57,226
Interest on long-term debt			22,948			600			(53	)		—			23,495
Intercompany charges			11,952			25,304			(37,256	)		—			—
Other expense (income), net			—			(6,350	)		440			—			(5,910	)

Income (loss) before income taxes			(34,638	)		68,181			6,098			—			39,641
Income taxes			—			50,850			(9,409	)		(35,597	)		5,844

Net income (loss) from continuing operations			(34,638	)		17,331			15,507			35,597			33,797

Equity in subsidiaries			66,757			(1,234	)		—			(65,523	)		—
Discontinued operations
	Income (loss) from discontinued operations		—			(1,247	)		(165	)		—			(1,412	)
	Income taxes		—			(2	)		268			—			266

	Net loss from discontinued operations		—			(1,245	)		(433	)		—			(1,678	)

Net income (loss)		$	32,119		$	14,852		$	15,074		$	(29,926	)	$	32,119

Condensed Consolidating Statement of Operations (unaudited)

		40 Weeks Ended October 9, 2004
		Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
Revenues		$	—		$	425,309		$	124,645		$	—		$	549,954
Costs and expenses			—			343,838			109,804			—			453,642
General and administrative expenses			2			1,621			34,543			—			36,166
Provision for asset impairment			—			(95	)		508			—			413

Income (loss) from operations			(2	)		79,945			(20,210	)		—			59,733
Interest on long-term debt			66,204			1,073			217			—			67,494
Intercompany charges			9,280			10,910			(20,190	)		—			—
Other expense (income), net			—			576			75			—			651

Income (loss) before income taxes			(75,486	)		67,386			(312	)		—			(8,412	)
Income taxes			—			28,837			1,655			(28,899	)		1,593

Net income (loss) from continuing operations			(75,486	)		38,549			(1,967	)		28,899			(10,005	)

Equity in subsidiaries			60,468			(6,397	)		—			(54,071	)		—
Discontinued operations
	Income (loss) from discontinued operations		—			(18,512	)		20,001			—			1,489
	Income taxes		—			—			6,502			—			6,502

	Net income (loss) from discontinued operations		—			(18,512	)		13,499			—			(5,013	)

Net income (loss)		$	(15,018	)	$	13,640		$	11,532		$	(25,172	)	$	(15,018	)

Condensed Consolidating Statement of Cash Flows (unaudited)

	16 Weeks Ended October 8, 2005
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments		Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	20,783		$	2,524		$	22,541		$	—	$	45,848
Cash flows from operating activities of discontinued operations		—			—			—			—		—
Cash flows from investing activities of continuing operations		—			(6,416	)		(23,426	)		—		(29,842	)
Cash flows from investing activities of discontinued operations		—			—			—			—		—
Cash flows from financing activities of continuing operations		(20,783	)		(861	)		(19	)		—		(21,663	)
Cash flows from financing activities of discontinued operations		—			—			—			—		—

Decrease in cash and cash equivalents		—			(4,753	)		(904	)		—		(5,657	)
Cash and cash equivalents, beginning of period		—			8,729			3,261			—		11,990

Cash and cash equivalents, end of period	$	—		$	3,976		$	2,357		$	—	$	6,333

Condensed Consolidating Statement of Cash Flows (unaudited)

	16 Weeks Ended October 9, 2004
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	127,031		$	(42,320	)	$	(45,472	)	$	(1,943	)	$	37,296
Cash flows from operating activities of discontinued operations		—			2,896			2,328			(1,902	)		3,322
Cash flows from investing activities of continuing operations		—			(6,536	)		(37,926	)		—			(44,462	)
Cash flows from investing activities of discontinued operations		—			13,650			80,844			—			94,494
Cash flows from financing activities of continuing operations		(127,031	)		(4,989	)		(158	)		3,845			(128,333	)
Cash flows from financing activities of discontinued operations		—			(258	)		(45	)		—			(303	)

Decrease in cash and cash equivalents		—			(37,557	)		(429	)		—			(37,986	)
Cash and cash equivalents, beginning of period		—			44,440			3,766			—			48,206

Cash and cash equivalents, end of period	$	—		$	6,883		$	3,337		$	—		$	10,220

Condensed Consolidating Statement of Cash Flows (unaudited)

	40 Weeks Ended October 8, 2005
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments		Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	70,317		$	(3,266	)	$	49,738		$	—	$	116,789
Cash flows from operating activities of discontinued operations		—			661			(1,262	)		—		(601	)
Cash flows from investing activities of continuing operations		—			(3,547	)		(49,192	)		—		(52,739	)
Cash flows from investing activities of discontinued operations		—			6,129			1,777			—		7,906
Cash flows from financing activities of continuing operations		(70,317	)		(2,376	)		(1,651	)		—		(74,344	)
Cash flows from financing activities of discontinued operations		—			(9	)		(48	)		—		(57	)

Decrease in cash and cash equivalents		—			(2,408	)		(638	)		—		(3,046	)
Cash and cash equivalents, beginning of period		—			6,385			2,994			—		9,379

Cash and cash equivalents, end of period	$	—		$	3,977		$	2,356		$	—	$	6,333

Condensed Consolidating Statement of Cash Flows (unaudited)

	40 Weeks Ended October 9, 2004
	Parent Company			Guarantors			Non- Guarantors			Consolidating Adjustments			Consolidated Totals
CASH PROVIDED BY (APPLIED TO)
Cash flows from operating activities of continuing operations	$	146,559		$	(38,587	)	$	(32,128	)	$	—		$	75,844
Cash flows from operating activities of discontinued operations		—			8,461			6,208			(3,979	)		10,690
Cash flows from investing activities of continuing operations		—			(1,997	)		(52,910	)		—			(54,907	)
Cash flows from investing activities of discontinued operations		—			17,063			77,305			—			94,368
Cash flows from financing activities of continuing operations		(146,559	)		(13,974	)		(391	)		3,979			(156,945	)
Cash flows from financing activities of discontinued operations		—			(353	)		(89	)		—			(442	)

Decrease in cash and cash equivalents		—			(29,387	)		(2,005	)		—			(31,392	)
Cash and cash equivalents, beginning of period		—			36,270			5,342			—			41,612

Cash and cash equivalents, end of period	$	—		$	6,883		$	3,337		$	—		$	10,220

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.

As of October 8, 2005, in conjunction with the Company's ongoing assessment to ensure that each of the Company's properties fit into the Company's strategy, the Company held five funeral homes for sale. The carrying amount of these locations was $704,000. 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 $200,000 during the 12 weeks ended June 18, 2005 to record those assets available for sale at the lower of carrying amount of fair market value less estimated costs to sell. For the 40 weeks ended October 8, 2005, these properties had funeral home revenues and costs of $855,000 and $732,000 (October 9, 2004 — $913,000 and $812,000), respectively.

The assets of $1,575,000 (January 1, 2005 — $1,855,000) and liabilities of $871,000 (January 1, 2005 — $938,600) of these locations are classified according to their nature in the consolidated balance sheets and,

on the basis of immateriality have not been identified separately as to assets held for sale and liabilities associated with assets held for sale in the balance sheet.

In addition, for the 40 weeks ended October 8, 2005, the total revenues and costs of disposed funeral home locations which were not reclassified to discontinued operations were $2,409,000 and $2,353,000 (October 9, 2004 — $3,350,000 and $2,941,000), respectively.

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 (See Note 9).

As of June 18, 2005, the Company had 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:

		16 Weeks Ended					40 Weeks Ended
		October 8, 2005		October 9, 2004			October 8, 2005			October 9, 2004
Revenue
	Funeral	$	—	$	5,063		$	1,853		$	17,490
	Cemetery		—		4,070			598			12,570
	Insurance		—		15,871			—			41,720

		$	—	$	25,004		$	2,451		$	71,780

Gross margin
	Funeral	$	—	$	88		$	(152	)	$	1,126
	Cemetery		—		97			(237	)		493
	Insurance		—		4,202			—			9,382

			—		4,387			(389	)		11,001
Provision for asset impairment			—		1,324			568			23,790
Other expense (income), net			—		(16,985	)		455			(17,586	)

Income (loss) from discontinued operations			—		20,048			(1,412	)		4,797
Interest on long-term debt			—		1,341			—			3,308

Income (loss) from discontinued operations, before tax			—		18,707			(1,412	)		1,489
Income tax provision for discontinued operations			—		7,548			266			6,502

Net income (loss) from discontinued operations		$	—	$	11,159		$	(1,678	)	$	(5,013	)

Depreciation included in gross margin of discontinued operations		$	—	$	165		$	20		$	464

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:

		16 Weeks Ended					40 Weeks Ended
		October 8, 2005		October 9, 2004			October 8, 2005		October 9, 2004
Income (numerator):
Net income (loss) attributable to Common stockholders		$	6,905	$	(13,379	)	$	32,119	$	(15,018	)

Shares (denominator):
	Basic weighted average number of shares of Common stock outstanding (thousands)		40,456		40,003			40,456		39,997
	Effect of stock options assumed exercised (thousands)		1,595		—			1,265		—

Diluted weighted average number of shares of Common stock outstanding (thousands)			42,051		40,003			41,721		39,997

For the 16 and 40 weeks ended October 8, 2005, 4,013,250 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 1,034,500 shares of Common stock, warrants to purchase

2,992,000 shares of Common stock and 236,800 shares of restricted Common stock were not included in the computation of diluted earnings per share, because they were anti-dilutive.

NOTE 12. EFFECT OF HURRICANE KATRINA

On August 29, 2005, Hurricane Katrina struck Louisiana and Mississippi. The Company operates 30 funeral homes, four cemeteries and a limousine company in these heavily affected areas. The Company has experienced some damage at all of these locations. Repair work has begun at many of the locations. Of the 30 funeral homes, seven experienced significant damage and are not expected to be in operation by the end of the year and are not included as same-site locations in the table below. All four cemeteries are in operation. The New Orleans limousine company that had provided services both to the Company's funeral operations and other third-parties experienced significant damage to its fleet of vehicles and will not be resuming operations.

The Company is making every effort to use its existing operating facilities to provide services to customers normally served by one of the Company's closed locations.

The Company's insurance subsidiary supporting the sale of funeral pre-need contracts is also headquartered in New Orleans and although forced to relocate temporarily to Cincinnati, has resumed operations from New Orleans. The relocation has not significantly affected the Company's operating results.

Financial results

The Company's financial results for the 16 weeks ended October 8, 2005 and the 40 weeks ended October 8, 2005 included results from operations for those locations affected by Hurricane Katrina as outlined in the following table:

			16 Weeks Ended					40 Weeks Ended
			October 8, 2005			October 9, 2004		October 8, 2005			October 9, 2004
Funeral Homes
	Revenue		$	7,301		$	8,506	$	21,656		$	22,662
		Number of funeral services performed		1,570			1,832		4,649			4,865
		Number of same-site funeral services performed		1,368			1,478		3,942			3,890
	Costs and expenses		$	7,622		$	7,051	$	19,024		$	18,620
	Gross Margin		$	(321	)	$	1,455	$	2,632		$	4,042
	Pre-need funeral contracts written		$	3,174		$	3,197	$	8,956		$	9,441
Cemeteries
	Revenue		$	787		$	1,264	$	2,211		$	2,495
		Number of cemetery interments		233			238		760			685
	Costs and expenses		$	900		$	1,066	$	2,228		$	2,280
	Gross Margin		$	(113	)	$	198	$	(17	)	$	215
	Pre-need cemetery contracts written		$	356		$	391	$	1,047		$	951

Insurance coverage and long-term asset gain or loss

The Company purchases insurance coverage for property damage, including damage from wind and flood, subject to separate limits, sub-limits and deductible amounts. The Company, along with its insurance companies, is continuing to assess and estimate the extent of damages. Based on a preliminary review of the Company's insurance policy, the Company expects to recover a substantial portion of the costs associated with the storm damage through insurance, including the capital costs of rebuilding. For those properties not in operation and requiring rebuilding, insurance proceeds have not yet been fully estimated, and as a result, any estimated loss or gain for these properties cannot be determined. The net book value of buildings and contents for those locations not in operation aggregates $7.4 million.

The Company has recorded an expense of $3.0 million in the 16 weeks ended October 8, 2005, representing its expected deductible under its insurance policies and other expenses not expected to be reimbursed under the insurance policy. Under its internal risk sharing practice the Company's aggregate costs are charged to all its operations, not just the locations affected by Hurricane Katrina. The effect on funeral and cemetery costs for the 16 weeks ended October 8, 2005 was $2.2 and $0.8 million respectively.

The Company is self-insured for physical damage to its owned and leased automobiles and charges the aggregate resulting costs to all of its operations. Hurricane Katrina resulted in estimated damages across our vehicles aggregating $0.6 million. The effect of Hurricane Katrina vehicle damage on funeral and cemetery costs for the 16 weeks ended October 8, 2005 was $0.5 and $0.1 million respectively.

The Company has business interruption insurance that allows the recovery of operating costs and lost profits. The Company is preparing its analysis in support of a claim. Potential proceeds from this claim cannot currently be reasonably estimated and therefore no receivable or recovery has been recorded as of October 8, 2005.

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 October 8, 2005, the Company operated 613 funeral homes, 72 cemeteries and 60 combination funeral homes and cemeteries throughout North America. As of October 9, 2004, the Company operated 683 funeral homes, 110 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, mausoleum crypts and other merchandise), 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 to fund pre-need funeral services.

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 16 weeks ended October 8, 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 16 and 40 weeks ended October 8, 2005 and October 9, 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 prior fiscal quarters. As of June 18, 2005, the Company had 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. The program was completed as of the end of the second quarter 2005.

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

Hurricane Katrina

During the 16 weeks Ended October 8, 2005, some of the Company's operations were affected by Hurricane Katrina. The Company operates 30 funeral homes, four cemeteries and a limousine company in areas of Louisiana and Mississippi that were affected by the hurricane on August 29, 2005. The Company has experienced some damage at all of these locations. Repair work has begun at many of the locations. Of the 30 funeral homes, seven experienced significant damage and are not expected to be in operation by the end of the year. All four cemeteries are in operation. The New Orleans limousine company that had provided services both to the Company's funeral operations and other third-parties experienced significant damage to its fleet of vehicles and will not be resuming operations.

The Company has recorded an expense of $3.0 million in the 16 weeks ended October 8, 2005, representing its expected deductible under its insurance policies and other expenses not expected to be reimbursed under the insurance policy. Under its internal risk sharing practice, the Company's aggregate costs are charged to all its operations, not just the locations affected by Hurricane Katrina. The effect on funeral and cemetery costs for the 16 weeks ended October 8, 2005 was $2.2 and $0.8 million respectively.

Additional information regarding Hurricane Katrina is provided in Note 12 to the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

16 Weeks Ended October 8, 2005 Compared to 16 Weeks Ended October 9, 2004

			16 Weeks Ended
			October 8, 2005			October 9, 2004			October 8, 2005		October 9, 2004
			(in thousands)			(in thousands)			(percentages)		(percentages)
Revenue
	Funeral		$	133,158		$	135,797		62.0		64.5
	Cemetery			52,519			48,979		24.5		23.2
	Insurance			29,105			25,994		13.5		12.3

		Total	$	214,782		$	210,770		100.0		100.0

Gross margin
	Funeral		$	16,231		$	25,297		12.2		18.6
	Cemetery			5,317			5,844		10.1		11.9
	Insurance			1,353			1,595		4.6		6.1

		Total		22,901			32,736		10.7		15.5

Expenses
	General and administrative			19,192			14,909		8.9		7.1
	Provision for asset impairment			254			(159	)	0.1		(0.1	)

Income from operations				3,455			17,986		1.7		8.5
Interest on long-term debt and refinancing costs				8,967			48,731		4.2		23.1
Other expense (income), net				(68	)		(27	)	—		—

Income before income taxes				(5,444	)		(30,718	)	(2.5	)	(14.6	)
Income tax recovery				(12,349	)		(6,180	)	(5.7	)	(2.9	)

Net income (loss) from continuing operations				6,905			(24,538	)	3.2		(11.7	)
Net income from discontinued operations, net of tax				—			11,159		—		5.3

Net income (loss)			$	6,905		$	(13,379	)	3.2		(6.4	)

Other information for the 16 weeks ended October 8, 2005, and 16 Weeks Ended October 9, 2004, is summarized in the following table:

						Increase (decrease)
Continuing Operations:		October 8, 2005		October 9, 2004		Increase (decrease)
Continuing Operations:		October 8, 2005		October 9, 2004		(amount)			(percentages)
Funeral — Other Information
Number of funeral services performed			32,368		33,799		(1,431	)	(4.2	)
	Number of same site funeral services performed		32,070		32,980		(910	)	(2.8	)
Average revenue per funeral service		$	4,114	$	4,018	$	96		2.4
	Same site average revenue per funeral service	$	4,109	$	4,027	$	82		2.0
Pre-need funeral contracts written (in millions)		$	59.7	$	52.9	$	6.8		13.0
Pre-need funeral conversion (percentages)			27		26		1		—
Cemetery — Other Information
Number of cemetery interments			13,763		13,435		328		2.4
Pre-need cemetery contracts written (in millions)		$	28.9	$	26.3	$	2.6		9.8

Continuing Operations

Consolidated revenue of $214.8 million for the 16 weeks ended October 8, 2005, increased by $4.0 million, or 1.9%, compared to the corresponding period in 2004, reflecting increases in the cemetery and insurance segments partially offset by a decrease in funeral revenue. Consolidated gross margin as a percentage of revenue decreased to 10.7% for the 16 weeks ended October 8, 2005, from 15.5% for the corresponding period in 2004.

Funeral revenue of $133.2 million for the 16 weeks ended October 8, 2005, decreased by $2.6 million, compared to $135.8 million for the corresponding period in 2004, primarily as a result of a decrease in the number of funeral services performed partially offset by an increase of $96, or 2.4%, in average revenue per funeral service performed. The number of funeral services performed during the 16 weeks ended October 8, 2005 decreased by 4.2% 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 designed to both meet customer family needs and to increase average revenues.

Included in the funeral revenue for the 16 weeks ended October 8, 2005 is $7.3 million from 1,570 funeral services performed in New Orleans, Louisiana and on the Gulf Coast of Mississippi compared to $8.5 million of funeral revenue from 1,832 funeral services performed for the 16 weeks ended October 9, 2004. The Company's funeral operations in these areas were significantly affected by Hurricane Katrina.

On a same site basis, funeral revenue was $131.8 million for the 16 weeks ended October 8, 2005, a decrease of $1.0 million compared to $132.8 million for the corresponding period in 2004, as a result of a decrease of 2.8% in the number of funeral services performed from the corresponding period in 2004 offset by an increase of $82, or 2.0%, in average revenue per funeral service performed. If the locations affected by Hurricane Katrina were removed, the number of funeral services performed on a same site basis would have declined 2.5% from the corresponding period in 2004.

The number of cremation services performed as a percentage of total services performed increased to 36.7% for the 16 weeks ended October 8, 2005, compared to 35.9% 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 12.2% for the 16 weeks ended October 8, 2005, compared to 18.6% for the corresponding period in 2004. The decrease in gross margin was primarily due to (i) 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 growth in future services, (ii) a $2.7 million accrual for an expected insurance deductible and expenses not expected to be reimbursed under the Company's insurance policy for damages at locations affected by Hurricane Katrina offset by $1.0 million of lower insurance costs compared to the prior year, and (iii) a $1.3 million accrual for litigation claims during the 16 weeks ended October 8, 2005.

Pre-need funeral contracts written for the 16 weeks ended October 8, 2005, were $59.7 million, compared to $52.9 million for the corresponding period in 2004. The Company is continuing its program to increase pre-need sales. For the 16 weeks ended October 8, 2005, 27% of the funeral services performed were derived from the pre-need 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 $52.5 million for the 16 weeks ended October 8, 2005, was $3.5 million, or 7.2%, higher than cemetery revenue for the corresponding period in 2004, primarily due to increased pre-need space sales of $2.1 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 decreased to 10.1% for the 16 weeks ended October 8, 2005, compared to 11.9% for the corresponding period in 2004, primarily due to a $0.9 million accrual for an expected insurance deductible and expenses not expected to be reimbursed under the Company's insurance policy for damages at locations affected by Hurricane Katrina and a $0.4 million accrual for litigation claims during the 16 weeks ended October 8, 2005.

Pre-need cemetery contracts written for the 16 weeks ended October 8, 2005, were $28.9 million, compared to $26.3 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 initial 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 16 weeks ended October 8, 2005, increased $3.1 million, or 12.0%, compared to the corresponding period in 2004, primarily due to increases in premiums of $2.9 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 16 weeks ended October 8, 2005 was $42.6 million compared to $35.1 million for the corresponding period in 2004. Insurance gross margin as a percentage of revenue decreased to 4.6% for the 16 weeks ended October 8, 2005, compared to 6.1% for the corresponding period in 2004, due to a decrease in investment gains of $0.7 million compared to the 16 weeks ended October 9, 2004. The Company expects the insurance gross margin percentage to grow modestly over the near term.

General and administrative expenses for the Company for the 16 weeks ended October 8, 2005, were $19.2 million, or 8.9% of consolidated revenue, compared to $14.9 million, or 7.1% of consolidated revenue for the corresponding period in 2004. The increase of $4.3 million is primarily due to an increase

in wages, consulting and audit expenses of $1.1 million related to Sarbanes-Oxley compliance, increased accrual for management incentive bonuses of $2.3 million and a $0.5 million foreign exchange impact from Canadian dollar based support center costs.

In accordance with FAS 142, the Company undertook its annual goodwill impairment review during the 16 weeks ended October 8, 2005. Goodwill impairment is deemed to exist, and must then be further assessed, if a reporting unit's carrying amount exceeds its estimated fair value. The Company's reporting units are funeral, cemetery and insurance, which are consistent with the Company's operating segments. All of the Company's goodwill is recorded in the funeral reporting unit. As a result of the Company's annual goodwill impairment review, there was no indication of goodwill impairment, as the estimated fair value of the reporting unit exceeded its carrying amount as of October 8, 2005.

Interest expense on long-term debt for the 16 weeks ended October 8, 2005, was $9.0 million, reflecting the effect of principal repayments and lower interest rates compared to interest expense, tender premium and refinancing costs in the corresponding period in 2004, as detailed in the following table:

	16 Weeks Ended
	October 8, 2005		October 9, 2004
	(in millions)
Interest on long-term debt	$	8.1	$	14.8
Amortization of debt issue costs		0.9		—
Tender premium on the repurchase of the 12.25% Senior Unsecured Notes due in 2009		—		31.3
Unamortized deferred finance costs expensed relating to the Credit Agreement that was refinanced		—		1.2
Unamortized deferred finance costs expensed relating to the subordinated bridge loan due in 2005 that was fully repaid		—		0.8
Refinancing fees and costs on the Credit Agreement that was refinanced		—		1.9
Allocation of interest to discontinued operations		—		(1.3	)

Total interest on long-term debt and refinancing costs	$	9.0	$	48.7

Income tax recovery for the 16 weeks ended October 8, 2005 was $12.3 million compared to $6.2 million for the corresponding period in 2004. During the 16 weeks ended October 8, 2005, the Company recorded the non-cash resolution of an outstanding tax liability by reducing its tax expense by $12.6 million and also recorded an adjustment to bring the year-to-date effective tax rate before the above benefit is approximately 45%. The Company's effective tax rate for the 16 weeks ended October 9, 2004 was 20.1%. Future realizations of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 will result in a reduction to goodwill established on January 2, 2002. The effective tax rate also varied from the statutory tax rate for the 16 weeks ended October 8, 2005, because in certain jurisdictions, losses incurred may not offset the tax expense in profitable jurisdictions.

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 October 8, 2005, the balance of $1.2 million of reorganization costs, primarily consisting of an accrual for a legal fee reimbursement, has been included in accounts payable and accrued liabilities.

During the 16 weeks ended October 8, 2005, the Company sold four funeral locations for gross proceeds of $1.8 million.

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.

As of June 18, 2005, the Company 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 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 within 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 relates to Security Plan Life Insurance Company.

40 Weeks Ended October 8, 2005 Compared to 40 Weeks Ended October 9, 2004

			40 Weeks Ended
			October 8, 2005			October 9, 2004			October 8, 2005		October 9, 2004
			(in thousands)			(in thousands)			(percentages)		(percentages)
Revenue
	Funeral		$	367,672		$	364,044		63.9		66.2
	Cemetery			134,737			123,806		23.4		22.5
	Insurance			73,036			62,104		12.7		11.3

		Total	$	575,445		$	549,954		100.0		100.0

Gross margin
	Funeral		$	66,215		$	77,044		18.0		21.2
	Cemetery			17,711			16,287		13.1		13.2
	Insurance			3,466			2,981		4.7		4.8

		Total		87,392			96,312		15.2		17.5

Expenses
	General and administrative			31,539			36,166		5.5		6.6
	Provision for asset impairment			(1,373	)		413		(0.2	)	0.1

Income from operations				57,226			59,733		9.9		10.8
Interest on long-term debt and refinancing costs				23,495			67,494		4.1		12.3
Other expense (income), net				(5,910	)		651		(1.0	)	0.1

Income (loss) before income taxes				39,641			(8,412	)	6.8		(1.6	)
Income taxes				5,844			1,593		1.0		0.3

Net income (loss) from continuing operations				33,797			(10,005	)	5.8		(1.9	)
Loss from discontinued operations, net of tax				(1,678	)		(5,013	)	(0.3	)	(0.9	)

Net income (loss)			$	32,119		$	(15,018	)	5.5		(2.8	)

Other information for the 40 weeks ended October 8, 2005, and 40 weeks ended October 9, 2004, is summarized in the following table:

						Increase (decrease)
Continuing Operations:		October 8, 2005		October 9, 2004		(amount)			(percentages)
Funeral — Other Information
Number of funeral services performed			89,103		90,599		(1,496	)	(1.7	)
	Number of same site funeral services performed		87,162		88,103		(941	)	(1.1	)
Average revenue per funeral service		$	4,126	$	4,018	$	108		2.7
	Same site average revenue per funeral service	$	4,137	$	4,032	$	105		2.6
Pre-need funeral contracts written (in millions)		$	150.0	$	137.3	$	12.7		9.3
Pre-need funeral conversion (percentages)			27		26		1		—
Cemetery — Other Information
Number of cemetery interments			36,264		36,058		206		0.6
Pre-need cemetery contracts written (in millions)		$	74.7	$	65.5	$	9.2		14.0

Continuing Operations

Consolidated revenue of $575.4 million for the 40 weeks ended October 8, 2005, increased by $25.5 million, or 4.6%, compared to the corresponding period in 2004, reflecting increases in all business segment revenues. Consolidated gross margin as a percentage of revenue decreased to 15.2% for the 40 weeks ended October 8, 2005, from 17.5% for the corresponding period in 2004.

Funeral revenue of $367.7 million for the 40 weeks ended October 8, 2005, increased by $3.7 million, compared to $364.0 million for the corresponding period in 2004, primarily as a result of an increase of $108, or 2.7%, 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 40 weeks ended October 8, 2005 decreased by 1.7% 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 designed to both meet customer family needs and to increase average revenues.

Included in the funeral revenue for the 40 weeks ended October 8, 2005 is $21.7 million from 4,649 funeral services performed in New Orleans, Louisiana, and on the Gulf Coast of Mississippi compared to $22.7 million of funeral revenue from 4,865 funeral services performed for the 40 weeks ended October 9, 2004. The Company's funeral operations in these areas were affected significantly by Hurricane Katrina.

On a same site basis funeral revenue was $360.6 million for the 40 weeks ended October 8, 2005, an increase of $5.4 million compared to $355.2 million for the corresponding period in 2004, as a result of an increase of $105, or 2.6%, in average revenue per funeral service performed, offset by a decrease of 1.1% in the number of funeral services performed from the corresponding period in 2004. If the locations affected by Hurricane Katrina were removed, the number of funeral services performed on a same site basis would have declined 1.2% from the corresponding period in 2004 as the impacted locations were performing well prior to Hurricane Katrina.

The number of cremation services performed as a percentage of total services performed increased to 36.4% for the 40 weeks ended October 8, 2005, compared to 35.3% 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 18.0% for the 40 weeks ended October 8, 2005, compared to 21.2% for the corresponding period in 2004. The decrease in gross margin was primarily due to (i) 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 growth in future services, (ii) a $2.7 million accrual for an expected insurance deductible and expenses not expected to be reimbursed under the Company's insurance policy for damages at locations affected by Hurricane Katrina offset by $1.0 million of lower insurance costs compared to the prior year, and (iii) a $1.3 million accrual for litigation claims during the 40 weeks ended October 8, 2005.

Pre-need funeral contracts written for the 40 weeks ended October 8, 2005, were $150.0 million, compared to $137.3 million for the corresponding period in 2004. The Company is continuing its program to increase pre-need sales. For the 40 weeks ended October 8, 2005, 27% of the funeral services performed were derived from pre-need 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 $134.7 million for the 40 weeks ended October 8, 2005, was $10.9 million, or 8.8%, higher than cemetery revenue for the corresponding period in 2004, primarily due to increased space sales of $7.6 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 improving collection trends.

Cemetery gross margin as a percentage of revenue decreased to 13.1% for the 40 weeks ended October 8, 2005, compared to 13.2% for the corresponding period in 2004. The decrease in gross margin includes a $0.9 million accrual for an expected insurance deductible and expenses not expected to be reimbursed under the Company's insurance policy for damages at locations affected by Hurricane Katrina and a $0.4 million accrual for litigation claims during the 40 weeks ended October 8, 2005.

Pre-need cemetery contracts written for the 40 weeks ended October 8, 2005, were $74.7 million, compared to $65.5 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 initial 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 40 weeks ended October 8, 2005, increased $10.9 million, or 17.6%, compared to the corresponding period in 2004, primarily due to increases in premiums of $10.0 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 40 weeks ended October 8, 2005 was $105.3 million compared to $86.4 million for the corresponding period in 2004. Insurance gross margin as a percentage of revenue decreased to 4.7% for the 40 weeks ended October 8, 2005, compared to 4.8% for the corresponding period in 2004, due to a decrease in investment gains of $1.0 compared to the 40 weeks ended October 9, 2004. The Company expects the insurance gross margin percentage to grow modestly over the near term.

General and administrative expenses decreased $4.7 million for the 40 weeks ended October 8, 2005, to $31.5 million, or 5.5% of consolidated revenue, compared to $36.2 million, or 6.6% of consolidated revenue, for the corresponding period in 2004. General and administrative expenses included the following items affecting the comparison of the 40 weeks ended October 8, 2005 to the 40 weeks ended October 9, 2004:

	40 Weeks Ended
	October 8, 2005			October 9, 2004
	(in millions)
Recovery of corporate receivable previously fully reserved against	$	(10.9	)	$	(1.2	)
Reduction in accrual on settlement of U.S. trustee bankruptcy fee		(0.9	)		—
Increased Sarbanes-Oxley compliance costs		2.5			—
Increased support center facilities costs		1.0			—
Retirement allowance accrual		1.1			—
Foreign exchange impact on Canadian dollar based support centers		0.7			—
Reversal of legal claim accrual due to approvals obtained for insurance coverage of the costs		—			(0.9	)

In accordance with FAS 142, the Company undertook its annual goodwill impairment review during the 40 weeks ended October 8, 2005. Goodwill impairment is deemed to exist, and must then be further assessed, if a reporting unit's carrying amount exceeds its estimated fair value. The Company's reporting units are funeral, cemetery and insurance, which are consistent with the Company's operating segments. All of the Company's goodwill is recorded in the funeral reporting unit. As a result of the Company's annual goodwill impairment review, there was no indication of goodwill impairment, as the estimated fair value of the reporting unit exceeded its carrying amount as of October 8, 2005.

Interest expense on long-term debt for the 40 weeks ended October 8, 2005, was $23.5 million, a decrease of $44.0 million from the corresponding period of $67.5 million, reflecting the effect of principal repayments and lower interest rates compared to interest expense, tender premium and refinancing costs in the corresponding period in 2004 partially offset by the inclusion in the 40 weeks ended October 9, 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:

	40 Weeks Ended
	October 8, 2005		October 9, 2004
	(in millions)
Interest on long-term debt	$	20.6	$	41.5
Amortization of debt issue costs		2.6
Tender premiums on the repurchase of the 12.25% Senior Unsecured Notes due in 2009		0.3		32.5
Unamortized deferred finance costs expensed relating to the Credit Agreement that was refinanced		—		1.2
Unamortized deferred finance costs expensed relating to the subordinated bridge loan due in 2005 that was fully repaid		—		0.9
Refinancing fees and costs on the Credit Agreement that was refinanced		—		1.9
Unamortized premium credited to interest expense on 12.25% Convertible Subordinated Notes due in 2012 that were fully retired		—		(7.2	)
Allocation of interest to discontinued operations		—		(3.3	)

Total interest on long-term debt and refinancing costs	$	23.5	$	67.5

Income tax expense for the 40 Weeks Ended October 8, 2005 was $5.8 million compared to $1.6 million for the corresponding period in 2004. During the 40 Weeks Ended October 8, 2005, the Company recorded the non-cash resolution of an outstanding tax liability by reducing its tax expense by $12.1 million. The year-to-date effective tax rate before the above benefit was approximately 45%. Future realizations of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 will result in a reduction to goodwill established on January 2, 2002. The effective tax rate also varied from the statutory tax rate for the 40 weeks ended October 8, 2005, because in certain jurisdictions, losses incurred may not offset the tax expense in profitable jurisdictions.

During the 40 weeks ended October 8, 2005, the Company sold 22 funeral, five cemetery and four combination locations for gross proceeds of $9.1 million.

Discontinued Operations

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:

		16 Weeks Ended						40 Weeks Ended
		October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
		(in thousands)						(in thousands)
Funeral backlog:
	Beginning balance	$	1,307,643		$	1,231,799		$	1,279,964		$	1,199,441
	Sales, net of cancellations		50,835			41,355			133,760			117,589
	Maturities		(34,475	)		(28,068	)		(102,675	)		(95,949	)
	Net increase in insurance benefits and earnings realized on funeral trust balances		9,634			6,044			16,047			12,383
	Change in cancellation reserve		(2,829	)		(9,875	)		2,566			3,953
	Other		2,378			6,118			3,524			9,956

	Ending balance	$	1,333,186		$	1,247,373		$	1,333,186		$	1,247,373

Trust funded		$	349,972		$	362,715		$	349,972		$	362,715
Third party insurance companies			662,745			643,677			662,745			643,677
Subsidiary insurance companies			320,469			240,981			320,469			240,981

		$	1,333,186		$	1,247,373		$	1,333,186		$	1,247,373

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

		16 weeks Ended						40 Weeks Ended
		October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
		(in thousands)						(in thousands)
Cemetery backlog:
	Beginning balance	$	270,650		$	260,316		$	262,825		$	259,456
	Sales, net of cancellations		26,842			24,370			69,809			62,210
	Maturities		(26,006	)		(26,109	)		(67,713	)		(61,615	)
	Earnings realized on cemetery trust balances		4,243			4,826			8,956			3,235
	Change in cancellation reserve		270			(245	)		2,122			(128	)
	Other		(1709	)		—			(1709	)		—

	Ending balance	$	274,290		$	263,158		$	274,290		$	263,158

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 $45.9 million for the 16 weeks ended October 8, 2005, compared to $37.3 million for the corresponding period in 2004. The increase is due primarily to an $11.5 million settlement the Company received for satisfaction of all outstanding obligations under the $15 million of notes which were set up as part of the purchase price for the 2001 sale by the predecessor

company of its interests in certain Michigan cemeteries. 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.

Net cash from continuing operating activities was $116.8 million for the 40 weeks ended October 8, 2005, compared to $75.8 million for the corresponding period in 2004. The increase is primarily due to $25.4 million in withdrawals of excess funds from funeral and cemetery trusts resulting from the Company's ongoing review process (which is substantially complete), $16.1 million related to collateral for liability lines of insurance coverage replaced with a letter of credit and the collection of an $11.5 million settlement for notes receivables previously set up as an allowance (as described above). The increase is partially offset by the payment of $9.1 million as settlement of the U.S. trustee bankruptcy fee.

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 $29.8 million for the 16 weeks ended October 8, 2005, compared to $44.5 million for the corresponding period in 2004, primarily due to the decrease of $14.2 million in net purchases of insurance assets.

Net cash used in continuing investing activities was $52.7 million for the 40 weeks ended October 8, 2005, compared to $54.9 million for the corresponding period in 2004, primarily due to the decrease of $9.7 million in net purchase of insurance assets, partially offset by an increase in purchase of property and equipment of $7.9 million.

Net cash used in continuing financing activities was $21.7 million for the 16 weeks ended October 8, 2005, compared to $128.3 million for the corresponding period in 2004. The decrease of $106.6 million was due primarily to the lower net repayment of debt during the 16 weeks ended October 8, 2005, compared to the corresponding period in 2004.

Net cash used in continuing financing activities was $74.3 million for the 40 weeks ended October 8, 2005, compared to $156.9 million for the corresponding period in 2004. The decrease of $82.6 million was primarily due to the lower net repayment of debt during the 40 weeks ended October 8, 2005, compared to the corresponding period in 2004.

The net cash from discontinued operations of nil for the 16 weeks ended October 8, 2005, compared to net cash provided by discontinued operations of $97.5 million in the corresponding period in 2004 was due to the completion of the Company's disposition program as of the end of the second fiscal quarter of 2005.

For the 40 weeks ended October 8, 2005, the majority of proceeds from the sale of the Company's operating locations and excess real estate were used to further reduce long term debt.

As of October 8, 2005, the Company's cash balance was $6.3 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 $2.5 million and aggregates $185.1 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 October 8, 2005
		(in millions)		(in millions)			(in millions)
Revolving credit facility		$	—	$	—		$	—
Senior secured Term Loan B due in 2009			246.8		(68.3	)		178.5
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		(4.0	)		8.3

	Carrying amounts	$	463.6	$	(76.8	)	$	386.8

(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 October 8, 2005, the Company met all of the financial covenants required by the Credit Agreement.

Contractual Obligations and Commercial Commitments

The following table details the Company's contractual obligations of continuing and discontinued operations as of October 8, 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)	$	378,523	$	—	$	4,661	$	173,862	$	200,000
Promissory notes and capitalized obligations (a) (b)		8,263		2,491		3,296		817		1,659
Operating leases (c)		43,656		8,205		11,191		7,694		16,565

Total	$	430,442	$	10,696	$	19,148	$	182,373	$	218,224

(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 October 8, 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 October 8, 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 October 8, 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 October 8, 2005, the aggregate fair value of the Company's forward foreign currency exchange contracts and foreign currency option contracts was an asset of $1.4 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.

Employment Agreements

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.

On July 25, 2005 the Company filed 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.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as of October 8, 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"), a non-GAAP financial measure, 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.

	16 weeks Ended						40 weeks Ended
	October 8, 2005			October 9, 2004			October 8, 2005			October 9, 2004
	(thousands of dollars)						(thousands of dollars)
EBITDA from continuing operations:
Net income from continuing operations	$	6,905		$	(24,538	)	$	33,797		$	(10,005	)
Income taxes		(12,349	)		(6,180	)		5,844			1,593
Interest on long-term debt and refinancing costs		8,967			48,731			23,495			67,494
Depreciation		13,778			12,956			34,873			31,057
Provision for asset impairment		254			(159	)		(1,373	)		413

EBITDA from continuing operations	$	17,555		$	30,810		$	96,636		$	90,552

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 16 and 40 weeks ended October 8, 2005, was approximately $18.1 million and $35.9 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 October 8, 2005, and the overall totals as of October 8, 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	14	—	—	14
	Nova Scotia	7	—	—	7

Total Canadian		97	1	3	101
United States
	Alabama	7	—	1	8
	Alaska	3	—	—	3
	Arizona	5	—	1	6
	Arkansas	3	—	—	3
	California	44	1	6	51
	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	37	1	—	38
	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	3	4	13
	Tennessee	30	2	5	37
	Texas	56	4	4	64
	Virginia	22	—	—	22
	Washington	21	3	3	27
	West Virginia	3	—	—	3
	Puerto Rico	3	5	2	10

Total United States		516	71	57	644

Overall total, as of October 8, 2005		613	72	60	745

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 October 8, 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 October 8, 2005. The Company has substantially 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. The changes the Company has implemented include those outlined below, as well as other procedures to correct and/or mitigate the material weaknesses and other deficiencies the Company has identified; however, certain of the corrective processes, procedures and controls have not been tested. Accordingly, the CEO and CFO have concluded that the Company's disclosure controls and procedures were not effective as of October 8, 2005.

We continue to monitor the effectiveness of our internal controls over financial reporting and will make any further changes management deems appropriate. 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.

Remediation of Material Weakness

In order to remediate these material weaknesses, the Company has made the following changes:

•: Enhanced and restructured our Financial Reporting and Tax Departments with the hiring of additional full time finance personnel
•: Engaged an external advisor to assist the Company in its accounting for new accounting pronouncements, non-routine and complex business transactions and accounting for income taxes
•: Enhanced the review and timing of the analysis of new accounting pronouncements and non-routine and complex business transactions

•: Continued implementation of our new pre-need trust accounting software system to simplify transaction accounting, as well as to accelerate transaction accounting and analytical capabilities
•: Continued implementation of a new tax consolidation process to improve the detail and accuracy within the tax function.
•: Enhanced the level of review in and accelerated the timing of the preparation of the quarterly and annual income tax provision
•: Continued formalization of processes, procedures and documentation standards relating to income tax provisions
•: Enhanced and restructured our field management structure in order to improve the internal controls and accountability for financial reporting matters
•: Implemented programs and monitoring processes, including location checklists and certifications that are intended to create awareness of the need for internal controls and the need to follow established company policy and procedures

Changes In Internal Controls Over Financial Reporting

During the third fiscal quarter of 2005 the Company completed the implementation of phase 1 of the new tax accounting system for use in interim reporting. 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 third 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 5. OTHER INFORMATION

The Company's Nominating and Corporate Governance Committee recommended, and the Company's Board of Directors approved amendments to the Company's Code of Business Conduct and Ethics (the "Code"), which applies to all officers (including senior financial and executive officers), directors and employees of the Company, effective November 14, 2005. The amendments to the Code are briefly described below, and the revised Code is furnished as an exhibit to this Form 10-Q. The Code is posted on, and is available, free of charge through, the Company's web site (http://www.alderwoods.com) in the Corporate Governance section of the Investor Relations page. Copies of the Code are also available free of charge upon written request to the Company's Secretary at 311 Elm Street, Suite 1000, Cincinnati, Ohio 45202-2706.

The amendments to the Code:

•: Clarify procedures for reporting suspected non-compliance with the Code, Company policies, or applicable laws, rules and regulations;
•: Expressly provide that loans to, or loan guarantees on behalf of, executive officers or directors of the Company are prohibited;
•: Expressly provide that management employees, officers or directors are prohibited from overriding (or directing others to override) the Company's established system of internal controls over financial reporting and disclosure; and
•: Clarify employee responsibilities with respect to the Code.

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		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.3 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*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		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.4 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)

*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 August 1, 2005, by and between Alderwoods Group Canada Inc. and John S. Lacey (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*10.12		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*10.13		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)
*10.14		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)
*10.15		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)
*10.16		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)
*10.17		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)
*10.18		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)
*10.19		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)
*10.20		Amendment to the Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*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)
*10.24		2005-2007 Executive Strategic Incentive Plan of Alderwoods Group Canada Inc. (incorporated by reference to Exhibit 10.6 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)

*10.25		Form of Director Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.7 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*10.26		Form of Employee Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.8 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
*10.27		Form of Restricted Stock Units Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.9 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
14.1		Code of Business Conduct and Ethics**
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: November 16, 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		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.3 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)

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		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.4 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
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 August 1, 2005, by and between Alderwoods Group Canada Inc. and John S. Lacey (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
10.12		Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
10.13		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)
10.14		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)
10.15		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)
10.16		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)
10.17		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)
10.18		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)
10.19		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)
10.20		Amendment to the Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
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)

10.24		2005-2007 Executive Strategic Incentive Plan of Alderwoods Group Canada Inc. (incorporated by reference to Exhibit 10.6 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
10.25		Form of Director Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.7 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
10.26		Form of Employee Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.8 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
10.27		Form of Restricted Stock Units Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.9 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
14.1		Code of Business Conduct and Ethics
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: November 16, 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: November 16, 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 sixteen weeks ended October 8, 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: November 16, 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.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Alderwoods Inactive 10-Q2005 Q3 Quarterly report

Content analysis