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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-21411

ROSE HILLS COMPANY

(Exact name of registrant as specified in its charter)

3888 South Workman Mill Road

Whittier, California 90601

(Address of principal executive offices) (Zip Code)

(562) 692-1212

Registrant’s telephone number, including area code

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

None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934.  Yes  ¨  No  x

The number of shares outstanding of the Registrant’s common stock as of March 27, 2003, was 1,000.

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PART I

ITEM 1.     BUSINESS.

OVERVIEW

Rose Hills Company (the “Company”), a Delaware corporation, is a wholly owned subsidiary of Rose Hills Holdings Corp. (“RH Holdings”). The Company was formed in 1996 for purposes of acquiring Roses, Inc., the owner and operator of the Rose Hills Mortuary, and purchasing certain assets and assuming certain liabilities of Rose Hills Memorial Park Association (the “Association”) and Workman Mill Company, the owners of the real property and other cemetery assets of the Rose Hills Memorial Park (Rose Hills Cemetery).

In April 2001, the shareholders of RH Holdings reached an agreement (the “Loewen Blackstone Settlement Agreement”) pursuant to which Blackstone Capital Partners II Merchant Banking Fund L.P. and its affiliates (collectively “Blackstone”), then the beneficial owner of 79.55% of the outstanding common stock of RH Holdings, would exercise its put right and the minority shareholder, a reorganized Loewen Group International, Inc. (“Loewen”), would acquire all of the stock of RH Holdings owned by Blackstone upon Loewen’s emergence from bankruptcy. The U.S. Bankruptcy Court confirmed Loewen’s reorganization plan, including the proposed acquisition of shares of RH Holdings from Blackstone on December 5, 2001, and the plan became effective on January 2, 2002. Effective with its emergence from bankruptcy, Loewen has since been renamed the Alderwoods Group, Inc. (“Alderwoods”). Since the U.S. Bankruptcy Court approved the reorganization plan on December 5, 2001, such approval effectively obligated Blackstone and Alderwoods to consummate the put agreement. Accordingly, the Company has recorded this transaction effective on December 31, 2001.

On January 3, 2002, in full satisfaction of its obligations under the put arrangement, Alderwoods delivered to Blackstone unsecured, subordinated notes in the aggregate principal amount of $24,678,571 and Alderwoods common stock with an aggregate value of $6,515,143. As a result of the delivery of the consideration, Alderwoods completed its purchase of all of the stock of RH Holdings beneficially owned by Blackstone. Upon closing of the transaction (“Alderwoods Purchase Transaction”), Alderwoods increased its ownership from 20.45% to 100% of the outstanding common stock of RH Holdings, thereby causing the Company to become a wholly owned subsidiary of Alderwoods. All shareholders and other agreements between Alderwoods and Blackstone with respect to the Company terminated as of the closing of the transaction, and Alderwoods became entitled to elect all of the directors of the Company as of such date.

Since the Company has pushed-down the fresh-start reporting that occurred as a result of Alderwoods’ purchase of Blackstone’s interest in the Company, the Company’s successor statement of operations and statement of cash flows for the year ended December 31, 2002 are presented on a different cost basis than the predecessor statement of operations and statement of cash flows for the years ended December 31, 2001 and 2000. Therefore, such statements are not comparable.

Rose Hills Mortuary and Memorial Park is the largest, single-location cemetery and funeral home combination in the United States, and the Cemetery is the largest, single-location cemetery in the United States. Rose Hills Memorial Park and the Rose Hills Mortuary have been continuously operating since 1914 and 1956, respectively. Rose Hills is situated less than 14 miles from downtown Los Angeles on approximately 1,400 acres of land near Whittier, California. In addition to Rose Hills, the Company operated 9 funeral homes, 2 funeral home cemetery combination properties and 1 cemetery property (“Affiliates”) as of December 31, 2002. Management believes that Rose Hills, together with the Affiliates, constitute a strategic assembly of cemeteries and funeral homes in the greater Los Angeles area.

THE DEATH CARE INDUSTRY AND LOCAL CHARACTERISTICS

Since 1986, demand for funeral services and related commodities has grown steadily at a 1% compound annual growth rate while the aggregate number of funeral homes has remained relatively constant. Management

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believes these demographic trends will help contribute to the stability of the funeral service industry. The Census Bureau projects that the segment of the United States population over 65 years old, which presently totals approximately 34 million, will more than double in size to over 73 million by 2035. The Census Bureau projects that the number of deaths in the United States will grow at approximately 1% annually through 2010.

Historically, the death care industry has been made up of relatively small, family owned and operated businesses. In the last several decades, several large “consolidators” have sought to take advantage of economies of scale by acquiring a large number of smaller funeral homes and cemeteries. Management believes large consolidators serve approximately 20% of the overall market in the United States. In 1999, the trend toward consolidation changed significantly. Two of the larger consolidators, Service Corporation, International and Stewart Enterprises, Inc, both of which compete directly in the Company’s market, announced plans to significantly curtail their acquisition activity and to offer properties for sale. In June 1999, the second largest consolidator, Loewen, now a reorganized Alderwoods and beneficial owner of 100% of the Company, entered into bankruptcy proceedings, abandoned its acquisition strategy and began to offer properties for sale. These trends of curtailed acquisition activity continued through 2002. Although acquisitions have been curtailed, one of the major consolidators has made significant investments in new funeral homes through its relationship with the Archdiocese of Los Angeles which compete directly with the Company’s funeral homes.

The Company attracts customers from a geographic region encompassing substantially all of Los Angeles County and the northern portion of Orange County. According to statistics compiled by the State of California Department of Health Services, the Census Bureau and Los Angeles County, the estimated population of Los Angeles County was approximately 9.9 million people (over 3 million households) in 2000. Approximately 17% of this population was age 55 or older, 10% age 65 or older, and 4% age 75 or older. The death rate in Los Angeles County has demonstrated stability over the last decade and the number of deaths is expected to increase in step with the 1% annual projected population growth in Los Angeles County over the next five years. However, slight year-to-year variations can occur in the number of deaths. In 2001, deaths for Los Angeles County increased by approximately 1%. Current year’s data through October 2002 indicates deaths have decreased 0.8% from the same 10 month period in 2001.

The Company believes that significant barriers exist for new competitors to enter the funeral and cemetery business within the Los Angeles market. Development of new cemetery property requires significant capital investment over several years. New cemeteries must also meet the demands of a rigorous local entitlement process. Management believes that Rose Hills’ strategic location and large amount of undeveloped and unsold cemetery property provide it with a significant long-term competitive advantage.

OPERATIONS

Funeral Operations

The Rose Hills Mortuary, which first began operations in 1956, provides a complete range of funeral services, including collection of remains, certification of death, embalming, sale of caskets and related merchandise, sale of flowers, visitation facilities and transportation to place of services and to burial sites. An experienced counselor coordinates all funeral arrangements provided to each mortuary customer with the assistance of a centralized computer system. Management believes its centralized computer and operating systems combine to reduce fixed costs per funeral call, giving the Rose Hills Mortuary a competitive advantage over smaller, independently operated funeral homes. The Mortuary has the current capacity to provide over 30 funeral services per day. In 2002, the Rose Hills Mortuary performed approximately 4,900 funeral calls.

In addition to the Rose Hills Mortuary, the Company also operates 9 funeral homes and 2 funeral home cemetery combination properties located in Los Angeles and Northern Orange County. These affiliate funeral homes provide a wide variety of funeral services to various communities in such counties. While the demographics of the population served by these funeral homes, taken as a whole, are generally similar to that of

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Rose Hills’ clients, the smaller size and unique location of each funeral home has led each to develop a demographically unique client base within its particular community. Therefore, as a result of this extended cluster of funeral service providers, Management believes that the strategically located affiliate locations permit the Company to access a base of mortuary clients that it otherwise would be unable to develop solely from its location near Whittier. In 2002, the affiliate funeral homes performed approximately 2,100 calls.

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

Substantially all revenues from funeral operations are derived from at-need services (including services funded through insurance policies). In 2002, total revenues from at-need services accounted for 88% (35% from pre-need conversions) of funeral operation revenue and 35% of total Company revenue. The remaining 12% of funeral operation revenue for the period was derived from insurance commission income and trust administration fees. The amount and percentage of the Company’s total revenues contributed by the funeral operations during each of the last three fiscal years is set forth herein under the caption “Item 7—Management’s Discussion and Analysis.” For additional information about the revenues, income and assets attributable to the Company’s mortuary operations, see note 22 to the Company’s consolidated financial statements which are included as part of this Annual Report on Form 10-K.

Cemetery Operations

The Rose Hills Cemetery is the largest single location cemetery in the United States and consists of approximately 1,457 total acres. As of December 31, 2002, the cemetery property is described as approximately 740 acres of developed and sold, 33 acres of developed and unsold and 632 acres of undeveloped permitted cemetery property. The Company estimates that approximately 326 acres of the undeveloped property is rugged terrain (including a utility company easement) and cannot be easily developed for cemetery property for economic and environmental reasons. Since its founding in 1914, the Rose Hills Cemetery has performed over 350,000 interments, of which 9,046 occurred in 2002. The Rose Hills Cemetery provides a complete line of cemetery products (including a selection of burial spaces, private estates, vaults, crypts, memorials and niches) and burial and cremation services on both an at-need and pre-need basis.

In addition to the Rose Hills Cemetery, the Company also operates one small cemetery located in Los Angeles and two funeral home cemetery combinations located in Northern Orange County. In 2002, the Company performed 661 interments at these locations.

Pre-need sales of cemetery interment rights are generally recognized as revenue when the customer contracts are signed with concurrent recognition of related costs. In cases where inadequate initial down payments are made (less than 10%) pre-need cemetery interment rights are deferred until the minimum percentage of the sales has been collected. When cemetery property is not fully developed and significant development costs remain, cemetery interment rights revenue is deferred and recognized on a percentage of completion basis.

Prior to 2000, the Company recognized the sale of cemetery merchandise and services at the time a customer contract was signed. Effective July 1, 2000, the Company stopped selling cemetery merchandise and services on cemetery contracts in advance of need. For sales made prior to July 1, 2000, the Company voluntarily

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

The Company funds its obligation to maintain cemetery grounds by placing a portion, generally ranging from $100 per standard lot to $38,000 for certain private estates, of the proceeds from cemetery property sales into perpetual care trust funds. Income from these funds is withdrawn and used for maintenance of the cemetery.

Although the Cemetery is non-sectarian, in order to better serve an increasingly diverse customer base, the Cemetery has developed and offers many lawn areas for use by particular ethnic, religious and fraternal organizations as well as its eight non-denominational chapels (including the Sky Rose Chapel, a 350 seat chapel and mausoleum designed by architect Fay Jones that was completed in 1997), seven additional mausoleums and a crematory.

In 2002, approximately 56% of cemetery revenue and 33% of total Company revenue was derived from pre-need sales of cemetery interment rights. The amount and percentage of the Company’s total revenue contributed by the cemetery operations during each of the last three fiscal years is set forth herein under the caption “Item 7—Management’s Discussion and Analysis.” For additional information concerning the revenues, income and assets attributable to the Company’s cemetery operations, see Note 22 to the Company’s consolidated financial statements which are included as part of this Annual Report on Form 10-K.

COMPETITION

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

The Company also faces competition from large “consolidators” in the industry as well as casket retailers (including internet casket stores) and low-cost funeral providers. Such competitors include several large, publicly traded multinational funeral services companies, including Service Corporation International and Stewart Enterprises, Inc. Management believes that, in the Los Angeles area, large consolidators control over 20% of the funeral market, and together with large independents, control over 40% of the Los Angeles funeral market. Alderwoods, the parent of the Company, does not own or operate funeral homes and cemeteries that directly compete with the Company in its markets.

In 2002, cremations represented 22% of Rose Hills’ funeral business and 33% of its Affiliates’ funeral business. In 2001, cremations in the Los Angeles market area were approximately 35% of total death cases. The Company’s traditional funeral and cemetery operations face increasing competition from non-traditional cremation and alternative service firms. The Company believes that it can capitalize on its reputation and name to compete with lesser-known companies through its own alternative service strategy, which include products and services tailored to the cremation market.

REGULATION

The Company’s operations are regulated by the State of California, which regulates the sale of cemetery property and funeral services and commodities, and licenses sales persons, funeral directors and others engaged

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

The Company’s operations must also comply with federal legislation, including the laws administered by the Occupational Safety and Health Administration, the Americans with Disabilities Act and the Federal Trade Commission (“FTC”). The FTC administers the Trade Regulation Rule on Funeral Industry Practices (the “Funeral Rule”). The Funeral Rule defines certain acts and practices in connection with the provision of funeral goods and services as unfair or deceptive and sets forth various requirements intended to prevent such unfair or deceptive acts and practices.

The Company currently markets its pre-need sales programs through various communication channels, including outbound telemarketing. The Company believes that it is in compliance with the regulations of the Federal Telemarketing Consumer Fraud and Abuse Act that restrict the methods and timing of telemarketing sales calls. Recently, the FTC has passed legislation requiring telemarketing firms to maintain separate “do-not-call” lists.

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

ENVIRONMENTAL MATTERS

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

Environmental audits of the Company’s various properties were conducted in connection with the 1996 acquisition. Management is aware of certain areas within the Cemetery that have required and may in the future require remediation, including a solid waste disposal area that previously was used to dump rubbish, green waste and used motor oil in the 1970’s. The Company believes that Rose Hills Foundation (the “Foundation”), an unaffiliated company that is the successor to the Association, is obligated to pay for or otherwise indemnify the Company for the remediation costs associated with this area pursuant to the terms of an Environmental Compliance Agreement entered into at the time of the 1996 acquisition. To date, the Foundation has taken charge of the investigation and remediation of the areas, including installing a cap on the area. In the past, the Company and the Foundation have disagreed about the amount of work required to remedy the situation. As a result, the Company retained its own outside technical consultant to further investigate the solid waste disposal area to determine what risks, if any, the solid waste disposal area poses for the Company, and to quantify such risks. The Foundation has submitted a report, which incorporated the findings of the Company’s consultant, to the local regional water quality control board (Water Board), concluding that the capping has been successful and requesting that the Water Board issue a closure letter for the disposal area. The Water Board is the agency overseeing the remediation. In August 2002, the Company received a closure letter from the Water Board indicating no further action is required and monitoring devices can be removed.

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

During August and September 2000, the Company discovered that there had been some land movement in a portion of the Rose Hills Cemetery. The affected area represents approximately 13 acres of the Cemetery’s approximately 1,400 total acres, and consists of approximately 12,000 interment sites. The Company hired outside geo-technical and engineering consultants to study the affected area to identify the underlying cause and the extent of the land movement, and to make recommendations with regard to both short-term and long-term remediation and stabilization measures. The Company’s consultants advised that the affected area could continue to move, particularly in the event of heavy rainfall during the winter months. Accordingly, during October 2000, the Company began to take some intermediate remediation measures, including the installation of additional dewatering wells in the affected area and the relocation to other areas of the Cemetery (at the Company’s expense) of approximately 140 interred remains that were in the most severely impacted portion of the affected area. Through December 31, 2002, the Company has accommodated over 1,100 additional families that have requested relocation of interred remains from the affected area.

Based on preliminary reports in July 2001 and additional testing through October 2001, the engineering firm concluded that the land movement most likely had been caused by a combination of geologic, topographic, water and soil conditions within the affected area. The reports also identified a variety of measures that the Company could take to remediate and improve the stability of the area, including the construction and installation of engineered reinforcement fill berms at the base of the slide, the installation of de-watering wells throughout the affected area, and the implementation of other erosion control measures. Based on these test results and recommendations provided by the engineering firm, the Company decided to undertake complete restoration and stabilization of the affected area. In the first quarter of 2002, the Company began its remediation of the affected area by installing additional de-watering wells. In June 2002, the engineering firm finalized their earthwork construction design plans, including the exact area that would require disinterments and relocation of interred remains in preparation for the construction project. The construction and installation of the reinforcement berms will begin after the necessary disinterments and relocations are completed. The Company expects to begin construction during the first quarter 2004 and to complete construction by the end of the third quarter 2004.

In 2001, the Company reserved $3.0 million for the estimated remediation project costs in excess of the availability of remaining Endowment Care Fund (ECF) improvement reserve funds. The Company spent approximately $1.0 million in each of the years ended December 31, 2001 and 2002 on remediation and related costs. The remaining remediation costs will be spent in 2003 through the third quarter of 2004. As of December 31, 2002, the Company’s remaining accrued liability and the ECF improvement reserve fund balance available for future remediation costs totaled approximately $1.0 million and $1.8 million, respectively. Management believes, based in part on the advice of its geo-technical consultants and the availability of ECF improvement reserves, the Company’s reserve as of December 31, 2002 is adequate to fulfill future remediation cost obligations.

EMPLOYEES

As of December 31, 2002, the Company had 678 employees. In general, Management believes that the Company’s relationship with its employees is good.

In January 2003, the Company was notified by the National Labor Relations Board (“NLRB”) that the Teamsters Union petitioned to be the collective bargaining agent for approximately 60 employees of the Company. On February 28, 2003, a majority of the 60 employees voted to have the Teamsters Union represent them as a collective bargaining agent. Negotiations on the collective bargaining agreement have not commenced.

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ITEM 2.     PROPERTIES.

The property on which the Rose Hills Cemetery is located consists of approximately 1,457 total acres. As of December 31, 2002, the cemetery property is described as approximately 740 acres of developed and sold, 33 acres of developed and unsold and 632 acres of undeveloped permitted cemetery property. The Company estimates that approximately 326 acres of the undeveloped property is rugged terrain (including a utility company easement) and cannot be easily developed for cemetery property for economic and environmental reasons. Also located on the grounds of Rose Hills are eight chapels that seat over 800 people in the aggregate, seven mausoleums, 39 visitation rooms, a crematory and a 43,460 square foot administrative building. In addition to the above facilities, Sky Rose Chapel, a 26,490 square foot chapel and mausoleum facility, is also located on the Cemetery grounds.

The Mortuary’s facilities consist of 13.3 acres of land, a two-story, 74,000 square foot mortuary and administrative building (inclusive of relevant properties above), an adjacent flower shop and storage facilities.

The Affiliate’s locations consist of the funeral homes and combination properties located in the cities listed below:

The Company owns ten of the Affiliate locations, while the remaining two are leased.

The obligations of RH Holdings, the Company and each of the Company’s existing and future domestic subsidiaries under the Bank Credit Facilities (as defined below) are secured by a first priority security interest in all existing and future assets (including the real property located at Rose Hills, but excluding other real property and vehicles covered by certificates of title) of each such entity. See item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 3.     LEGAL PROCEEDINGS.

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

In connection with the 1996 acquisition, the Rose Hills Memorial Park cemetery land was subject to a significant step-up in assessed value by the County of Los Angeles. In July 2000, the County of Los Angeles completed its property tax reassessment reflecting its opinion of the fair value of Rose Hills’ cemetery property at the 1996 acquisition date. The County placed a fair value on the cemetery property that is approximately 60% higher than the independent appraisal prepared by a property tax consultant and approximately 50% higher than the fair market value computed by an independent appraiser at the time of the 1996 acquisition. The Company

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filed an assessment appeal with the Los Angeles County Assessor. In December 2002, the Company received written notification from the Los Angeles County Assessor’s Office that the 1996 property base taxable value was reduced to an amount consistent with the property tax expense accrued by the Company.

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

None.

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

In connection with the acquisition of Rose Hills in 1996, the Company issued 1,000 shares of Common Stock to RH Holdings. This represents all of the outstanding Common Stock of the Company.

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

ITEM 6.     SELECTED FINANCIAL DATA.

The following table sets forth certain selected consolidated financial data for the Company as of and for the fiscal year ended December 31, 2002, and as of and for each of the preceding four fiscal years. The selected financial data under the captions “Income Statement Data”, “Other Financial Data” and “Balance Sheet Data” for the years ended December 31, 1998 through 2002 were derived from the Company’s financial statements.

Effective January 1, 2000, the Company changed its method of accounting for revenue recognized on sales of pre-need interment rights, cemetery services and merchandise, and for earnings realized through the cemetery service and merchandise trust funds. For further details, see note 5 to the Company’s consolidated financial statements included in Item 15. Data for fiscal years 1998 through 1999 are presented as originally reported.

The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company’s consolidated financial statements and notes thereto and other financial information included elsewhere in this report. As a result of the changes in control discussed in Item 1, certain financial statements are referred to as “Predecessor” and others as “Successor”. The Income Statement Data and Other Financial Data for the years ended December 31, 2002 is presented as “Successor”. The December 31, 2001, 2000, 1999 and 1998 are presented as “Predecessor”. The Balance Sheet Data for the period ended December 31, 2002 and 2001 are presented as “Successor” and all remaining years are presented as “Predecessor”. As a result, the Balance Sheet Data as of December 31, 2002 and 2001 are on a different cost basis and will not be comparable.

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EBITDA

The Company’s earnings before interest expense, taxes, depreciation, amortization (including cemetery property amortization included in cost of sales) and special charges (“EBITDA”) for the years ended December 31, 2002 through 1998 are presented in the table below and reconciled to the accompanying financial statements (in thousands):

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

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

INTRODUCTORY NOTES—

CHANGE IN CONTROL OF REGISTRANT

As discussed in Item 1—Business, effective December 31, 2001, Alderwoods, the minority shareholder, acquired 100% of the outstanding common stock of RH Holdings. Accordingly, the December 31, 2001 consolidated balance sheet reflects the fresh-start accounting that has been “pushed-down” as a result of this transaction. As a result, the consolidated balance sheets prior to December 31, 2001 are on a different cost basis, and therefore are not comparable. The consolidated balance sheets dated December 31, 2002 and 2001 are referred to as “successor”. See further discussion below of methods and assumptions in Critical Accounting Policies and Estimates and in note 1 to the consolidated financial statements for an itemized accounting of the “push-down” adjustments.

CHANGE IN ACCOUNTING PRINCIPLE

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

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revenues, including recognizing revenue upon the sale of cemetery merchandise and services before delivery of such product and performance of services.

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

The cumulative effect of these changes in accounting principles on prior years resulted in a $12.3 million decrease in net earnings before taxes and a $7.5 million decrease in net earnings after taxes for the year ended December 31, 2000.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s critical accounting policies are as follows:

Cemetery Revenue Recognition

Pre-need sales of cemetery interment rights are recognized in accordance with the guidance of SFAS No. 66, Accounting for the Sales of Real Estate. Accordingly, sales of interment rights are recognized under the full accrual method, the percentage of completion method, or the deposit method depending on the level of the buyer’s down payment and any continuing involvement the Company has in developing sold property. Direct cost of goods sold are deferred and recognized concurrent with the recognition of deferred sales. Costs relating to the sale of cemetery interment rights, including sales commissions, are expensed in the period incurred.

Allowances for anticipated customer cancellations and refunds are provided at the date of sale based on management’s estimate of expected cancellations using historical trends over the past 6 years. In 2002 and 2001, a 4% and 5% effective cancellation rate was used to provide for anticipated cancellations and refunds, respectively. Actual cancellation rates in the future may result in a change in estimate. Significant variances in expected cancellations could impact future gross margins.

Pre-need merchandise and service sales, and their direct cost of goods sold, are recognized at the time of delivery of merchandise or performance of service. Costs relating to the sale of merchandise and services, including sales commissions, are expensed in the period incurred.

At-need sales of cemetery interment rights, merchandise and services are recognized when the merchandise is delivered or the service is rendered.

A portion of the proceeds from the sale of interment rights is required by state law to be paid into an Endowment Care Fund to provide for the perpetual care of the associated properties. Cemetery revenue is recorded net of these amounts. Interest and dividend earnings of the Endowment Care Funds are used to defray

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the maintenance costs of the cemeteries which are expensed as incurred. Additionally, pursuant to state law, the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trust funds. A significant increase in cost of services or loss of principal in the trust could negatively impact future gross margins.

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

Effective January 1, 2000, the Company changed its method of accounting for pre-need sales of cemetery products and services. See “Introductory Notes—Change in Accounting Principles”.

Funeral Revenue Recognition

Pre-arranged funeral services provide for future funeral services and are generally determined by prices prevailing at the time the contract is signed. The payments made under the contract are either placed in trust or are used to pay the premiums of third-party life insurance policies under which the Company will be designated as beneficiary. The pre-need funeral insurance policies sold by the Company are whole-life policies sold on a pre-need basis to pay for the cost of funeral services. Commissions earned are based on a combination of factors, such as the amount of funeral cost coverage sold, the age of the insured and the volume of monthly sales activity. Insurance commissions earned and related selling expenses are recognized when the insurance company accepts the policies. Except for insurance commissions, no income is recognized until the performance of a specific funeral.

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

At-need funeral services revenues are recognized when the service is performed.

Valuation of Long-Lived Assets

Through December 31, 2001, the Company accounted for long-lived assets under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized was measured by the amount by which the carrying amount of the assets exceeded the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying amount or fair value, less cost to sell. In 2001, the long-lived assets of two operating locations were reduced $1,032,000 and charged to Asset Write-Down and Other Charges.

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds

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the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less cost to sell.

Valuation of Goodwill

Through December 31, 2001, the excess of purchase price over the fair value of identifiable net assets acquired (goodwill) was being amortized by use of the straight-line method over a 40-year period.

As a result of Alderwoods’ purchase of Blackstone’s interest in the Company, the Company recorded the push-down of Alderwoods’ fresh-start reporting in its successor consolidated balance sheet as of December 31, 2001. As of December 31, 2001, the Company estimated the excess of the purchase price over the fair values of identifiable net assets based upon a third party appraisal of the Company’s enterprise value. Based upon the third party appraisal, the Company recorded goodwill of $67,385,000, a $46,065,000 reduction to the predecessor Company’s goodwill at December 31, 2001.

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment for each of the Company’s reporting segments. The Company’s reporting segments are cemetery operations and funeral operations. The annual review entails determining an estimated fair value of goodwill for comparison to the carrying amount of goodwill, to assess whether or not impairment has occurred. In determination of the estimated fair value of goodwill, the Company compared the net carrying value of assets (including goodwill) less liabilities to the discounted cash flows of each segment. The Company performed its annual goodwill impairment review on October 31, 2002. No impairment to goodwill was identified during the review. Such determination involves complex assumptions; accordingly, if any estimates or related underlying assumptions change in the future, the Company may be required to record goodwill impairment charges that result.

As a result of the adoption of SFAS No. 142, the Company did not record any amortization expense of goodwill for the twelve months ended December 31, 2002. The following table shows the impact of the adoption of SFAS No. 142 (in thousands):

In 2002, the Company utilized a $444,000 benefit from the December 31, 2001 net operating loss carry forward valuation allowance. The guidance provided by SFAS No. 109 and Statement of Position No. 90-7, state that the benefit of a valuation allowance for a deferred tax asset is to be recorded to goodwill. Accordingly, goodwill was reduced $444,000 in 2002.

Critical Accounting Policies related to Push-down Accounting

Valuation of the Company—In April 2001, Loewen and Blackstone negotiated a settlement pursuant to which Blackstone would exercise its Put Option (see “Item 13—Certain Relationships and Related Transactions”) and Loewen would acquire all of RH Holdings common shares owned by Blackstone. The Loewen Blackstone Settlement Agreement, which was contingent on Loewen’s emergence from bankruptcy,

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indicated Blackstone would receive a promissory note for approximately $24.7 million and newly reorganized Loewen (Alderwoods) common stock valued at approximately $6.6 million, in full satisfaction of all of Blackstone’s claims in the Loewen bankruptcy. Management did not use the consideration received by Blackstone as the purchase price to value the Company’s assets, since the amount of consideration was an amount negotiated to settle Blackstone’s claims under the Put/Call Agreement and other claims with Loewen and not based on the fair value of RH Holdings common stock. Instead, management based the purchase price paid by Blackstone to Alderwoods upon a third party appraisal of the Company’s enterprise value of $64.5 million which was recorded by the Company in the push-down of the fresh start accounting. Management also used third party appraisals to estimate the fair value of the Company’s long-lived assets and cemetery inventory and in the push-down accounting. The Company increased the value in the push-down accounting of its long-lived assets to $33.3 million and adjusted the value of its cemetery property inventory and goodwill by $41.4 million and $46.1 million, respectively, based upon the third party appraisals.

Market Value of Debt—The estimated market value at the consummation of the change in ownership of the Company’s senior subordinated notes was 96% of their maturity value. Accordingly, a $3.2 million adjustment was recorded to reduce the subordinated notes to their fair value, resulting in a new effective rate of 11.34%. In addition, the remaining $4.1 million deferred financing costs related to the 1996 acquisition debt was eliminated.

Adjustment of Deferred Pre-need Cemetery Contract Revenue in conjunction with Push-down Accounting—Management has estimated the value of deferred pre-need cemetery contract revenue by 1) performing an analysis to determine the current cost of the services to be rendered by the Company, 2) utilizing mortality rates to anticipate the date of service fulfillment, and 3) using inflationary rates and discount rates to project the present value of the cost to perform the obligated services. As a result, the deferred pre-need cemetery contract revenue was reduced $7.7 million in the push-down accounting. Significant changes in mortality, costs of services and merchandise, inflation, and interest rates could negatively impact future gross margins.

RESULTS OF OPERATIONS

The following table sets forth certain income statement data as a percentage of total sales as reported for the years ended December 31, 2002, 2001 and 2000.

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YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

The following table presents the results as reported for the years ended December 31, 2002 and 2001 (in thousands):

Consolidated revenues for the year ended December 31, 2002 totaled $78.3 million compared to $77.2 million for the year ended December 31, 2001. Consolidated gross profit totaled $23.1 million in 2002 compared to $18.5 million in 2001. As a percentage of revenue, consolidated gross profit percentage increased to 30% in 2002 from 24% in 2001.

Funeral Operations:

Revenues from funeral operations decreased 2.7% to $31.8 million in 2002 compared to $32.7 million in 2001. At-need funeral revenue “same store sales” totaled $27.6 million in 2002, which is compared to $27.7 million in the prior year. On a same store sales basis, the Company performed 6,996 funeral service calls in 2002 compared to 7,289 in 2001, a 4.0% decline. The decline in funeral calls from the prior year was largely due to competition at the affiliate funeral home locations. The average revenue per funeral call increased from $3,798 in 2001 to $3,944 in 2002. The increase in call revenue average was due to changes in service and casket product

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mix at the Rose Hills funeral home and a price increase implemented in January 2002. The increase in average revenue per call partially offset the decline in calls. Pre-need funeral service revenue totaled $3.6 million compared to $3.2 million in the prior year, an increase of 13.4%. The gross profit margin for the funeral segment increased to 30.1% from 27.3% in the prior year. The improvement in margin is due to improvements in operational labor efficiencies, price increases at Rose Hills’ funeral home in early 2002 and a favorable change in the sales mix of products and services. In 2002, the Company’s funeral and cemetery insurance and trust backlog increased over 4% from $172.1 million to $179.3 million.

Cemetery Operations:

Revenues from cemetery operations increased 4.4% compared to last year to $46.5 million. Pre-need cemetery revenue increased 7.3% from $24.2 million in 2001 to $25.9 million in 2002. Pre-need cemetery revenues in 2001 include a bulk sale to the International Buddhist Progress Society (IBPS) for $1.8 million. No comparable sale was made in the current year. In 2002, the pre-need cemetery lot averages and number of units sold increased 10% over the prior year’s production. In the fourth quarter of 2002, a significant number of specialty properties were sold while under construction. As a result, approximately $1.0 million of pre-need cemetery revenue was deferred under the percentage of completion accounting method. At-need cemetery revenue in 2002 was $17.4 million compared to $16.7 million in the prior year. The favorable variance in at-need cemetery business is primarily due to the 4% price increase in cemetery services in January 2002. Total interments were comparable to prior year at 9,683 in 2002.

Gross profit, as a percentage of sales, increased from 21.6% in 2001 to 29.2% in 2002. The primary reasons for the improved margin was the lower margin associated with the IBPS bulk sale in 2001, price increases at Rose Hills Memorial Park, reduced advertising spending and reduced amortization of cemetery property due to the re-valuation of cemetery inventory from the Alderwoods Purchase Transaction.

Other:

Corporate general and administrative expenses decreased from $7.5 million in 2001 to $6.4 million in 2002. The decrease of $1.1 million compared to last year was due to a special $0.6 million charge for a settlement of lawsuit involving the maintenance of drainage easements for Rose Hills Memorial Park and a $0.6 million phantom equity plan charge, both of which were incurred in 2001. As a percentage of total sales, general and administrative expenses were 8.2% in 2002 compared to 8.1% for the prior year, excluding the special charges.

EBITDA, earnings before taxes, depreciation and amortization (including cemetery property amortization included in cost of sales) and excluding special charges, increased to $26.0 million for 2002 from $22.8 million for 2001. The primary reasons for the $3.2 million increase in EBITDA over the prior year was the $1.2 million of special charges in 2001, increased cemetery sales volume and increased emphasis in funeral operational labor efficiencies. EBITDA should not be considered in isolation as a substitute for net income or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America or as a measure of the Company’s profitability or liquidity. See Item 6—Selected Financial Data, for a reconciliation of EBITDA to net income (loss).

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YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000:

The following table represents the results as reported for the year ended December 31, 2001 and for the year ended December 31, 2000 (in thousands):

Consolidated revenues for the year ended December 31, 2001 totaled $77.2 million compared to $76.6 million for the year ended December 31, 2000. Consolidated gross profit totaled $18.5 million in 2001 compared to $21.0 million in 2000. As a percentage of revenue, consolidated gross profit percentage decreased to 24.0% in 2001 from 27.4% in 2000.

Funeral Operations:

Revenues from funeral operations increased 1.2% to $32.7 million in 2001 compared to $32.3 million in 2000. At-need funeral revenue “same store sales” totaled $28.4 million, representing a 2.5% increase from the prior year. On a same store basis, the Company performed 7,628 funeral calls in 2001 compared to 7,512 in 2000. The Rose Hills funeral home experienced a 3.5% call increase, which was partially offset by a 2.5% decrease at the affiliate funeral locations. Based upon available market data from Vital Statistics (an independent firm that compiles and issues funeral home statistics for the greater Los Angeles area), the Company believes that

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the increase in funeral calls at Rose Hills was due to an overall increase in deaths in the geographic region and an increase in market share. Pre-need funeral service revenue totaled $3.2 million compared to $2.9 million in prior year, an increase of 10.3%. The significant increase over the prior year was due to a greater emphasis on increasing prearranged funeral services and beginning in July 2000, offering cemetery merchandise and services as part of the pre-arranged funeral insurance contracts. As of December 31, 2001, the Company had a pre-arranged funeral and cemetery backlog of $172.1 million

As a percentage of sales, gross profit for the funeral segment increased from 26.6% in 2000 to 27.3% in 2001. The increase in gross profit percentage was primarily attributable to the divestiture in June 2001 of four under performing affiliate funeral home locations that were operating near breakeven.

Cemetery Operations:

Cemetery revenue in 2001 was comparable to 2000 at $44.5 million. Pre-need cemetery revenue increased 2.1% from $23.7 million in 2000 to $24.2 million in 2001. Pre-need cemetery revenues in 2001 include a bulk sale to the IBPS for $1.8 million. No comparable sale was made in 2000. The total property units sold in 2001 were 8,392 compared to 9,256 in 2000. In 2001, over 30% of pre-need property revenue was in semi-private and private estate products, compared to 17% in 2000. The shift in property product revenue mix to higher priced custom estates resulted in property unit revenue averages increasing over 3.5%. However, custom estate properties generally have lower margins due to added development costs. In the fourth quarter of 2001, the Company offered several lower interest rate-financing programs to customers that resulted in increased volume. The lower interest rate programs also resulted in $0.7 million of imputed sales discounts, negatively affecting gross profit margins. At-need cemetery revenue in 2001 was $16.8 million compared to $16.7 million in the prior year. Total interments increased 2.7% from 9,446 in 2000 to 9,705 in 2001.

Gross profit, as a percentage of sales, decreased from 28.0% in 2000 to 21.6% in 2001. The $2.8 million margin decline over the prior year is due to a change in sales mix to lower margin private and semi-private estate sales, the IBPS $1.8 million bulk land sale in 2001 and lower interest rate financing programs. In addition, pre-need commission expense has increased as a percentage of sales from 28% to 29% along with approximately $1.0 million in increased spending on a major media campaign in early 2001.

Other:

Corporate general and administrative expenses of $7.5 million for 2001, approximates 9.7% of sales. Included in 2001 was a $0.6 million legal settlement. Excluding this special charge in 2001, corporate general and administrative expenses decreased 8.7% over the prior year.

EBITDA, earnings before taxes, depreciation and amortization (including cemetery property amortization included in cost of sales and excluding special charges of $8.2 million), decreased to $22.8 million for 2001 from $23.8 million for 2000. EBITDA decreased $1.0 million as a result of decreased cemetery profit margins and a $0.6 million legal settlement. EBITDA should not be considered in isolation as a substitute for net income or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America or as a measure of the Company’s profitability or liquidity. See Item 6—Selected Financial Data, for a reconciliation of EBITDA to net income (loss).

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow/Working Capital

Net cash provided by operating activities was $13.5 million for the year ended December 31, 2002, compared to $11.4 million for the same period in 2001. An increase in pre-need cemetery sales and reduction of interest payments was primarily responsible for the increase in cash from operating activities which was partially

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offset by a one-time $2.5 million change in control payment to management in January 2002. As of December 31, 2002, the Company had a current ratio of 0.32 compared to a current ratio of 0.97 as of December 31, 2001.

The primary use of cash has been for working capital, principal payments on outstanding long-term indebtedness and capital expenditures as permitted under the terms of bank agreements. Although the Company has no material commitments for capital expenditures in 2003, the Company anticipates spending approximately $2.0 million in 2004 to reclaim approximately 13 acres of cemetery property at the Rose Hills Memorial Park negatively impacted by land movement. The Company’s capital expenditures in 2002 of $3.6 million were used primarily to develop and improve the existing infrastructure and cemetery grounds.

On February 14, 2003, the terms of Alderwoods’ $75.0 million Credit Facility Agreement was amended to allow Alderwoods, upon the satisfaction of specified conditions precedent, to draw up to $30.0 million from its credit facility for the purposes of assisting in the repayment of the principal amount of $52.6 million outstanding under the Company’s Bank Term Facility. Under the terms of the amended Alderwoods Credit Facility Agreement, Alderwoods’ obligations thereunder will be guaranteed by RH Holdings, the Company and the Company’s subsidiaries, and the lenders thereunder will receive a first priority security interest in and lien on all personal property of RH Holdings, the Company and the Company’s subsidiaries and the real property of eight affiliate funeral homes and cemeteries. Real property at Rose Hills Memorial Park and Mortuary is not included in the Alderwoods Credit Facility Agreement. Alderwoods has committed, upon the satisfaction of specified conditions precedent, at a minimum, to contribute $42.0 million in equity cash to the Company prior to May 1, 2003. Upon receipt, the Company intends to retire in full the $52.6 million outstanding under its Bank Term Facility using the equity cash contribution from Alderwoods and up to $10.6 million of its own funds.

The Company believes that the equity cash contributions from Alderwoods, together with its existing and projected cash flows, will be sufficient to maintain its current level of operating activities through November 2004 when the Senior Subordinated Notes mature.

Long-Term Indebtedness

The Company’s total indebtedness as of December 31, 2002 was $131.7 million. After retirement of the Bank Term Facility (as discussed below) the Company’s remaining indebtedness will consist of the $80.0 million in outstanding Senior Subordinated Notes. The Company will have to obtain new or additional financing to pay some or all the principal amount outstanding on the Senior Subordinated Notes (due on November 15, 2004). No assurance can be given that such financing will be available to the Company or, if available that it may be obtained on terms and conditions that are satisfactory to the Company.

Bank Term Facility

In connection with the 1996 acquisition, the Company entered into senior secured amortization extended term loan facilities (the “Bank Term Facility”) in an aggregate principal amount of $75.0 million, the proceeds of which were used to finance the 1996 acquisition and related transaction costs, to pre-fund certain capital expenditures and to refinance existing indebtedness of the Company, and a senior secured revolving credit facility (the “Bank Revolving Facility”) in an aggregate principal amount of up to $25.0 million, the proceeds of which are available for general corporate purposes and a portion of which could be extended (as agreed upon) in the form of swing line loans or letters of credit for the account of the Company. Effective May 2, 2001 the Company amended the Bank Revolving Facility reducing the aggregate principal amount available to $10.0 million and extending its maturity date to April 1, 2003. Borrowings under the Revolving Credit Facility must be fully paid for a minimum period of 30 days for each 12-month period ending December 1. As of March 24, 2003, the Company had no borrowings under the Revolving Credit Facility and does not anticipate and borrowings prior to its expiration on April 1, 2003.

All obligations under the Bank Credit Facilities entered into with the lenders or their affiliates in connection therewith are unconditionally guaranteed (the “Bank Guarantees”), jointly and severally, by Rose Hills Holdings Corp. and each of the Company’s existing and future domestic subsidiaries (the “Bank Guarantors”). All

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obligations of the Company and the Bank Guarantees are secured by first priority security interests in all existing and future assets (including real property located at Rose Hills but excluding other real property and vehicles covered by certificates of title) of the Company and the Bank Guarantors. In addition, the Bank Credit Facilities are secured by a first priority security interest in 100% of the capital stock of the Company and each subsidiary thereof and all intercompany receivables.

As discussed above, the Company intends to retire the Bank Term Facility on or before May 1, 2003 using existing cash on hand and the cash equity contribution from Alderwoods. Accordingly, the restrictions under the Bank Term Facility discussed above will cease.

Senior Subordinated Notes

In connection with the 1996 acquisition, the Company also issued $80 million of 9 ¹/2% Senior Subordinated Notes due 2004, which were exchanged in September 1997 for $80 million of 9 ¹/2% Senior Subordinated Notes due 2004 (the “Notes”) that were registered under the Securities Act of 1933. The Notes mature on November 15, 2004. Interest on the Notes is payable semi-annually on May 15 and November 15 at the annual rate of 9 ¹/2%. The Notes are redeemable in cash at the option of the Company, in whole or in part, at any time on or after November 15, 2000, at prices ranging from 104.75% with annual reductions to 100% in 2003 plus accrued and unpaid interest, if any, to the redemption date. The proceeds of the Notes were used, in part, to finance the 1996 acquisition.

The Company and its Subsidiaries are subject to certain restrictive covenants contained in the indenture to the Notes, including, but not limited to, covenants imposing limitations on: the incurrence of additional indebtedness; certain payments, including dividends and investments; the creation of liens; sales of assets and preferred stock; transactions with interested persons; payment restrictions affecting subsidiaries; sale-leaseback transactions; and mergers and consolidations. The indenture does allow for dividend payments out of cash capital contributions. Accordingly, dividends are permitted to the extent of Alderwoods’ equity contributions as discussed above. In addition, the Bank Credit Facilities contain certain restrictive covenants that, among other things, limit the ability of the Company and its Subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness (including the Exchange Notes), pay dividends or make certain restricted payments, create liens on assets, engage in mergers or acquisitions or enter into leases or transactions with affiliates. At December 31, 2002 the Company was in compliance with the terms of the indenture and the Bank Credit Facilities.

Contractual Obligations and Commercial Commitments

The following table details the future principal payments of certain contractual obligations as of December 31, 2002 (in thousands):

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The Statement requires entities to record the fair value of a liability for legal

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obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Company has adopted the provisions of SFAS No. 143; there was no material impact of the adoption.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” which requires that the extinguishment of debt not be considered an extraordinary item under APB Opinion No. 30 (“APB 30”) “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria in APB 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002 and upon adoption, companies must reclassify prior period items that do not meet the extraordinary item classification criteria in APB 30. The adoption of SFAS No. 145 is not expected to have a material impact on the Company’s financial position and results of operations.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. It requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. The Company does not expect that the adoption of SFAS No. 146 will have a material impact on its financial position or results from operations.

In November 2002, the FASB issued Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34”. FIN No. 45 requires a guarantor to include disclosure of certain obligations, and if applicable, at the inception of the guarantee recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002. The Company did not have any guarantees at December 31, 2002 and will apply the provisions of FIN No. 45 prospectively to guarantees made after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123”. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. In addition, amendments are made to the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. The Company has not participated in a stock-based compensation plan. Accordingly, there is no impact to the Company upon implementation of SFAS No. 148.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities”. FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors lack certain characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of

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the entity. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company did not have any investments in any variable interest entities at December 31, 2002 and will apply the provisions of FIN No. 46 prospectively to investments in variable interest entities made after January 31, 2003.

FORWARD-LOOKING STATEMENTS

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

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

CAUTIONARY STATEMENTS

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

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

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

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

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

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

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

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

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

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

The Company’s floating rate exposure of $52.6 million, represents 39% of the Company’s total debt, and has a weighted average of approximately 4.9%. A one percent change in the applicable floating rate indices would cause an approximate $0.5 million change in the Company’s annual interest expense.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Item 15(a).

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

None.

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PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information regarding the directors and executive officers of the Company as of March 27, 2003:

Dennis C. Poulsen. Mr. Poulsen was named Chief Executive Officer on February 1, 2002. He has served as Chairman of the Board of the Company since November 1996 and has served as a director of the Company since its formation in 1996. Mr. Poulsen joined Rose Hills in 1981 and became President in 1984. Mr. Poulsen currently serves on the Board of Directors of Ameron International Corporation and Orthopaedic Hospital and is a Trustee of Payden & Rygel Mutual Funds. Mr. Poulsen is a member of the American, California and Los Angeles Bar Associations. He served as a director and Chairman of the Los Angeles Chamber of Commerce in 1997 and is past director of the American Cemetery Association.

Kenton C. Woods. Mr. Woods was named director of the Company effective January 3, 2002. Mr. Woods joined the Company as Senior Vice President and Chief Financial Officer in May 1997. From 1990 to 1997, Mr. Woods served in senior financial positions at Baskin-Robbins, including Vice President-Finance and Chief Financial Officer. Mr. Woods previously spent 10 years with KPMG LLP.

Gregg M. Williamson. Mr. Williamson was named Executive Vice President, Sales and Marketing of the Company on June 11, 2001. From 1990 to 2001, Mr. Williamson served as Executive Vice President, Marketing and Sales Officer for Palm Mortuary, Inc. in Las Vegas, Nevada.

Patrick L. Monroe. Mr. Monroe was named Vice President, Chief of Operations of the Company in July 2002. Mr. Monroe joined Rose Hills in 1991. Prior to July 2002, Mr. Monroe served in senior operational positions including Vice President, Cemetery Operations.

John S. Lacey. Mr. Lacey was named director of the Company effective March 10, 2000. Mr. Lacey became the Chairman of the Board of Directors of Alderwoods, the corporate parent of the Company, on January 2, 2002. From January 1999 to January 2002, Mr. Lacey was the Chairman of the Board of Directors of Loewen. In December 1998, Mr. Lacey became a director of Loewen. From July 1998 to November 1998, Mr. Lacey was President and Chief Executive Officer of the Oshawa Group Ltd., a marketer of food and pharmaceutical products, in Toronto, Ontario. From November 1996 to July 1998, Mr. Lacey was President and Chief Executive Officer of WIC Western International Communications Inc., a private broadcaster, in Vancouver, British Columbia.

Paul A. Houston. Mr. Houston was named a director of the Company effective May 22, 2001. Mr. Houston became a director, President and Chief Executive Officer of Alderwoods, the corporate parent of the Company, on January 2, 2002. From December 1999 to January 2002, Mr. Houston was President and Chief Executive Officer of Loewen. Additionally, Mr. Houston served as a director of Loewen from June 1999 to January 2002. From August 1996 to October 1999, Mr. Houston was President and Chief Executive Officer of Scott’s Restaurants Inc., a quick service food company.

Kenneth A. Sloan. Mr. Sloan was named a director of the Company effective May 22, 2001. Mr. Sloan became the Executive Vice President, Chief Financial Officer of Alderwoods, the corporate parent of the Company, on January 22, 2003. From January 2, 2002 to January 21, 2003, Mr. Sloan was Senior Vice President,

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Chief Financial Officer of Alderwoods. From November 2000 to January 2002, Mr. Sloan was Senior Vice President, Chief Financial Officer of Loewen. From September 1987 to September 2000, Mr. Sloan served as Senior Executive Vice President, Finance and Planning and Chief Financial Officer of Shoppers Drug Mart Ltd., an operator of drug stores.

Shawn R. Phillips. Mr. Phillips was named a director of the Company effective January 3, 2002. Mr. Phillips is currently the Vice President, Operations, Western U.S.A. of Alderwoods, the corporate parent of the Company. Mr. Phillips has served in various management positions since joining Loewen in 1993.

Concurrent with the change in control of the Company on January 3, 2002, the directors appointed by Blackstone resigned as directors of RH Holdings and the bylaws of RH Holdings were amended to reduce the number of required directors of RH Holdings from eight to six. Each of the directors of RH Holdings is also a member of the Company’s Board of Directors.

Each of the Company’s directors is elected to serve until their respective successor is elected and qualified (unless the director earlier resigns or is removed from office). Alderwoods, as the sole shareholder of the Company, has the power to elect all of the Company’s directors. Each of the Company’s officers serves at the pleasure of the Board of Directors, subject to the rights under their employment agreements.

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

Mr. Lacey, Mr. Houston, Mr. Sloan and Mr. Phillips were directors and/or officers of the Loewen Group, Inc., which filed for bankruptcy in June 1999 and emerged from bankruptcy as a reorganized Alderwoods Group, Inc. in January 2002.

ITEM 11.     EXECUTIVE COMPENSATION.

The following table sets forth for the periods indicated the compensation paid to or accrued for the benefit of persons who served as the Chief Executive Officer of the Company during 2002 and certain other executive officers of the Company. The position identified in the table for each person is their current position unless otherwise indicated:

SUMMARY COMPENSATION TABLE

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Change-in-Control Arrangements

On March 20, 2001, a committee of the Company’s Board of Directors authorized the grant of bonus awards to certain of the Company’s executive officers pursuant to the Company’s Phantom Equity Appreciation Plan (the “Plan”). Each of the bonus awards represented the right to receive a fixed sum in cash conditioned upon and payable only in the event the Alderwoods Purchase Transaction occurred on or before December 31, 2001. The bonus amounts paid upon the closing of the Alderwoods Purchase Transaction to each of the named executive officers were as follows: Dennis C. Poulsen, $335,000; Dillis R. Ward, $711,000; Kenton C. Woods, $585,000; Virginia C. Phillips, $172,000; Patrick L. Monroe, $105,000. The Alderwoods Acquisition closed on December 31, 2001, thus the Company expensed these amounts in its December 31, 2001 statement of operations. These amounts were subsequently paid to the officers in January 2002.

Pursuant to the Loewen Blackstone Settlement Agreement, Blackstone granted certain of the Company’s executive officers who were entitled to awards under the Phantom Equity Appreciation Plan a share of a note issued by the reorganized Loewen (Alderwoods Note). The Alderwoods Note is partial consideration received by Blackstone under the terms of the Settlement Agreement. The Alderwoods Note is in the amount of $24,678,571, bears interest at an annual rate of 12.25%, and matures in 2012. The aggregate amount of the share in the Alderwoods Note received by certain Company directors and officers was $500,000. Each Director and Executive Officer was allocated a proportionate share of the $500,000, based upon their proportionate allocation under the Phantom Equity Appreciation Plan.

The U.S. Bankruptcy Court confirmed Loewen’s reorganization plan, including the proposed acquisition of shares of RH Holdings Corp. from Blackstone on December 5, 2001, and the reorganization plan became effective on January 2, 2002. Effective with its emergence from bankruptcy, Loewen was renamed as Alderwoods. On January 3, 2002, in full satisfaction of Loewen’s obligations under the put, Alderwoods delivered to Blackstone unsecured, subordinated notes and Alderwoods common stock. As a result of the delivery of the consideration, Alderwoods completed its purchase of all of the stock of RH Holdings Corp. beneficially owned by Blackstone. Upon closing of the transaction, Alderwoods increased its ownership from 20.45% to 100% of the outstanding common stock of RH Holdings Corp., thereby causing the Company to become a wholly owned subsidiary of Alderwoods. Effective upon completion of the transaction, the Company paid approximately $2.4 million in January 2002 in aggregate compensation under the Company’s Phantom Equity Appreciation Plan that was recorded as an expense as of December 31, 2001. Additionally, Blackstone transferred an aggregate $500,000 in Alderwoods notes to certain Company directors and executive officers.

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Employment Agreements and Termination of Employment Arrangements

Dennis C. Poulsen. Mr. Poulsen has an employment agreement with the Company effective as of March 1, 2000. Under the terms of his employment agreement, Mr. Poulsen’s annual salary is $120,000. Mr. Poulsen may be terminated without “cause” (as defined in the employment agreement) at any time, but if so terminated, Mr. Poulsen will continue to receive his salary for twenty-four (24) months after the date on which the Company notifies him of the termination. The employment agreement provides that a resignation by Mr. Poulsen within three months following a change in control of the Company is deemed a termination by the Company without cause. The Alderwoods Purchase Transaction constituted a change of control for purposes of the employment agreement. On December 23, 2002, Alderwoods, as sole shareholder of the Company, approved an amendment extending the period that Mr. Poulsen’s resignation will be deemed a termination by the Company without cause to a date that will be mutually agreed upon. In accordance with the provision of the agreement, Mr. Poulsen’s resignation will be deemed a termination by the Company without cause following the change in control. Mr. Poulsen has the right to terminate the employment agreement at any time with 60 days notice to the Company. Further, in accordance with the Company’s Supplemental Employee Retirement Plan, Mr. Poulsen receives an annual benefit of $175,365 for the duration of his life.

Dillis R. Ward. The Company entered into a Resignation and General Release Agreement with Mr. Ward dated as of January 31, 2002. Pursuant to the agreement, Mr. Ward resigned as the Company’s President and Chief Executive Officer effective February 1, 2002. Mr. Ward is to receive severance equal to two year’s base pay for an aggregate of $500,000 to be paid in bi-weekly installments for a period of twenty-four months beginning February 2, 2002. The Company agreed to reimburse Mr. Ward for the cost of moving, up to $10,000, and COBRA coverage during the eligible period.

Kenton C. Woods. The Company has an employment agreement with Mr. Woods dated as of December 1, 1998, pursuant to which Mr. Woods currently serves as the Company’s Executive Vice President and Chief Financial Officer. Mr. Woods’ base salary is $169,050, which is subject to annual review and may be increased (but not reduced) at the sole discretion of the Board. Mr. Woods’ cash bonus may range from 0%-100% of his base salary and is based on the Company’s performance as measured against EBITDA targets established annually by the Board. Mr. Woods may be terminated without “cause” (as defined in the employment agreement) at any time with 12 months notice to Mr. Woods, but if so terminated, Mr. Woods will receive (i) his then base salary and benefits through the effective date of the termination; (ii) his annual bonus for all years completed prior to the effective date of the termination; and (iii) a prorated portion of the annual bonus for the year in which the termination becomes effective. Mr. Woods has the right to terminate the employment agreement at any time with 90 days notice to the Company.

Gregg M. Williamson. The Company has an employment agreement with Mr. Williamson dated as of June 11, 2001, pursuant to which Mr. Williamson currently serves as the Company’s Executive Vice President, Sales and Marketing. The Company has extended this agreement through December 31, 2003. Mr. Williamson’s base salary is $200,000. Mr. Williamson is eligible for an “EBITDA” cash bonus, ranging from 0%-20% of his base salary, based on the Company’s performance as measured against EBITDA targets determined annually by the Board. Also, Mr. Williamson is eligible for a “sales” cash bonus, ranging from 0%-80% of his base salary, based upon the Company’s pre-need cemetery and funeral insurance sales. Mr. Williamson may be terminated without “cause” (as defined in the employment agreement) at any time but if so terminated prior to December 31, 2003, will receive one year’s base salary. Mr. Williamson has the right to terminate the employment agreement at any time with 90 days notice to the Company.

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee. Compensation policies applicable to executive officers are determined by the Board of Directors. As directors of the Company, Mr. Ward and Mr. Poulsen participated in the deliberations of the Board concerning executive compensation in 2001. Currently, Messrs. Poulsen and Woods are the only directors who are also Executive Officers of the Company.

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During fiscal 2000, Mr. Poulsen provided consulting services to the Company for which he was paid $16,046. As discussed in Item 10, “Directors and Executive Officers of the Registrant”: (i) on March 20, 2001, the consulting agreement was terminated and replaced by an employment agreement providing for an annual salary of $120,000; (ii) on March 20, 2001, Mr. Poulsen was awarded a bonus amount of $335,000, conditioned upon and payable only in the event that the closing of the Alderwoods Acquisition; and (iii) on April 12, 2001, Blackstone granted Mr. Poulsen a share in the Alderwoods Note, conditioned upon and granted only in the event of the closing of the Alderwoods Acquisition. Due to the approval of Loewen’s reorganization plan by the U.S. Bankruptcy court on December 5, 2001, the Company recorded an accrued expense for the $350,000 bonus that was paid in January 2002.

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

The Company is a direct, wholly owned subsidiary of RH Holdings. The following table sets forth certain information as of March 27, 2003 regarding the beneficial ownership of the common stock of RH Holdings:

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The summary of the Put/Call Arrangement set forth below does not purport to be complete and is qualified in its entirety by reference to all the provisions of the Put/Call Agreement. A copy of the Put/Call Agreement is incorporated by reference as an exhibit to this Annual Report on Form 10-K. One or more of our directors during 2002 were affiliated with Alderwoods which is involved in this agreement.

Put/Call Arrangement

Pursuant to a separate agreement among Blackstone, LWN, LGII and LN Sub (the “Put/Call Agreement”), (i) LGII had a call option, exercisable from and after November 19, 2000 (the fourth anniversary of the 1996 acquisition closing date), until but excluding November 19, 2002 (the sixth anniversary of the 1996 acquisition closing date) to purchase all of Blackstone’s shares of RH Holdings Common Stock (the “Call Option”) and (ii) Blackstone had a put option, exercisable from and after November 19, 2002 (the sixth anniversary of the 1996 acquisition closing date) until but excluding November 19, 2004 (the eighth anniversary of the 1996 acquisition

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closing date) to require LGII to purchase Blackstone’s shares of RH Holdings Common Stock (the “Put Option”). The option price in either case was to be derived from a formula based on EBITDA. The performance by LGII of its obligations under the Put/Call Agreement was guaranteed by LWN.

On June 1, 1999, LWN, LGI and LN Sub filed for protection from their creditors under Chapter 11 of the U.S. Bankruptcy Code. On November 15, 2000, LWN submitted a plan of reorganization to the U.S. Bankruptcy Court. The Plan was amended on February 15, 2001. In April 2001, LWN reached an agreement with Blackstone and RHMID, pursuant to which Blackstone would exercise its put and a reorganized Alderwoods would acquire 100% of the outstanding common stock of RH Holdings. The acquisition was approved by U.S. Bankruptcy Court and upon Alderwoods emergence from bankruptcy, Blackstone’s put was exercised. Upon exercise of the Put option, RH Holdings became a wholly owned subsidiary of a reorganized Alderwoods, and the Put/Call Agreement was terminated.

The exercise of the Put Option on January 3, 2002 did not give rise to a Change of Control under the Indenture.

Mayflower Insurance

In the course of ordinary business, the Company receives proceeds from insurance companies as payment for at-need services rendered. In 2002, the Company received approximately $0.2 million of insurance proceeds from Mayflower Insurance, a subsidiary of Alderwoods. As of December 31, 2002 and 2001, the Company was the stated beneficiary of insurance policies totaling a face amount of $8,046,000 and $8,262,000, respectively, with Mayflower Insurance. The Company did not sell any Mayflower Insurance policies in 2002.

ITEM 14.     CONTROLS AND PROCEDURES.

Within the 90 days preceding the date of this report, Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

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PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

1. Financial Statements

Index to Financial Statements

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(b) Exhibits

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(c) Reports on Form 8-K

None

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors

Rose Hills Company:

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rose Hills Company and subsidiaries as of December 31, 2002 and 2001 and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in note 1 to the consolidated financial statements, effective December 31, 2001, the minority shareholder of Rose Hills Holdings Corp. emerged from bankruptcy and acquired 100% of the outstanding common stock of Rose Hills Holdings Corp. Accordingly, the 2002 consolidated statement of operations and cash flows reflect the parent Company’s fresh-start accounting basis that has been “pushed-down” as a result of this transaction.

As discussed in note 2 to the consolidated financial statements, the Company implemented Statement of Accounting Standards No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. As discussed in note 5 to the consolidated financial statements, the Company changed its method of recognizing revenue in 2000.

KPMG LLP

Los Angeles, California

February 14, 2003

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ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2001

(In thousands)