ALDERWOODS GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

(MARK ONE)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 16 weeks ended October 4, 2003

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

COMMISSION FILE NUMBER 000-33277

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

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DELAWARE 52-1522627

(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)

311 ELM STREET, SUITE 1000, CINCINNATI, OHIO 45202
(Address of principal executive offices) (Zip Code)

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

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

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

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

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

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

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APPLICABLE ONLY TO CORPORATE ISSUERS

At November 1, 2003, there were 39,978,611 shares of Common Stock
outstanding.

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ALDERWOODS GROUP, INC.

i

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALDERWOODS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

EXPRESSED IN THOUSANDS OF DOLLARS
EXCEPT NUMBER OF SHARES

COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 8)

SEE ACCOMPANYING NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

EXPRESSED IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES OUTSTANDING

SEE ACCOMPANYING NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

2

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT NUMBER OF SHARES

SEE ACCOMPANYING NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

3

ALDERWOODS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

EXPRESSED IN THOUSANDS OF DOLLARS

SEE ACCOMPANYING NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

4

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 1. NATURE OF OPERATIONS

Alderwoods Group, Inc., a Delaware corporation, together with its
subsidiaries (collectively, the "Company") is the second-largest operator of
funeral homes and cemeteries in North America. As at October 4, 2003, the
Company operated 737 funeral homes and 161 cemeteries and 60 combination funeral
homes and cemeteries throughout North America and 39 funeral homes in the United
Kingdom.

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

The Company's cemetery operations assist families in making burial
arrangements and offer a complete line of cemetery products (including a
selection of burial spaces, burial vaults, lawn crypts, caskets, memorials,
niches, mausoleum crypts and other merchandise), the opening and closing of
graves and cremation services.

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The interim consolidated financial statements include the accounts of the
Company, its subsidiary companies and operations controlled by the Company
through sales and management agreements. All subsidiaries are wholly owned,
except for a few companies with small minority interests. The interim
consolidated financial statements have been prepared using the U.S. dollar and
are presented in accordance with United States generally accepted accounting
principles ("GAAP").

The interim consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, which in management's opinion
are necessary for a fair presentation of the financial results as of October 4,
2003 and for the 16 and 40 weeks ended October 4, 2003, and October 5, 2002. The
interim consolidated financial statements have been prepared on a basis
consistent with the accounting policies described in the Company's Annual Report
on Form 10-K for the 52 weeks ended December 28, 2002, as filed with the U.S.
Securities and Exchange Commission ("SEC") and should be read in conjunction
therewith.

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

USE OF ESTIMATES

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

5

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLAN

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

The Company applies the intrinsic value-based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations, including FASB Interpretation No. 44, "Accounting
for Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25," to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. Any compensation
expense recorded is charged against operations over the service period, which
generally matches the option vesting period. No stock-based employee
compensation cost was recorded for the 16 or 40 weeks ended October 4, 2003, and
October 5, 2002, as all options granted under the Company's stock option plan
had an exercise price equal to or greater than the market value of the
underlying Common stock on the grant date. The following table illustrates the
effect on net income (loss) and net income (loss) per share, if the Company had
applied the fair value recognition provisions of FAS No. 123 to stock-based
employee compensation using the Black-Scholes option pricing methodology.

COMPARABILITY

Certain comparative amounts have been reclassified to conform to the
presentation adopted in the current period.

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ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING STANDARDS

In January 2003, the FASB issued FASB Interpretation No. 46 ("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 do not have the
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. 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. FIN No. 46 applies in the first period ending after December 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. Accordingly, FIN No. 46 is applicable to
the Company for the fiscal year ending January 3, 2004. The Company is in the
process of evaluating the impact of FIN 46 on its financial condition, results
of operations and cash flows and believes that its receivables from funeral and
cemetery trusts will be consolidated at fair value in the Company's consolidated
balance sheet. The Company is in the process of determining the impact, if any,
the adoption of FIN No. 46 will have on its accounting for perpetual care
trust funds.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (FAS No. 149). FAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement of Financial
Accounting Standards No. 133 ("FAS No. 133"). FAS No. 149 clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative as discussed in FAS No. 133. In addition, it clarifies when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. FAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, except as specifically noted in FAS No. 149.
FAS No. 149 should be applied prospectively. The adoption of FAS No. 149 had no
impact on the Company's financial condition or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity" (FAS No. 150). FAS No. 150 changes the accounting
for certain financial instruments that, under previous guidance, were accounted
for as equity. FAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments: (1) mandatorily redeemable shares, which the
issuer is obligated to buy back in exchange for cash or other assets; (2) put
options and forward purchase contracts that do or may require the issuer to buy
back some of its shares in exchange for cash or other assets; and,
(3) obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index, or
varies inversely with the value of the issuer's shares. Most of the guidance in
FAS No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of FAS No. 150 had no
impact on the Company's financial condition or results of operations.

7

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 3. PRE-NEED FUNERAL ACTIVITIES

The balance in pre-need funeral contracts represents customer receivables,
amounts due from trust funds and third-party insurance companies related to
unperformed, price-guaranteed, pre-need funeral contracts. The components of
pre-need funeral contracts in the consolidated balance sheets are as follows:

For pre-need funeral contract sales, an allowance for cancellations and
refunds is provided at the date of sale based on management's best estimates and
is offset by an allowance against deferred pre-need funeral contract revenue.

The activities in deferred pre-need funeral contract revenue were
as follows:

Amounts receivable from funeral trusts represent a portion of the proceeds
from the sale of pre-need funeral services, deposited in accordance with state
and provincial trusting laws with various financial institutions, together with
accrued earnings. The Company will recognize and generally receive these amounts
when the funeral service is performed.

8

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 4. PRE-NEED CEMETERY ACTIVITIES

PRE-NEED CEMETERY CONTRACTS

The balance in pre-need cemetery contracts represents customer receivables
for cemetery interment rights, and cemetery merchandise and services, and
amounts due from trust funds related to unfulfilled, price-guaranteed, pre-need
cemetery contracts. The components of pre-need cemetery contracts in the
consolidated balance sheets are as follows:

For pre-need cemetery contract sales, other than sales of pre-need cemetery
interment rights, which are recognized in accordance with the retail land sales
provisions of Statement of Financial Accounting Standards No. 66, "Accounting
for Sales of Real Estate," an allowance for cancellations and refunds is
provided at the date of sale based on management's best estimates and is offset
by an allowance against deferred pre-need cemetery contract revenue. For sales
of pre-need cemetery interment rights, an allowance is provided at the time of
sale.

The activities in deferred pre-need cemetery contract revenue were
as follows:

Amounts receivable from cemetery trusts represents a portion of the proceeds
from the sale of pre-need merchandise and services, deposited in accordance with
state and provincial trusting laws with various financial institutions, together
with accrued earnings. The Company will recognize and generally receive these
amounts when the merchandise is delivered or service is performed.

9

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 4. PRE-NEED CEMETERY ACTIVITIES (CONTINUED)
PERPETUAL CARE TRUSTS

The perpetual care trust funds are not included in the Company's
consolidated balance sheets, as the principal of these trusts cannot be
withdrawn by the Company. The cost basis of the trust investments was
$263,840,000 and $266,890,000, at October 4, 2003, and December 28, 2002,
respectively.

Investment earnings of perpetual care trust funds are recognized in cemetery
revenue when realized and are used to help defray the maintenance costs of
cemeteries, which are expensed as incurred.

NOTE 5. LONG-TERM DEBT

Long-term debt consists of the following:

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(a) On September 17, 2003, the Company entered into a new $325,000,000
senior secured facility (the "Credit Agreement"), which was funded on
September 29, 2003, and included a $275,000,000 term loan (the "Term
Loan B") and a $50,000,000 revolving credit facility (the "Revolving
Credit Facility") to replace its previous credit facility entered into on
January 2, 2002. As a result, the Company retired the remaining balance
of $195,000,000 on its 11.00% Senior secured notes, due in 2007, and the
principal amount of $80,000,000 on its 9.50% Senior subordinated notes,
due in 2004. The Revolving Credit Facility includes $20,000,000 available
in the form of letters of credit. The Revolving Credit Facility is
intended to be used primarily to fund the

10

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 5. LONG-TERM DEBT (CONTINUED)
Company's working capital needs, and bears interest at a rate per annum
in accordance with graduated pricing based upon the Company's
consolidated leverage ratio. The Company has the option to elect the type
of borrowing that has an interest rate equal to either (i) a base rate
(4.00% at October 4, 2003), plus 2.00%, or (ii) LIBOR (1.15% at
October 4, 2003), plus 3.25%. An annual fee of 0.50% is charged on the
unused portion of the Credit Agreement. Material covenants in the Credit
Agreement include a requirement to maintain a minimum interest coverage
ratio and fixed charge coverage ratio, a requirement not to exceed a
maximum leverage ratio, a yearly maximum on capital expenditures and
cemetery development and specified maximum amounts for capital lease
obligations, unsecured indebtedness, acquisitions, certain investments
and sales of accounts receivable. The Credit Agreement is secured by
specified real property, and substantially all personal property of the
Company and specified subsidiaries. The expiry date of the Credit
Agreement is September 29, 2008.

As of October 4, 2003, the amount available under the Revolving Credit
Facility was $50,000,000, less $13,811,000 in outstanding letters
of credit.

(b) On April 1, 2003, the Company repaid all outstanding principal amounts
and accrued interest under, and terminated, the subsidiary
credit agreement.

(c) The Term Loan B bears interest at a rate per annum equal to LIBOR (with
an average rate of 1.13% at October 4, 2003), plus 3.25%. The Term
Loan B is repayable in quarterly installments of $2,500,000 from
January 3, 2004 to October 9, 2004, $3,750,000 from January 1, 2005 to
October 8, 2005, and $5,000,000 from December 31, 2005 to June 14, 2008,
with a lump sum payment of the then-outstanding amount on the
maturity date.

(d) On September 29, 2003, the Company repaid all outstanding principal
amounts and accrued interest under, and terminated, the 11.00% Senior
secured notes, due in 2007.

(e) On September 29, 2003, the Company repaid all outstanding principal
amounts and accrued interest under, and terminated, the 9.50% Senior
subordinated notes, due in 2004. As a result, the Company paid a premium
of $1,266,400 for the early retirement. In addition, an unamortized
discount of $1,376,000 is included in interest expense for the 40 weeks
ended October 4, 2003.

(f) On January 2, 2002, the Company issued 12.25% Senior unsecured notes,
due in 2009. Interest is payable semi-annually on March 15 and
September 15. The notes are redeemable on and after January 2, 2005, at
the option of the Company, in whole or in part, at a price equal to
106.25% of the stated principal amount if redeemed from January 2, 2005
to January 1, 2006, at a price equal to 103.125% of the stated principal
amount if redeemed from January 2, 2006 to January 1, 2007, and at a
price equal to 100% of the stated principal amount if redeemed on or
after January 2, 2007, plus accrued and unpaid interest to (but not
including) the applicable redemption date.

(g) On January 2, 2002, the Company issued 12.25% Convertible subordinated
notes, due in 2012, with an effective annual interest rate of 8.6%.
Interest is payable semi-annually on March 15 and September 15. The notes
are convertible at the holder's option at any time into the Company's
Common stock at an initial conversion rate of $17.17 per share, adjusted
for subsequent dividends, stock splits and issuance of rights, options
and warrants. At October 4, 2003, and December 28, 2002, the conversion
rate was $17.17 per share. The carrying amount includes unamortized
premium of $7,408,000 (December 28, 2002 -- $8,100,000), which is
recognized by a reduction in interest expense over the term of the notes.
The notes are redeemable at the option of the Company, in whole or in
part, at 100% of the stated principal amount, plus accrued and unpaid
interest to (but not including) the applicable redemption date, provided
however, that prior to January 2, 2004, the Company may not optionally
redeem the notes unless the then-market price of the Company's Common
stock is at least 15% greater than the then-applicable conversion price.

11

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 5. LONG-TERM DEBT (CONTINUED)
The Credit Agreement, 12.25% Senior unsecured notes due in 2009, and 12.25%
Convertible subordinated notes due in 2012, are guaranteed by substantially all
of Alderwoods Group's wholly-owned U.S. subsidiaries, other than Alderwoods
Group's insurance subsidiaries and other specified excluded subsidiaries.
Alderwoods Group, the parent company, has no independent assets or operations,
and the guarantees of its guarantor subsidiaries are full and unconditional, and
joint and several.

In certain change of control situations, the Company is required to make an
offer to purchase the then-outstanding 12.25% Convertible subordinated notes due
in 2012, at a price equal to 100% of their stated principal amount, and for the
12.25% Senior unsecured notes due in 2009, at a price equal to 101% of their
stated principal amount, plus in each case, accrued and unpaid interest to the
applicable repurchase date.

The Credit Agreement and the indentures governing the 12.25% Senior
unsecured notes due in 2009 and 12.25% Convertible subordinated notes due in
2012 prohibit the Company from consummating certain asset sales unless:
(a) consideration at least equal to fair market value is received; and
(b) except with respect to specified assets, not less than 75% of the
consideration for the asset sale is paid in cash. Within 270 days of the receipt
of net proceeds from any such asset sale, the Company has the discretion to
apply such net proceeds at its option (or as otherwise required), up to
$10,000,000 in any fiscal year, but not to exceed $35,000,000 in the aggregate,
to make capital expenditures or acquisitions of other assets in the same line of
business as the Company or specified subsidiaries or businesses related thereto,
or enter into definitive agreements for the reinvestment of such asset sale
proceeds that are consummated within 360 days following receipt of such net cash
proceeds. To the extent the Company receives net proceeds from any such asset
sale not applied in accordance with the immediately preceding sentence in excess
of certain thresholds, the Company must make mandatory repayments under the
Credit Agreement.

Material covenants under the Credit Agreement and indentures governing
12.25% Senior unsecured notes due in 2009 and 12.25% Convertible subordinated
notes due in 2012 include restrictions placed on the Company and specified
subsidiaries to incur additional indebtedness, pay dividends, repay subordinate
or junior indebtedness, and encumber property or assets.

NOTE 6. PROVISION FOR ASSET IMPAIRMENT

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

Previously, the Company designated certain parcels of surplus real estate as
held for sale, as they do not meet the Company's future geographic and strategic
objectives. During the 40 weeks ended October 4, 2003, the Company determined
that the carrying amounts of certain parcels of the surplus real estate now
exceeded the fair market value, less estimated cost to sell. Accordingly, the
Company has recorded a long-lived asset impairment provision of $4,112,000 for
the 40 weeks ended October 4, 2003.

12

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 6. PROVISION FOR ASSET IMPAIRMENT (CONTINUED)
The fair market value was determined by specific offer or bid, or an
estimate based on comparable recent sales transactions. The asset impairment
provisions include management estimates. As a result, actual results could
differ significantly from these estimates.

NOTE 7. DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE

The Company continues to assess the markets and businesses in which it
operates, and evaluate the long-term potential of each, to determine whether or
not it fits into the Company's overall business strategy. Over time, the Company
expects to market for disposal additional funeral and cemetery locations that do
not meet the strategic, long-term objectives of the Company. The Company expects
that once a property is added to the disposal list, a firm purchase commitment
will be received within one year.

During the 16 weeks ended October 4, 2003, the Company identified
79 funeral, 30 cemetery and four combination locations for disposal, in addition
to all 39 funeral locations in the United Kingdom previously identified for
disposal, as they are not strategic to the Company's long-term objective to
focus capital and management resources in North America. The Company also
previously had identified its life insurance operations for disposal, which is
not strategic to the Company's long-term objectives, and is not in support of
the Company's North American pre-need funeral sales efforts. These are in
addition to the 10 funeral and 52 cemetery locations remaining from locations
previously designated as held for sale.

The Company has classified all the locations identified for disposal as
assets held for sale in the consolidated balance sheets and recorded any related
operating results, long-lived asset impairment provisions, and gains or losses
recorded on disposition as income from discontinued operations. The Company has
also reclassified prior periods to reflect any comparative amounts on a similar
basis, including locations sold in 2002.

Discontinued operations consists of long-lived asset impairment provisions,
gains and losses recorded on disposition, and operating results of the
locations. FAS No. 144 requires that long-lived assets to be disposed of are to
be recorded at the lower of carrying amount or fair market value, less estimated
costs to sell. The fair market value was determined by specific offer or bid, or
an estimate based on comparable recent sales transactions. Impairment provisions
on assets previously identified as held for sale resulted from changes in
previously estimated proceeds, net asset values and closing costs. The
long-lived asset impairment provisions are based on management estimates. As a
result, actual results could differ significantly from these estimates.

13

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 7. DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE (CONTINUED)
The carrying amount, the fair market value, less estimated costs to sell,
revenues and costs and impairment provisions for the locations identified as
held for sale are presented in the following tables.

14

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 7. DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE (CONTINUED)
Details of assets held for sale at October 4, 2003, are as follows:

Details of assets held for sale at December 28, 2002, are as follows:

15

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 8. LEGAL CONTINGENCIES

The Company is a party to legal proceedings in the ordinary course of its
business, but does not expect the outcome of any proceedings, individually or in
the aggregate, to have a material adverse effect on the Company's financial
position, results of operations or liquidity.

NOTE 9. CHANGES IN OTHER NON-CASH BALANCES

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

16

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 9. CHANGES IN OTHER NON-CASH BALANCES (CONTINUED)

NOTE 10. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

17

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 10. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)

18

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 11. SEGMENT REPORTING

The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance. There has been no change in the basis of this
segmentation, accounting policies of the segments, or the basis of measurement
of segment profit or loss from that disclosed in the Company's Annual Report on
Form 10-K for the 52 weeks ended December 28, 2002, as filed with the SEC.

During the 40 weeks ended October 4, 2003, the Company identified additional
funeral, cemetery, combination and insurance locations for disposal. Pursuant to
FAS No. 144, the Company has classified all the Company's locations identified
for disposal as assets held for sale. The operating results of the locations
identified for disposal are reported in the discontinued operations section of
the consolidated statement of operations. Accordingly, the results from
operations included in the segment reporting below reflect only the Company's
continuing operations.

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

19

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 11. SEGMENT REPORTING (CONTINUED)

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

NOTE 12. LOSS PER SHARE

The basic and diluted earnings (loss) per share computations for net income
(loss) were as follows:

For the 40 weeks ended October 4, 2003, 1,220,000 employee and director
stock options were dilutive to earnings and are included in the calculation of
diluted loss per share. Employee and director stock

20

ALDERWOODS GROUP, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

NOTE 12. LOSS PER SHARE (CONTINUED)
options to purchase 3,095,000 shares of Common stock, and shares reserved for
issuance pursuant to the 12.25% Convertible subordinated notes, due in 2012,
were not included in the computation of diluted earnings per share, because they
were anti-dilutive.

NOTE 13. SUBSEQUENT EVENT

On October 20, 2003, all of the Company's 39 funeral locations in the
United Kingdom with net assets of $15,883,000 were sold for gross proceeds of
$18,060,000. These locations are classified as assets held for sale in the
balance sheet and discontinued operations in the statements of operations and
cash flows as at and for the 16 and 40 weeks ended October 4, 2003. In addition,
from the period October 5, 2003, to November 1, 2003, one funeral location was
closed, and four funeral and three cemetery locations in North America were sold
for gross proceeds of $2,321,000.

21

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

OVERVIEW

Alderwoods Group, Inc. (the "Company" or "Alderwoods Group") is the second
largest operator of funeral homes and cemeteries in North America. As of
November 1, 2003, the Company operated 732 funeral homes, 158 cemeteries and 60
combination funeral homes and cemeteries throughout North America. The Company
provides funeral and cemetery services and products on both an at-need (time of
death) and pre-need basis. In support of its pre-need business, the Company
operates insurance subsidiaries that provide customers with a funding mechanism
for the pre-arrangement of funerals.

CRITICAL ACCOUNTING POLICIES

Accounting policies that the Company believes are both most important to the
portrayal of the Company's financial condition and results, and require
management's most difficult, subjective or complex judgements are described
under Item 7. "-- Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Alderwoods Group's Annual Report on Form 10-K for
the 52 weeks ended December 28, 2002, as filed with the U.S. Securities and
Exchange Commission ("SEC").

BASIS OF PRESENTATION

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

RESULTS OF OPERATIONS

Detailed below are the operating results of the Company for the 16 and 40
weeks ended October 4, 2003, and October 5, 2002. The operating results are
expressed in dollar amounts as well as relevant percentages, presented as a
percentage of revenue, except for income taxes, which are presented as a
percentage of earnings before income taxes.

The operations of the Company comprise three businesses: funeral homes,
cemeteries and insurance. Additional segment information is provided in Note 11
of the Company's interim consolidated financial statements.

22

16 WEEKS ENDED OCTOBER 4, 2003 COMPARED TO 16 WEEKS ENDED OCTOBER 5, 2002

Other information for the 16 weeks ended October 4, 2003, and October 5,
2002, is summarized in the following table.

DISCUSSION OF CONTINUING OPERATIONS

As there have been no material acquisitions or construction of new locations
in 2003 and 2002, results from continuing operations reflect those of "same
site" locations.

23

Consolidated revenue of $210.6 million for the 16 weeks ended October 4,
2003, increased by $7.7 million, or 3.8%, compared to $202.9 million for the
corresponding period in 2002, primarily as a result of increases in all business
segments. Consolidated gross margin for the 16 weeks ended October 4, 2003, was
$34.9 million, an increase of $9.0 million, or 35.1%, from $25.9 million for the
corresponding period in 2002. As a percentage of consolidated revenue,
consolidated gross margin similarly increased from 12.8% to 16.6%. The
percentage increase in consolidated gross margin is primarily attributed to
lower funeral costs, partially offset by higher insurance costs.

Funeral revenue of $140.7 million for the 16 weeks ended October 4, 2003,
increased by $3.4 million, or 2.4%, compared to $137.3 million for the
corresponding period in 2002. The increase was primarily due to 375 additional
funeral services performed, and an increase of $53, or 1.4%, in average revenue
per funeral service performed.

Funeral costs for the 16 weeks ended October 4, 2003, decreased by
$4.6 million, or 4.0%, compared to the corresponding period in 2002, primarily
due to lower operating costs, partially offset by higher facilities and benefits
costs during the 16 weeks ended October 4, 2003, than in the corresponding
period in 2002.

Funeral gross margin as a percentage of revenue increased to 21.8% for the
16 weeks ended October 4, 2003, compared to 16.5% for the corresponding period
in 2002. The increase is primarily due to the higher revenues, and lower funeral
costs discussed above.

Pre-need funeral contracts for the 16 weeks ended October 4, 2003, were
$51.8 million, compared to $49.7 million for the corresponding period in 2002.
For the 16 weeks ended October 4, 2003, 27% of funeral volume was derived from
backlog, compared to 24% for the corresponding period in 2002.

Cemetery revenue of $46.8 million for the 16 weeks ended October 4, 2003,
was $1.6 million, or 3.6%, higher than cemetery revenue for the corresponding
period in 2002, primarily due to higher pre-need space sales and recognition of
pre-need merchandise.

Cemetery costs for the 16 weeks ended October 4, 2003, increased by
$0.8 million, or 1.8%, compared to the corresponding period in 2002, primarily
due to higher facilities costs, which were partially offset by lower wages and
operating costs.

Cemetery gross margin as a percentage of revenue increased to 8.8% for the
16 weeks ended October 4, 2003, compared to 7.2% for the corresponding period in
2002, due to the increase in cemetery revenue more than offsetting the increase
in cemetery costs, discussed above.

Pre-need cemetery contracts during the 16 weeks ended October 4, 2003, were
$23.8 million, $0.4 million lower than the corresponding period in 2002. For the
16 weeks ended October 4, 2003, 80% of interments were at-need and 20% were
pre-need fulfillments.

Insurance revenue for the 16 weeks ended October 4, 2003, increased
$2.7 million, or 13.3%, compared to the corresponding period in 2002, primarily
due to higher premiums. Insurance costs increased by $2.5 million for the
16 weeks ended October 4, 2003, compared to the corresponding period in 2002.
The increase in insurance costs was due to increased insurance policy benefit
reserve change and commission costs, as well as increases in benefit claims and
other net operating costs. As a result of the revenue increase being at a rate
higher than that of the costs increase, overall insurance gross margin for the
16 weeks ended October 4, 2003, increased to 1.1%, compared to breakeven for the
corresponding period in 2002.

General and administrative expenses for the Company for the 16 weeks ended
October 4, 2003, were $13.2 million, or 6.3% of consolidated revenue, which is a
$3.1 million increase from the $10.1 million, or 5.0% of consolidated revenue
for the comparable period in 2002. General and administrative expenses for the
16 weeks ended October 4, 2003, were reduced by $3.1 million as a result of net
interest income received from a tax refund in connection with the audit of the
predecessor's 1993 through 1998 federal

24

income tax returns. In addition, a $5.0 million bonus accrual reversal was
recorded for the 16 weeks ended October 5, 2002, as it was determined unlikely
that certain 2002 performance targets would be met.

At December 31, 2001, the Company had accrued $57.1 million of
reorganization costs related to costs incurred during the predecessor company's
reorganization, as well as costs incurred in connection with the actual
emergence and various activities related thereto. Although the Company had
expected to pay out the $57.1 million during 2002, delays experienced in the
completion of the reorganization process resulted in a remaining balance of
$21.8 million at June 14, 2003. The Company has paid or adjusted accruals of
$3.2 million for the 16 weeks ended October 4, 2003, leaving a total accrual of
$18.6 million at October 4, 2003. Though emergence occurred on January 2, 2002,
it is the Company's continuing responsibility to resolve allowed amounts for
unresolved claims. The unresolved claims relate to the allocation of payments
approved by the United States Bankruptcy Court for the District of Delaware and
do not impact the Company's obligations under the settlement process. Although
expected payments were accrued at emergence, the continuing expenditures,
primarily legal fees, legal reorganization costs and adversary proceeding costs,
continue to be paid and charged against the accrual to complete the remaining
reorganization procedures. The Company expects to pay the remainder during
fiscal year 2003. A reconciliation of changes in the reorganization cost accrual
is included in Note 10 to the interim consolidated financial statements.

In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"), the Company undertook its annual goodwill impairment review during
the 16 weeks ended October 4, 2003. Goodwill impairment is deemed to exist, and
must then be further assessed, if a reporting unit's carrying amount exceeds its
estimated fair value. The Company's reporting units are funeral, cemetery and
insurance, which are consistent with the Company's operating segments. All of
the Company's goodwill is recorded in the funeral reporting unit. As a result of
the Company's annual goodwill impairment review, there was no indication of
goodwill impairment, as the estimated fair value of the funeral reporting unit
exceeded its carrying amount as at October 4, 2003.

Previously, the Company designated certain parcels of surplus real estate as
probable for sale, as they do not meet the Company's future geographic and
strategic objectives. During the 16 weeks ended October 4, 2003, the Company
determined that the carrying amounts of certain parcels of the surplus real
estate now exceeded the fair market value, less estimated costs to sell.
Accordingly, the Company has recorded a long-lived asset impairment provision of
$0.5 million for the 16 weeks ended October 4, 2003.

Interest expense on long-term debt for the 16 weeks ended October 4, 2003,
was $27.7 million, an increase of $1.6 million compared to the comparable period
in 2002, primarily reflecting the effect of debt repayments made by the Company
during the 52 weeks ended December 28, 2002, and the 40 weeks ended October 4,
2003, being offset by $4.2 million in premiums, fees and unamortized discount
write-off incurred during the 16 weeks ended October 4, 2003, as a result of the
early retirement of the 9.50% Senior subordinated notes, due in 2004, and the
previous credit facility entered into on January 2, 2002.

Income tax benefit for the 16 weeks ended October 4, 2003, was $0.2 million
compared to $1.4 million for the comparable period in 2002. The Company's
effective tax rate for the 16 weeks ended October 4, 2003, varied from the
statutory tax rate, primarily because (1) the losses incurred in certain
jurisdictions may not offset the tax expense in profitable jurisdictions, and
(2) there are differences between foreign and United States income tax rates.
Future income and losses may require the Company to record a change in the
valuation allowance of tax assets that were taken into account in determining
the net amount of liability for deferred income taxes recorded on its balance
sheet at October 4, 2003. If this occurs, any resulting increase in the
valuation allowance would generally be treated as an additional income tax
expense in the period in which it arises, while any resulting decrease
reflecting realization of the benefits of tax assets that had a corresponding
valuation allowance established on January 2, 2002, would be treated as

25

a reduction of goodwill established on January 2, 2002, with any excess over the
value assigned to such goodwill recognized as a capital transaction.

DISCUSSION OF DISCONTINUED OPERATIONS

Throughout the reorganization process, the Company engaged in a strategic
market rationalization assessment to dispose of cemetery and funeral operating
locations that did not fit into the Company's market or business strategies, as
well as under-performing locations and excess cemetery land. This program
continued during 2003. The Company continues to assess the markets in which it
operates, and evaluate the long-term potential of each, to determine whether or
not it fits into the Company's overall business strategy. This evaluation
considers many key factors, including demographics, size, ethnicity, competition
and growth potential. Over time, the Company expects to market for disposal
additional funeral and cemetery locations that do not meet the strategic,
long-term objectives of the Company. The Company expects that once a property is
added to the disposal list, a firm purchase commitment will be received within
one year.

During the 16 weeks ended October 4, 2003, the Company identified
79 funeral, 30 cemetery and four combination locations for disposal, in addition
to all 39 funeral locations in the United Kingdom previously identified for
disposal, as they are not strategic to the Company's long-term objective to
focus capital and management resources in North America. The Company also
previously had identified its life insurance operations for disposal, which is
not strategic to the Company's long-term objectives, and is not in support of
the Company's North American pre-need funeral sales efforts. These are in
addition to the 10 funeral and 52 cemetery locations remaining from locations
previously designated as held for sale.

The Company has classified all the locations identified for disposal as
assets held for sale in the consolidated balance sheets and recorded any related
operating results, long-lived asset impairment provisions, and gains or losses
recorded on disposition as income from discontinued operations. The Company has
also reclassified prior periods to reflect any comparative amounts on a similar
basis, including locations sold in 2002.

26

40 WEEKS ENDED OCTOBER 4, 2003 COMPARED TO 40 WEEKS ENDED OCTOBER 5, 2002

Other information for the 40 weeks ended October 4, 2003, and October 5,
2002, is summarized in the following table.

27

DISCUSSION OF CONTINUING OPERATIONS

As there have been no material acquisitions or construction of new locations
in 2003 and 2002, results from continuing operations reflect those of "same
site" locations.

Consolidated revenue of $549.0 million for the 40 weeks ended October 4,
2003, increased by $16.6 million, or 3.1%, compared to $532.4 million for the
corresponding period in 2002, primarily as a result of increases in all business
segments. Consolidated gross margin for the 40 weeks ended October 4, 2003, was
$100.6 million, an increase of $1.8 million, or 1.9%, from $98.8 million for the
corresponding period in 2002. The percentage increase in gross margin is
primarily attributed to the increase in cemetery gross margin, which was
partially offset by the decrease in funeral gross margin.

Funeral revenue of $373.5 million for the 40 weeks ended October 4, 2003,
was consistent with the corresponding period in 2002, primarily as a result of
the decrease of 1,819, or 1.9%, of the number of funeral services performed
being offset by the increase of $73, or 1.9%, in average revenue per funeral
service performed.

Funeral costs increased by $4.8 million, or 1.7% for the 40 weeks ended
October 4, 2003, compared to the corresponding period in 2002, primarily as a
result of higher facilities, benefits and vehicle costs, during the 40 weeks
ended October 4, than in the corresponding period in 2002.

Funeral gross margin as a percentage of revenue decreased to 22.5% for the
40 weeks ended October 4, 2003, compared to 23.8% for the corresponding period
in 2002. The decline in funeral gross margin was due to the increase in funeral
costs discussed above.

Pre-need funeral contracts for the 40 weeks ended October 4, 2003, were
$127.2 million, compared to $124.1 million for the corresponding period in 2002.
The increase in pre-need funeral contracts written of $3.1 million was primarily
due to the Company's continuing efforts to increase pre-need sales. For the
40 weeks ended October 4, 2003, 26% of funeral volume was derived from backlog,
compared to 24% from the corresponding period in 2002.

Cemetery revenue of $121.9 million for the 40 weeks ended October 4, 2003,
was $10.9 million, or 9.8%, higher than cemetery revenue for the corresponding
period in 2002, primarily due to higher pre-need space sales and recognition of
pre-need merchandise, and a one-time $3.9 million reversal of accrued perpetual
care liabilities.

Cemetery costs for the 40 weeks ended October 4, 2003, increased by
$5.3 million, or 5.2%, compared to the corresponding period in 2002, primarily
as a result of higher insurance and benefit and facilities costs, cost of goods
sold and selling expenses.

Cemetery gross margin as a percentage of revenue increased to 12.4% for the
40 weeks ended October 4, 2003, compared to 8.6% for the corresponding period in
2002, due to the increase in cemetery revenue more than offsetting the increase
in cemetery costs, discussed above.

Pre-need cemetery contracts during the 40 weeks ended October 4, 2003, were
$61.6 million, $3.5 million higher than the corresponding period in 2002. For
the 40 weeks ended October 4, 2003, 80% of interments were at-need and 20% were
pre-need fulfillments.

Insurance revenue for the 40 weeks ended October 4, 2003, increased
$5.6 million, or 11.6%, compared to the corresponding period in 2002, primarily
due to higher premiums and investment income. Insurance costs increased by
$4.6 million for the 40 weeks ended October 4, 2003, compared to the
corresponding period in 2002. The increase in insurance costs was due to
increased insurance policy benefit reserve change, increases in benefit claims
and other net operating costs. As a result of the revenue increase being at a
rate higher than that of the cost increase, overall insurance gross margin for
the 40 weeks ended October 4, 2003, increased to 2.5%, compared to 0.8% for the
corresponding period in 2002.

28

General and administrative expenses for the Company for the 40 weeks ended
October 4, 2003, were $32.4 million, or 5.9% of consolidated revenue, slightly
lower than the $33.7 million, or 6.3% of consolidated revenue for the comparable
period in 2002. During 2003, general and administrative expenses were reduced by
a $5.0 million decrease in accrued legal expenses as a result of a legal claim
settlement and a $3.1 million net interest income received from a tax refund in
connection with the audit of the predecessor's 1993 through 1998 federal income
tax returns. In addition, a $5.0 million bonus accrual reversal was recorded for
the 16 weeks ended October 5, 2002, as it was determined unlikely that certain
performance targets would be met.

At December 31, 2001, the Company had accrued $57.1 million of
reorganization costs related to costs incurred during the predecessor company's
reorganization, as well as costs incurred in connection with the actual
emergence and various activities related thereto. Although the Company had
expected to pay out the $57.1 million during 2002, delays experienced in the
completion of the reorganization process resulted in a remaining balance of
$26.3 million at December 28, 2002. The Company has paid or adjusted accruals of
$7.7 million for the 40 weeks ended October 4, 2003, leaving a total accrual of
$18.6 million at October 4, 2003. Though emergence occurred on January 2, 2002,
it is the Company's continuing responsibility to resolve allowed amounts for
unresolved claims. The unresolved claims relate to the allocation of payments
approved by the United States Bankruptcy Court for the District of Delaware and
do not impact the Company's obligations under the settlement process. Although
expected payments were accrued at emergence, the continuing expenditures,
primarily legal fees, legal reorganization costs and adversary proceeding costs,
continue to be paid and charged against the accrual to complete the remaining
reorganization procedures. The Company expects to pay the remainder during
fiscal year 2003. A reconciliation of changes in the reorganization cost accrual
is included in Note 10 to the interim consolidated financial statements.

In accordance with the FAS 142, the Company undertook its annual goodwill
impairment review during the 16 weeks ended October 4, 2003. Goodwill impairment
is deemed to exist, and must then be further assessed, if a reporting unit's
carrying amount exceeds its estimated fair value. The Company's reporting units
are funeral, cemetery and insurance, which are consistent with the Company's
operating segments. All of the Company's goodwill is recorded in the funeral
reporting unit. As a result of the Company's annual goodwill impairment review,
there was no indication of goodwill impairment, as the estimated fair value of
the funeral reporting unit exceeded its carrying amount as at October 4, 2003.

Previously, the Company designated certain parcels of surplus real estate as
probable for sale, as they do not meet the Company's future geographic and
strategic objectives. During the 40 weeks ended October 4, 2003, the Company
determined that the carrying amounts of certain parcels of the surplus real
estate now exceeded the fair market value, less estimated costs to sell.
Accordingly, the Company has recorded a long-lived asset impairment provision of
$4.1 million for the 40 weeks ended October 4, 2003.

Interest expense on long-term debt for the 40 weeks ended October 4, 2003,
was $65.0 million, a decrease of $2.1 million compared to the comparable period
in 2002, primarily reflecting the effect of debt repayments made by the Company
during the 52 weeks ended December 28, 2002, and during the 40 weeks ended
October 4, 2003, which were partially offset by $4.2 million in premiums, fees
and unamortized discount write-off incurred during the 40 weeks ended
October 4, 2003, as a result of the early retirement of the 9.50% Senior
subordinated notes, due in 2004, and the previous credit facility entered into
on January 2, 2002.

Income tax benefit for the 40 weeks ended October 4, 2003, was $8.0 million
compared to $0.9 million of income tax expense for the comparable period in
2002. The Company's effective tax rate for the 40 weeks ended October 4, 2003,
varied from the statutory tax rate, primarily because the Company favorably
settled a federal income tax audit during 2003. The Company received and
recognized a $9.7 million tax benefit for the 40 weeks ended October 4, 2003, in
connection with the audit of the predecessor's 1993 through 1998 federal income
tax returns. Future income and losses may require the

29

Company to record a change in the valuation allowance of tax assets that were
taken into account in determining the net amount of liability for deferred
income taxes recorded on its balance sheet at October 4, 2003. If this occurs,
any resulting increase in the valuation allowance would generally be treated as
an additional income tax expense in the period in which it arises, while any
resulting decrease reflecting realization of the benefits of tax assets that had
a corresponding valuation allowance established on January 2, 2002, would be
treated as a reduction of goodwill established on January 2, 2002, with any
excess over the value assigned to such goodwill recognized as a capital
transaction.

DISCUSSION OF DISCONTINUED OPERATIONS

Throughout the reorganization process, the Company engaged in a strategic
market rationalization assessment to dispose of cemetery and funeral operating
locations that did not fit into the Company's market or business strategies, as
well as under-performing locations and excess cemetery land. This program
continued during 2003. The Company continues to assess the markets in which it
operates, and evaluate the long-term potential of each, to determine whether or
not it fits into the Company's overall business strategy. This evaluation
considers many key factors, including demographics, size, ethnicity, competition
and growth potential. Over time, the Company expects to market for disposal
additional funeral and cemetery locations that do not meet the strategic,
long-term objectives of the Company. The Company expects that once a property is
added to the disposal list, a firm purchase commitment will be received within
one year.

During the 40 weeks ended October 4, 2003, the Company identified
122 funeral, 45 cemetery and four combination locations for disposal. The
funeral locations also include all 39 funeral locations in the United Kingdom,
as they are not strategic to the Company's long-term objective to focus capital
and management resources in North America. The Company also identified its life
insurance operations for disposal, which is not strategic to the Company's
long-term objectives, and is not in support of the Company's North American
pre-need funeral sales efforts. These are in addition to the 10 funeral and
52 cemetery locations remaining from locations previously designated as held
for sale.

The Company has classified all the locations identified for disposal as
assets held for sale in the consolidated balance sheets and recorded any related
operating results, long-lived asset impairment provisions, and gains or losses
recorded on disposition as income from discontinued operations. The Company has
also reclassified prior periods to reflect any comparative amounts on a similar
basis, including locations sold in 2002.

LIQUIDITY AND CAPITAL RESOURCES

INTRODUCTION

For information regarding debt securities, see Item 7. "-- Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on Form 10-K for the 52 weeks ended December 28, 2002,
as filed with the SEC. There have been no material changes to the disclosure on
debt securities made in such Form 10-K, except as described below.

The Company's decrease in cash and cash equivalents of $22.6 million from
June 14, 2003, to October 4, 2003, is primarily due to operating cash flow from
continuing operations of $19.5 million for the 16 weeks ended October 4, 2003,
offset by a net debt repayment of $31.6 million, which excludes the effects of
premium and discount amortization, as well as the effects, if any, of foreign
exchange. In addition, from continuing operations, the Company had net proceeds
on asset sales of $2.9 million, purchases of property and equipment of
$8.6 million, net insurance asset purchases of $11.8 million and net increase in
cash of $7.0 million from discontinued operations.

The Company's decrease in cash and cash equivalents of $12.9 million from
December 28, 2002, to October 4, 2003, is primarily due to operating cash flow
from continuing operations of $93.8 million for the

30

40 weeks ended October 4, 2003, being offset by a net debt repayment of
$97.3 million, which excludes the effects of premium and discount amortization,
as well as the effects, if any, of foreign exchange. In addition, from
continuing operations, the Company had net proceeds on asset sales of
$3.9 million, purchases of property and equipment of $15.5 million, net
insurance asset purchases of $22.8 million and net increase in cash of
$25.0 million from discontinued operations.

On September 17, 2003, the Company entered into a new $325.0 million senior
secured facility (the "Credit Agreement"), which was funded on September 29,
2003, and included a $275.0 million term loan (the "Term Loan B") and a
$50.0 million revolving credit facility (the "Revolving Credit Facility") to
replace its previous credit facility entered into on January 2, 2002. The
Revolving Credit Facility includes $20.0 million available in the form of
letters of credit. On September 29, 2003, the Company borrowed $275.0 million
under the Term Loan B and repaid all outstanding principal amounts and accrued
interest under, and terminated, the 11.00% Senior secured notes, due in 2007,
and 9.50% Senior subordinated notes, due in 2004. As a result of the early
retirement, the Company incurred $4.2 million in premiums, fees and unamortized
discount write-off during the 16 weeks ended October 4, 2003.

As of October 4, 2003, the amount available under the Revolving Credit
Facility was $50.0 million, less $13.8 million in outstanding letters of credit.

On June 27, 2003, the Company made an optional redemption of $30.0 million
of its 11.00% Senior secured notes, due in 2007, for a redemption price of
$30.0 million, plus accrued interest.

On April 1, 2003, the Company repaid approximately $52.6 million
outstanding, and terminated, the bank credit agreement of its subsidiary, Rose
Hills Company. The $52.6 million repayment was made by drawing $30.0 million
from its then-existing credit facility, and $22.6 million from cash.

On January 2, 2003, the Company completed a mandatory redemption of
$10.0 million in principal amount, plus accrued interest, of the 11.00% Senior
secured notes, due in 2007.

The Credit Agreement, 12.25% Senior unsecured notes due in 2009 (the
"Seven-Year Unsecured Notes") and 12.25% Convertible subordinated notes due in
2012 (the "Convertible Subordinated Notes"), are guaranteed by substantially all
of the Company's wholly-owned U.S. subsidiaries, other than the Company's
insurance subsidiaries and certain other excluded subsidiaries. Alderwoods
Group, Inc., the parent company, has no independent assets or operations, and
the guarantees of its guarantor subsidiaries are full and unconditional, and
joint and several.

Although the Company will continue to be substantially leveraged, the
Company believes that the Revolving Credit Facility, together with existing cash
and cash flow from operations, will be sufficient to meet the Company's
anticipated capital expenditures and working capital requirements through the
next 12 months, including payment obligations under the indebtedness
described above.

31

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table details the Company's amounts of payments due under
various contractual obligations with terms greater than one year as of
October 4, 2003.

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

(a) Long-term debt excludes unamortized premium. Long-term debt and promissory
notes and capitalized obligations are included in long-term debt in Note 5
to the Company's interim consolidated financial statements.

(b) Promissory notes and capitalized obligations include non-competition
agreements and capitalized lease obligations.

(c) Operating leases are primarily for premises and automobiles, and expire over
the next one to 29 years.

In addition to the operating leases noted in the table above, as at
October 4, 2003, the Company leased approximately 1,240 vehicles under a master
operating lease agreement, which has a minimum lease term of 12 months. The
Company's practice is to continue these leases on a month-to-month basis after
the expiry of the minimum lease term. Lease payments for these vehicles are
projected to be $8.1 million over the next 12 months.

The following table details the Company's amounts of commercial commitments
as of October 4, 2003.

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

(a) Relates to the Company's Revolving Credit Facility described more fully in
Note 5 to the interim consolidated financial statements. The expiry date of
the Revolving Credit Facility is September 29, 2008.

(b) Standby letters of credit primarily relate to a court ordered legal claim,
surety bonds for various pre-need sales trusting requirements and security
for certain automobile operating leases and cash management services.

32

OTHER INFORMATION

The Company's earnings from continuing operations before interest, taxes,
depreciation and amortization, and provision for asset impairment ("EBITDA from
continuing operations") for the 16 and 40 weeks ended October 4, 2003, and
October 5, 2002, are presented in the table below and reconciled to the
Company's net income (loss) from continuing operations. 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 is
not a term that has specific meaning in accordance with GAAP and may be
calculated differently by other companies. EBITDA should not be considered in
isolation, as a substitute for earnings from operations or cash flow data
calculated in accordance with GAAP, or as a measure of a company's profitability
or liquidity.

DISPOSITIONS

During the 16 weeks ended October 4, 2003, the Company closed nine funeral
locations and sold eight funeral, six cemetery and one combination locations for
gross proceeds of $1.6 million. During the 40 weeks ended October 4, 2003, the
Company closed 15 funeral and one combination locations, and sold 13 funeral,
23 cemetery and three combination locations for gross proceeds of $4.6 million.
On October 20, 2003, all of the Company's 39 funeral locations in the United
Kingdom were sold. In addition, from the period October 5, 2003, to November 1,
2003, one funeral location was closed, and four funeral and three cemetery
locations in North America were sold. These locations that were sold subsequent
to October 4, 2003, had net assets of $18.4 million and were sold for gross
proceeds of $20.4 million.

RESTRICTIONS

The Credit Agreement and the indentures governing the Seven-Year Unsecured
Notes and the Convertible Subordinated Notes prohibit the Company from
consummating certain asset sales unless (a) consideration at least equal to fair
market value is received and (b) except with respect to specified assets, not
less than 75% of the consideration for the asset sale is paid in cash or cash
equivalents. Within 270 days of the receipt of net proceeds from any such asset
sale, the Company has the discretion to apply such net proceeds at its option
(or as otherwise required), up to $10.0 million in any fiscal year, but not to
exceed $35.0 million in the aggregate, to make capital expenditures or
acquisitions of other assets in the same line of business as the Company or
certain of its subsidiaries or businesses related thereto, or enter into
definitive agreements for the reinvestment of such asset sale proceeds that are
consummated within 360 days following receipt of such net cash proceeds. To the
extent the Company receives net proceeds from any such asset sale not applied in
accordance with the immediately preceding sentence in excess of certain
thresholds, the Company must make mandatory repayments under the Credit
Agreement.

33

The Company's insurance subsidiaries are subject to certain state
regulations that restrict distributions, loans and advances from such
subsidiaries to the Company and its other subsidiaries. The cash flow from
operations of the insurance subsidiaries for the 40 weeks ended October 4, 2003,
was approximately $28.9 million.

The Company is not expecting to pay any dividends on the Common stock in the
foreseeable future. In addition, covenants in the respective indentures
governing the Credit Agreement, the Seven-Year Unsecured Notes and the
Convertible Subordinated Notes and in the Credit Facility restrict the Company's
ability to pay dividends and may prohibit the payment of dividends and certain
other payments.

RECENT ACCOUNTING STANDARDS

See Note 2 to the Company's interim consolidated financial statements
included in Item 1.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the Company's exposure to certain market risks,
see Item 7A "-- Quantitative and Qualitative Disclosures About Market Risk" in
the Company's Annual Report on Form 10-K for the 52 weeks ended December 28,
2002, as filed with the SEC. As of October 4, 2003, there were no material
changes in such matters disclosed in the Form 10-K, except as described below.

The market risk exposure discussion below provides information about
market-sensitive financial instruments and constitutes "forward-looking
statements," which involve risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements.

The Company's exposure to interest rate fluctuations resides primarily in
the United States. The Company's debt instrument sensitivity to floating
interest rates is based on the Company's floating rate debt being based in the
United States. Accordingly, changes in U.S. interest rates can affect the
interest paid on the Company's floating rate debt. At October 4, 2003, the
Company's total fixed rate debt is $379.8 million, representing 58% of total
debt, and has a weighted average rate of 11.39%. The Company's floating rate
exposure of $275.0 million, represents 42% of total debt and has a weighted
average rate of approximately 4.38%. A one percent change in the applicable
floating rate indices would cause an approximately $2.8 million change in the
Company's annual interest expense.

34

The principal cash flows and the related weighted average interest rates for
the Company's long-term debt as of October 4, 2003, are presented below.

QUANTITATIVE DISCLOSURE OF MARKET RISKS

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

(1) Commencing on its fiscal year ending on January 3, 2004, the Company is
required to maintain a minimum interest coverage ratio and fixed charge
coverage ratio, and not to exceed a maximum leverage ratio. The Company is
not to exeeed a yearly maximum on capital expenditures and cemetery
development and a specified maximum amount for the sale of accounts
receivable. Adverse operating results could cause the Company to be unable
to achieve these financial ratios and tests, in which event, unless the
Company were able to obtain appropriate waivers with respect to
non-compliance, certain of the Company's long-term debt would be in default
and the holders thereof could accelerate the maturities of such debt.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time period specified in SEC rules
and forms. As at October 4, 2003, an evaluation was carried out, under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company's disclosure controls and procedures. Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective.

Subsequent to the date of their evaluation, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls.

35

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding the Company's legal proceedings, see Note 8 to the
Company's interim consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q, which Note 8 is incorporated herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In accordance with the Fourth Amended Joint Plan of Reorganization of Loewen
Group International, Inc., its Parent Corporation and certain of their Debtor
Subsidiaries, as modified (the "Plan"), the Company issued in respect of holders
of certain unsecured claims 21,140 shares of Common Stock on January 31, 2003.

Section 1145(a)(1) of Chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code") exempts the offer and sale of securities under a plan of
reorganization from registration under the Securities Act of 1933 (the
"Securities Act") and state securities laws if three principal requirements are
satisfied: (a) the securities must be offered and sold under a plan of
reorganization and must be securities of the debtor, an affiliate participating
in a joint plan with the debtor or a successor to the debtor under the plan;
(b) the recipients of the securities must hold a pre-petition or administrative
expense claim against the debtor or an interest in the debtor; and (c) the
securities must be issued entirely in exchange for the recipient's claim against
or interest in the debtor, or principally in such exchange and partly for cash
or property. Alderwoods Group believes that the offer and sale of the Common
Stock under the Plan satisfies the requirements of section 1145(a)(1) of the
Bankruptcy Code and, therefore, are exempt from registration under the
Securities Act and state securities laws.

ITEM 5. OTHER INFORMATION

STOCKHOLDER PROPOSALS

The Company has selected May 4, 2004, as the date for its 2004 annual
meeting of stockholders. Rule 14a-8 under the Securities Exchange Act of 1934,
as amended, requires that any stockholder proposals be submitted to the Company
for action at the Company's annual meeting of stockholders not less than 120
calendar days before the date of any proxy statement that the Company released
to stockholders last year, or, if the Company did not send such a proxy
statement, a reasonable time before the Company begins to print and mail the
proxy statement for its 2004 annual meeting of stockholders. The Company's proxy
statement for the 2003 annual meeting was dated April 1, 2003. Therefore, the
deadline for stockholder proposals is December 1, 2003.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q,
including, but not limited to, information regarding the status and progress of
the Company's operating activities, the plans and objectives of the Company's
management, assumptions regarding the Company's future performance and plans,
and any financial guidance provided, as well as certain information in other
filings with the SEC and elsewhere are forward-looking statements within the
meaning of Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of
the Securities and Exchange Act of 1934. The words "believe," "may," "will,"
"estimate," "continues," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are made subject to certain risks and uncertainties that could cause
actual results to differ materially from those stated, including the following:

36

uncertainties associated with future revenue and revenue growth; the impact of
the Company's significant leverage on its operating plans; the ability of the
Company to service its debt; outcomes in pending legal and tax claims; the
Company's ability to attract, train and retain an adequate number of sales
people; the impact of changes to federal, state and local laws and regulations
affecting revenues from trust funds; uncertainties associated with the volume
and timing of pre-need sales of funeral and cemetery services and products;
variances in death rates; variances in the use of cremation; the impact of
environmental laws; future tax rates; and various other uncertainties associated
with the funeral service industry and the Company's operations in particular,
which are referred to in the Company's periodic reports filed with the SEC. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

RISK FACTORS

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

FUTURE REVENUES ARE UNCERTAIN

1. VOLUME, MIX AND MARGINS ARE UNCERTAIN. Revenue is significantly
affected by the volume of services rendered and the mix and pricing of services
and products sold. Cemetery revenues are also significantly affected by the
fulfillment of previously sold pre-need cemetery contracts and the writing of
pre-need cemetery contracts for interment rights. Margins are affected by
changes in revenue, their related costs and the level of fixed costs in
operating our funeral homes and cemeteries. Further, revenue and margins may be
affected by competitive pricing strategies.

2. NUMBER OF PRE-NEED CONTRACTS WRITTEN IS DEPENDENT UPON AN ADEQUATE
SALESFORCE. The level of pre-need contracts written is dependent upon
maintaining an adequate salesforce. Accordingly, the future success of the
Company is dependent upon the Company's ability to attract, train and retain an
adequate number of sales people.

3. TRUST INCOME IS SUBJECT TO MARKET CONDITIONS. Cemetery revenue is
impacted by the trust income on perpetual care trust funds which is recognized
when the trust income is earned. Trust income on funeral and cemetery
merchandise and service trust funds is deferred and revenue is recognized when
the underlying merchandise and service obligations are fulfilled. The level of
trust income is largely dependent on yields available in connection with the
investment of the balances held in such trust funds. Available yields may be
subject to significant fluctuations in response to conditions in the economy in
general.

4. THE DEATH RATE MAY DECREASE. The death rate in the United States is
estimated to have declined by approximately 1% in 1997 and approximately 2% in
1998, reversing a trend of an approximate 1% increase per year since 1980.
However, for the combined two-year period from 1998 to 2000, the death rate is
estimated to have declined by less than 1%. Industry studies indicate that the
average age of the population is increasing. The financial results of the
Company may be affected by any decline in the death rate.

5. THE RATE OF CREMATION IS INCREASING. There is an increasing trend in
the United States toward cremation. According to the latest industry studies
available, cremations represented approximately 27% of the burials performed in
the United States in 2001, as compared with approximately 10% in 1980, and this
percentage increased by approximately 1% annually from 1997 to 2001. Compared to
traditional funeral services, cremations have historically generated similar
gross profit percentages but lower revenues. A substantial increase in the rate
of cremations performed by the Company could have a material adverse effect on
the results of operations of the Company.

37

6. DISPOSITIONS MAY ADVERSELY AFFECT REVENUES. Revenue is affected by the
level of dispositions, which may or may not be significant.

THE COMPANY HAS SUBSTANTIAL DEBT

1. SUBSTANTIAL LEVERAGE WILL CONTINUE. The Company's total carrying value
of long-term indebtedness (including the current portion thereof) is
significant. While the Company believes that future operating cash flow,
together with financing arrangements, will be sufficient to finance operating
requirements under the Company's business plan, the Company's leverage and debt
service requirements could make it more vulnerable to economic downturns in the
markets the Company intends to serve or in the economy generally. The Company's
indebtedness could restrict its ability to obtain additional financing in the
future and, because the Company may be more leveraged than certain of its
competitors, could place the Company at a competitive disadvantage.

2. DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT MAY LIMIT LIQUIDITY
AND CORPORATE ACTIVITIES. The Credit Agreement and the indentures governing the
Seven-Year Unsecured Notes and the Convertible Subordinated Notes contain
covenants that impose operating and financial restrictions on the Company. For
example, these covenants restrict the ability of Alderwoods Group, and most of
its subsidiaries, to incur additional indebtedness, prepay indebtedness, allow
liens on assets, sell stock or other assets without using proceeds thereof to
reduce the indebtedness of the Company, engage in mergers or acquisitions, make
investments or pay dividends or distributions (other than to Alderwoods Group or
certain of its subsidiaries). These covenants could prohibit the Company from
making acquisitions and adversely affect the Company's ability to finance future
operations by limiting the incurrence of additional indebtedness or requiring
equity issuance proceeds to be applied to reduce indebtedness. In addition, the
Company is required to maintain a minimum interest coverage ratio and fixed
charge coverage ratio, and not to exceed a maximum leverage ratio, a yearly
maximum on capital expenditures and cemetery development and a specified maximum
amount for the sale of accounts receivable. Adverse operating results could
cause the Company to be unable to achieve these financial ratios and tests, in
which event, unless the Company were able to obtain appropriate waivers with
respect to non-compliance, certain of the Company's long-term debt would be in
default and the holders thereof could accelerate the maturities of such debt.

3. SUBSIDIARY STOCK IS SUBJECT TO SECURITY INTERESTS. The capital stock of
subsidiaries directly owned by Alderwoods Group or a subsidiary guarantor of the
Credit Agreement is subject to various liens and security interests, subject to
percentage limitations in the case of foreign subsidiaries. If a holder of a
security interest becomes entitled to exercise its rights as a secured party, it
would have the right to foreclose upon and sell or otherwise transfer the
collateral subject to its security interest, and the collateral accordingly
would be unavailable to Alderwoods Group or the subsidiary owning the
collateral, except to the extent, if any, that the value of the affected
collateral exceeds the amount of indebtedness in respect of which such
foreclosure rights are exercised.

4. CERTAIN DEBT IS EFFECTIVELY SUBORDINATED TO OBLIGATIONS OF
SUBSIDIARIES. Alderwoods Group principally is a holding company, and therefore
its right to participate in any distribution of assets of any subsidiary upon
that subsidiary's dissolution, winding-up, liquidation or reorganization or
otherwise is subject to the prior claims of creditors of that subsidiary, except
to the extent that Alderwoods Group may be a creditor of that subsidiary and its
claims are recognized. There are various legal limitations on the extent to
which some of the subsidiaries of Alderwoods Group may extend credit, pay
dividends or otherwise supply funds to, or engage in transactions with,
Alderwoods Group or its other subsidiaries. The Seven-Year Unsecured Notes and
the Convertible Subordinated Notes are effectively subordinated to all
indebtedness and other obligations of the subsidiaries except to the extent that
those subsidiaries have guaranteed obligations of Alderwoods Group to pay
amounts due on the Seven-Year Unsecured Notes or the Convertible Subordinated
Notes, as applicable.

38

THE TAX RATE IS UNCERTAIN

EFFECTIVE INCOME TAX RATE MAY VARY. The Company expects that its effective
income tax rate for 2003 and beyond may vary significantly from the statutory
tax rate because (i) income tax benefits may be offset by an increase in the
valuation allowance due to the uncertainty regarding the ability to utilize the
benefits in the future, (ii) the losses incurred in certain jurisdictions may
not offset the tax expense in profitable jurisdictions, (iii) there are
differences between foreign and United States income tax rates, and (iv) many
tax years are subject to audit by different tax jurisdictions.

CAPITAL STOCK: DIVIDENDS NOT ANTICIPATED; ANTI-TAKEOVER EFFECTS

1. VOLATILITY IS POSSIBLE. In January 2002, the Company's Common Stock and
Warrants commenced trading on The NASDAQ Stock Market, Inc. Due to the limited
trading history of the Company's Common Stock and Warrants, there can be no
assurance as to the degree of price volatility in the market for the Common
Stock and Warrants. The market price of the Common Stock and Warrants may be
subject to significant fluctuations in response to numerous factors, including
variations in the Company's annual or quarterly financial results or those of
its competitors, changes by financial analysts in their estimates of the future
earnings of the Company, conditions in the economy in general or in the funeral
industry in particular or unfavorable publicity. Additionally, there can be no
assurance that the market value of the Common Stock will exceed the exercise
price of the Warrants at any time prior to their expiration.

2. DIVIDENDS ARE NOT ANTICIPATED; PAYMENT OF DIVIDENDS IS SUBJECT TO
RESTRICTION. Alderwoods Group is not expecting to pay any dividends on the
Common Stock in the foreseeable future. In addition, covenants governing the
Seven-Year Unsecured Notes, the Credit Facility, Term Loan B and the Convertible
Subordinated Notes restrict the ability of Alderwoods Group to pay dividends and
may prohibit the payment of dividends and certain other payments. Certain
institutional investors may only invest in dividend-paying equity securities or
may operate under other restrictions that may prohibit or limit their ability to
invest in the Common Stock.

3. CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS HAVE ANTI-TAKEOVER
EFFECTS. Certain provisions of the certificate of incorporation and bylaws, of
Alderwoods Group, as well as the General Corporation Law of the State of
Delaware, may have the effect of delaying, deferring or preventing a change in
control of Alderwoods Group. Such provisions, including those providing for the
possible issuance of preferred stock of Alderwoods Group without stockholder
approval, regulating the nomination of directors and eliminating stockholder
action by written consent may make it more difficult for other persons, without
the approval of the Board of Directors, to make a tender offer or otherwise
acquire substantial amounts of the Common Stock or to launch other takeover
attempts that a stockholder might consider to be in such stockholder's best
interest.

OTHER RISK FACTORS

FEDERAL, STATE AND LOCAL REGULATIONS MAY CHANGE TO THE DETRIMENT OF
ALDERWOODS GROUP. The Company's operations are subject to regulation,
supervision and licensing under numerous federal, state and local laws,
ordinances and regulations, including extensive regulations concerning trust
funds, pre-need sales of funeral and cemetery products and services,
environmental matters and various other aspects of the business. The impact of
such regulations varies depending on the location of funeral homes and
cemeteries. From time to time, states and regulatory agencies have considered
and may enact additional legislation or regulations that could affect the
Company. For example, additional legislation or regulations requiring more
liberal refund and cancellation policies for pre-need sales of products and
services or prohibiting door-to-door or telephone solicitation of potential
customers could adversely impact sales, resulting in lower gross revenues.
Similarly, additional legislation or regulations increasing trust requirements
could reduce the amount of cash available to the Company for other purposes.

39

Additional legislation or regulations prohibiting the common ownership of
funeral homes and cemeteries in the same market could adversely impact both
sales and costs and expenses in the affected markets. If adopted in the states
in which the Company operates, additional legislation or regulations such as
these could have a material adverse effect on the results of operations of the
Company.

WEB SITE ACCESS TO PERIODIC AND CURRENT REPORTS

The Company makes its periodic and current reports available, free of
charge, through its web site at http://www.alderwoods.com as soon as reasonably
practicable after such material is electronically filed with, or is furnished
to, the SEC.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

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

* Indicates management contract or compensatory plan or arrangement.

** Filed herewith.

(B) REPORTS ON FORM 8-K

The following Current Reports on Form 8-K were filed or furnished by
Alderwoods Group during the 16 weeks ended October 4, 2003:

43

SIGNATURES

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

ALDERWOODS GROUP, INC.

By: /s/ KENNETH A. SLOAN
-----------------------------------------
Kenneth A. Sloan
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL OFFICER AND
Dated: November 12, 2003 CHIEF ACCOUNTING OFFICER)

44

EXHIBIT 31.1

CERTIFICATION

I, Paul A. Houston, certify that:

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

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and
have:

(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

By: /s/ PAUL A. HOUSTON
-----------------------------------------
Paul A. Houston
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Dated: November 12, 2003 (PRINCIPAL EXECUTIVE OFFICER)

45

EXHIBIT 31.2

CERTIFICATION

I, Kenneth A. Sloan, certify that:

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

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and
have:

(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

By: /s/ KENNETH A. SLOAN
-----------------------------------------
Kenneth A. Sloan
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
Dated: November 12, 2003 CHIEF ACCOUNTING OFFICER)

46

EXHIBITS FILED HEREWITH