UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the 12 weeks (fiscal quarter) ended June 17, 2006
|- | --------------------------------------------------------------------------------------------------------------------------------------------
|  | OR                                                                                                                                          
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For 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 organization)                       | (I.R.S. Employer Identification No.)
|311 Elm Street, Suite 1000, Cincinnati, Ohio(Address of principal executive offices) | 45202(Zip Code)                     

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated filer o    Accelerated
filer ý    Non-accelerated filer o

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

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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 ý    No o

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APPLICABLE ONLY TO CORPORATE ISSUERS

At
July 17, 2006, there were 40,675,808 shares of Common Stock outstanding.



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ALDERWOODS GROUP, INC.

|           |  |                            |  |                                                                                                     |  | Page
|---------- |  | -------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|           |  |                            |  |                                                                                                     |  |     
|Part I.    |  | FINANCIAL INFORMATION      |  |                                                                                                    
|           |  | Item 1.                    |  | FINANCIAL STATEMENTS:                                                                               |  |     
|           |  |                            |  | CONSOLIDATED BALANCE SHEETS
as of June 17, 2006 and December 31, 2005                               |  | 1   
|           |  |                            |  | CONSOLIDATED STATEMENTS OF OPERATIONS
for the 12 and 24 Weeks Ended June 17, 2006 and June 18, 2005 |  | 2   
|           |  |                            |  | CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the 24 Weeks Ended June 17, 2006                |  | 3   
|           |  |                            |  | CONSOLIDATED STATEMENTS OF CASH FLOWS
for the 12 and 24 Weeks Ended June 17, 2006 and June 18, 2005 |  | 4   
|           |  |                            |  | NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS                                              |  | 5   
|           |  | Item 2.                    |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS               |  | 34  
|           |  | Item 3.                    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                          |  | 50  
|           |  | Item 4.                    |  | CONTROLS AND PROCEDURES                                                                             |  | 50  
|           |  | FORWARD-LOOKING STATEMENTS |  | 50                                                                                                 
|Part II.   |  | OTHER INFORMATION          |  |                                                                                                    
|           |  | Item 1.                    |  | LEGAL PROCEEDINGS                                                                                   |  | 51  
|           |  | Item 1A.                   |  | RISK FACTORS                                                                                        |  | 51  
|           |  | Item 4.                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                 |  | 52  
|           |  | Item 6.                    |  | EXHIBITS                                                                                            |  | 52  
|SIGNATURES |  | 57                        

i

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PART I    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ALDERWOODS GROUP, INC.    CONSOLIDATED BALANCE SHEETS    Expressed in thousands of dollars  except number of shares

|                                                        |                                                                                                                                | June 17,
2006 |           | December 31,
2005 |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------- | --------- | ----------------- | -
|
|ASSETS                                                  |                                                                                                                                |               |           |                   |  
|Current assets                                          |                                                                                                                                |               |           |                   |  
|                                                        | Cash and cash equivalents                                                                                                      |               | $         | 8,400             |  
|                                                        | Receivables, net of allowances                                                                                                 |               |           | 51,244            |  
|                                                        | Inventories                                                                                                                    |               |           | 15,282            |  
|                                                        | Other                                                                                                                          |               |           | 8,325             |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                |               | 83,251    |                   |  
|Pre-need funeral receivables and trust investments      |                                                                                                                                |               | 338,052   |                   |  
|Pre-need cemetery receivables and trust investments     |                                                                                                                                |               | 301,621   |                   |  
|Cemetery property                                       |                                                                                                                                |               | 116,096   |                   |  
|Property and equipment                                  |                                                                                                                                |               | 540,954   |                   |  
|Insurance invested assets                               |                                                                                                                                |               | 298,392   |                   |  
|Deferred income tax assets                              |                                                                                                                                |               | 19,477    |                   |  
|Goodwill                                                |                                                                                                                                |               | 295,913   |                   |  
|Cemetery perpetual care trust investments               |                                                                                                                                |               | 243,980   |                   |  
|Other assets                                            |                                                                                                                                |               | 43,053    |                   |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                | $             | 2,280,789 |                   | $
|                                                        |                                                                                                                                |               |           |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                    |                                                                                                                                |               |           |                   |  
|Current liabilities                                     |                                                                                                                                |               |           |                   |  
|                                                        | Accounts payable and accrued liabilities                                                                                       |               | $         | 113,984           |  
|                                                        | Current maturities of long-term debt                                                                                           |               |           | 2,271             |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                |               | 116,255   |                   |  
|Long-term debt                                          |                                                                                                                                |               | 355,958   |                   |  
|Deferred pre-need funeral and cemetery contract revenue |                                                                                                                                |               | 75,830    |                   |  
|Non-controlling interest in funeral and cemetery trusts |                                                                                                                                |               | 564,447   |                   |  
|Insurance policy liabilities                            |                                                                                                                                |               | 285,701   |                   |  
|Deferred income tax liabilities                         |                                                                                                                                |               | 10,744    |                   |  
|Other liabilities                                       |                                                                                                                                |               | 28,471    |                   |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                |               | 1,437,406 |                   |  
|                                                        |                                                                                                                                |               |           |                   |  
|Non-controlling interest in perpetual care trusts       |                                                                                                                                |               | 245,221   |                   |  
|Stockholders' equity                                    |                                                                                                                                |               |           |                   |  
|                                                        | Common stock, $0.01 par value, 100,000,000 shares authorized, 40,674,363 issued and outstanding (December 31, 200540,458,864) |               |           | 407               |  
|                                                        | Capital in excess of par value                                                                                                 |               |           | 745,670           |  
|                                                        | Accumulated deficit                                                                                                            |               |           | (167,749          | )
|                                                        | Accumulated other comprehensive income                                                                                         |               |           | 19,834            |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                |               | 598,162   |                   |  
|                                                        |                                                                                                                                |               |           |                   |  
|                                                        |                                                                                                                                | $             | 2,280,789 |                   | $
|                                                        |                                                                                                                                |               |           |                   |  

See accompanying notes to the interim consolidated financial statements

1

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ALDERWOODS GROUP, INC.    CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)    Expressed in thousands of dollars  except per share amounts and number of shares

|                                                                  |                                                     | 12 Weeks Ended |         | 24 Weeks Ended |  
|----------------------------------------------------------------- | --------------------------------------------------- | -------------- | ------- | -------------- | -
|
|Revenue                                                           |                                                     |                |         |                |  
|                                                                  | Funeral                                             |                | $       | 107,522        |  
|                                                                  | Cemetery                                            |                |         | 41,505         |  
|                                                                  | Insurance                                           |                |         | 23,417         |  
|                                                                  |                                                     |                |         |                |  
|                                                                  |                                                     |                | 172,444 |                |  
|                                                                  |                                                     |                |         |                |  
|Costs and expenses                                                |                                                     |                |         |                |  
|                                                                  | Funeral                                             |                |         | 87,421         |  
|                                                                  | Cemetery                                            |                |         | 35,281         |  
|                                                                  | Insurance                                           |                |         | 22,282         |  
|                                                                  |                                                     |                |         |                |  
|                                                                  |                                                     |                | 144,984 |                |  
|                                                                  |                                                     |                |         |                |  
|                                                                  |                                                     |                | 27,460  |                |  
|General and administrative expenses                               |                                                     |                | 18,042  |                |  
|Provision for asset impairment                                    |                                                     |                |        |                |  
|                                                                  |                                                     |                |         |                |  
|                                                                  |                                                     |                | 18,042  |                |  
|                                                                  |                                                     |                |         |                |  
|Income from operations                                            |                                                     |                | 9,418   |                |  
|Interest on long-term debt (Note 3)                               |                                                     |                | 6,471   |                |  
|Other expense (income), net                                       |                                                     |                | 285     |                |  
|                                                                  |                                                     |                |         |                |  
|Income before income taxes                                        |                                                     |                | 2,662   |                |  
|Income taxes                                                      |                                                     |                | 2,509   |                |  
|                                                                  |                                                     |                |         |                |  
|Income from continuing operations                                 |                                                     |                | 153     |                |  
|Loss from discontinued operations (Note 10)                       |                                                     |                |        |                |  
|                                                                  |                                                     |                |         |                |  
|Income before cumulative effect of change in accounting principle |                                                     |                | 153     |                |  
|Cumulative effect of change in accounting principle               |                                                     |                |        |                |  
|                                                                  |                                                     |                |         |                |  
|Net income                                                        |                                                     | $              | 153     |                | $
|                                                                  |                                                     |                |         |                |  
|Basic earnings per Common share:                                  |                                                     |                |         |                |  
|                                                                  | Income from continuing operations                   |                | $       |               |  
|                                                                  | Loss from discontinued operations                   |                |         |               |  
|                                                                  | Cumulative effect of change in accounting principle |                |         |               |  
|                                                                  |                                                     |                |         |                |  
|                                                                  | Net income                                          |                | $       |               |  
|                                                                  |                                                     |                |         |                |  
|Diluted earnings per Common share:                                |                                                     |                |         |                |  
|                                                                  | Income from continuing operations                   |                | $       |               |  
|                                                                  | Loss from discontinued operations                   |                |         |               |  
|                                                                  | Cumulative effect of change in accounting principle |                |         |               |  
|                                                                  |                                                     |                |         |                |  
|                                                                  | Net income                                          |                | $       |               |  
|                                                                  |                                                     |                |         |                |  
|Basic weighted average number of shares outstanding (thousands)   |                                                     |                | 40,652  |                |  
|                                                                  |                                                     |                |         |                |  
|Diluted weighted average number of shares outstanding (thousands) |                                                     |                | 42,677  |                |  
|                                                                  |                                                     |                |         |                |  

See accompanying notes to the interim consolidated financial statements

2

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ALDERWOODS GROUP, INC.    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)    Expressed in thousands of dollars except number of shares

|                             |                                              | Shares                                                                      |                                                                                                                          | Common
Stock
Par Value |     | Capital
in Excess
of Par
Value |   | Accumulated
Deficit |     | Accumulated
Other
Comprehensive
Income |          | Total |  
|---------------------------- | -------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ---------------------- | --- | ------------------------------ | - | ------------------- | --- | -------------------------------------- | -------- | ----- | -
|Balance at December 31, 2005 |                                              | 40,458,864                                                                  |                                                                                                                          | $                      | 405 |                                | $ | 743,126             |     | $                                      | (172,405 | )     | $
|Comprehensive income:        |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             | Net income                                   |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          | 4,656 |  
|                             | Other comprehensive income (loss):           |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             |                                              | Foreign currency translation adjustment, net of income taxes of $nil        |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             |                                              | Unrealized loss on insurance invested assets, net of tax recovery of $5,419 |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             |                                              | Unrealized loss on derivatives, net of income taxes of $nil                 |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             |                                              |                                                                             | Less: reclassification adjustments for realized gains on derivatives included in net income, net of income taxes of $nil |                        |     |                                |   |                     |     |                                        |          |       |  
|                             |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|Comprehensive loss           |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|Stock-based compensation     |                                              |                                                                             |                                                                                                                          |                        |     |                                |   | 1,596               |     |                                        |          |       |  
|Common stock issued:         |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|                             | Stock issued as compensation in lieu of cash |                                                                             | 7,999                                                                                                                    |                        |     |                                |   |                     | 152 |                                        |          |       |  
|                             | Stock issued under equity incentive plan     |                                                                             | 207,500                                                                                                                  |                        |     | 2                              |   |                     | 796 |                                        |          |       |  
|                             |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  
|Balance at June 17, 2006     |                                              | 40,674,363                                                                  |                                                                                                                          | $                      | 407 |                                | $ | 745,670             |     | $                                      | (167,749 | )     | $
|                             |                                              |                                                                             |                                                                                                                          |                        |     |                                |   |                     |     |                                        |          |       |  

See accompanying notes to the interim consolidated financial statements

3

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ALDERWOODS GROUP, INC.    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)    Expressed in thousands of dollars

|                                                 |                                                                     | 12 Weeks Ended                      |         | 24 Weeks Ended |       
|------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------- | ------- | -------------- | ------
|
|CASH PROVIDED BY (APPLIED TO)                    |                                                                     |                                     |         |                |       
|Operations                                       |                                                                     |                                     |         |                |       
|                                                 | Net income                                                          |                                     | $       | 153            |       
|                                                 | Loss from discontinued operations, net of tax                       |                                     |         |               |       
|                                                 | Cumulative effect of change in accounting principle                 |                                     |         |               |       
|                                                 | Items not affecting cash                                            |                                     |         |                |       
|                                                 |                                                                     | Depreciation and amortization       |         |                | 9,756 
|                                                 |                                                                     | Amortization of debt issue costs    |         |                | 453   
|                                                 |                                                                     | Stock-based compensation            |         |                | 708   
|                                                 |                                                                     | Insurance policy benefit reserves   |         |                | 11,047
|                                                 |                                                                     | Provision for asset impairment      |         |                |      
|                                                 |                                                                     | Gain on disposal of business assets |         |                | (774  
|                                                 |                                                                     | Deferred income taxes               |         |                | 469   
|                                                 | Premium on long-term debt repurchase                                |                                     |         |               |       
|                                                 | Other, including net changes in other non-cash balances             |                                     |         | (1,942         | )     
|                                                 |                                                                     |                                     |         |                |       
|Net cash provided by continuing operations       |                                                                     |                                     | 19,870  |                |       
|Net cash used in discontinued operations         |                                                                     |                                     |        |                |       
|                                                 |                                                                     |                                     |         |                |       
|                                                 |                                                                     |                                     | 19,870  |                |       
|                                                 |                                                                     |                                     |         |                |       
|Investing                                        |                                                                     |                                     |         |                |       
|                                                 | Proceeds on disposition of business assets                          |                                     |         | 872            |       
|                                                 | Purchase of property and equipment                                  |                                     |         | (4,718         | )     
|                                                 | Purchase of insurance invested assets                               |                                     |         | (20,270        | )     
|                                                 | Proceeds on disposition and maturities of insurance invested assets |                                     |         | 9,301          |       
|                                                 |                                                                     |                                     |         |                |       
|                                                 | Net cash used in continuing operations                              |                                     |         | (14,815        | )     
|                                                 | Net cash provided by discontinued operations                        |                                     |         |               |       
|                                                 |                                                                     |                                     |         |                |       
|                                                 |                                                                     |                                     | (14,815 | )              |       
|                                                 |                                                                     |                                     |         |                |       
|Financing                                        |                                                                     |                                     |         |                |       
|                                                 | Increase in long-term debt                                          |                                     |         |               |       
|                                                 | Repayment of long-term debt                                         |                                     |         | (5,521         | )     
|                                                 | Issuance of Common stock                                            |                                     |         | 726            |       
|                                                 |                                                                     |                                     |         |                |       
|                                                 | Net cash used in continuing operations                              |                                     |         | (4,795         | )     
|                                                 | Net cash used in discontinued operations                            |                                     |         |               |       
|                                                 |                                                                     |                                     |         |                |       
|                                                 |                                                                     |                                     | (4,795  | )              |       
|                                                 |                                                                     |                                     |         |                |       
|Increase (decrease) in cash and cash equivalents |                                                                     |                                     | 260     |                |       
|Cash and cash equivalents, beginning of period   |                                                                     |                                     | 8,140   |                |       
|                                                 |                                                                     |                                     |         |                |       
|Cash and cash equivalents, end of period         |                                                                     | $                                   | 8,400   |                | $     
|                                                 |                                                                     |                                     |         |                |       

See accompanying notes to the interim consolidated financial statements

4

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ALDERWOODS GROUP, INC.        NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)        (Tabular amounts expressed in thousands of dollars except per share amounts)

NOTE 1.    NATURE OF OPERATIONS

Alderwoods Group, Inc., a Delaware corporation ("Alderwoods Group" and, together with its subsidiaries unless the context otherwise requires, the
"Company"), is the second-largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of June 17, 2006, the Company operated
579 funeral homes, 72 cemeteries and 61 combination funeral homes and cemeteries throughout North America.

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

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

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

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The
interim consolidated financial statements include the accounts of 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 also include the accounts of the funeral trusts,
cemetery merchandise and service trusts and perpetual care trusts, and several pooled investment funds created for such trusts in which the Company has a variable interest and is the
primary beneficiary.

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

The
interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which in management's opinion are necessary for a fair
presentation of the financial results as of June 17, 2006, and for the 12 and 24 weeks ended June 17, 2006, and June 18, 2005. 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 31,
2005, as filed with the U.S. Securities and Exchange Commission ("SEC") and should be read in conjunction therewith.

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

5

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Use of estimates

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

Stock-based compensation plans

Director Compensation Plan

Pursuant to the Company's Director Compensation Plan (the "Director Compensation Plan"), each director of the Company who is not an employee of the Company
or any of its subsidiaries has the option of receiving his or her annual base retainer and attendance fees in cash, Common Stock or a combination thereof. Further, each participant may elect to have
Common Stock paid in the form of deferred Common Stock ("Deferred Stock"), which will be credited to a booking account in the name of the participant. The Deferred Stock is subject to a deferral
period during which the participant has no right to transfer any rights under his or her Deferred Stock and has no other rights of ownership therein. The Company has reserved 100,000 shares of
Common Stock for issuance as compensation in lieu of cash under the Director Compensation Plan.

Employee Stock Purchase Plan

In 2005, the Company's shareholders approved the adoption of a compensatory employee stock purchase plan to provide for the purchase on the open market of up to a
maximum of 1,100,000 shares of Common Stock of the Company. Eligible employees may authorize payroll deductions of up to 5% of their regular base salary to purchase shares of Common Stock of
the Company on the open market on a monthly basis. The Company will make a cash contribution to purchase shares of Common Stock of the Company as additional compensation to each participant equal to
50% of the employee's contribution for that month. For the 12 weeks ended June 17, 2006, a total of 19,062 shares were purchased and distributed to employees at an average
price of $19.27 per share and compensation expense of $122,000 was incurred. For the 24 weeks ended June 17, 2006, a total of 47,096 shares were purchased and distributed to
employees at an average price of $17.70 per share and compensation expense of $277,000 was incurred.

2005-2007 Executive Strategic Incentive Plan

The 2005-2007 Executive Strategic Incentive Plan, approved by the Board of Directors on July 21, 2005, is a performance based compensation plan
designed to motivate and reward the senior management team for achieving shareholder value objectives. The plan provides cash awards to the senior executives based on the Company's Common Stock
reaching the threshold of an average price of $17.00 for the period from December 1, 2007 to December 31, 2007. The amount of the cash award increases the more the stock price exceeds
the $17.00 threshold target price. Each participant will be assigned a percentage share of an aggregate cash award incentive pool. Achieving an average stock price of $17.00 results in an aggregate
cash award of $5,600,000. Achieving an average stock price of $18.00 results in an aggregate cash award of $8,000,000. The aggregate cash award increases by $1.6 million for every $1.00 in
appreciation of

6

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the
average stock price beyond $18.00. In the event of a change in control of the Company, the cash awards would be calculated based upon the stock price on the date of the change in control and
become payable within 30 days of the change in control.

2005 Equity Incentive Plan

In April of 2005, the Company's shareholders approved the 2005 Equity Incentive Plan that permits the grant of (i) options to the employees and members of
the Company's Board of Directors, with or without tandem appreciation rights, and (ii) restricted Common Stock units. A total of 1,800,000 shares of Common Stock are reserved for grant
under the plan. Stock options are granted with an exercise price equal to the Common Stock's fair market value on the date of the grant. Stock options granted to date have a 3-year vesting
period and vest at a rate of 25% on the first, 25% on the second and 50% on the third anniversaries of the date of grant.

The
tandem appreciation rights entitle the employee to exchange the employee's option right for a number of shares equal in value to the appreciated value of the options. The exchange of
the option for the tandem appreciation right requires an immediate exercise of the tandem appreciation right and will cause the immediate termination of the related option right. An exchange of an
option right for a tandem appreciation right may only be made when the relevant option is otherwise exercisable. Although the options granted had an exercise price equal to or greater than the market
value of the underlying Common Stock on the grant date, the number of shares to be issued upon exercise is not determinable as it is dependent upon the exchange of the option for a tandem
appreciation right.

The
restricted Common Stock units granted to date do not vest for the first three years following the date of grant. Thereafter, the restricted Common Stock units vest during years 3 to
10 based upon the share price of the Company's Common Stock. After three years of service, the restricted Common Stock units vest 70% at a $17 share price, and an additional 15% at a $17.50
share price and the final 15% at an $18 share price. Once granted, the restricted Common Stock units are not included in total shares outstanding and are not included in the weighted average number of
common shares outstanding in each period used to calculate basic earnings per share until vested.

2002 Equity Incentive Plan

On January 2, 2002 the Company implemented the 2002 Equity Incentive Plan that permits the grants of stock options to the employees and members of the
Company's Board of Directors. A total of 4,500,000 shares of Common Stock are reserved for grant under the plan. Stock options are granted with an exercise price equal to the stock's fair
market value at the date of grant. Except in certain cases, stock options have a 3-year vesting period and vest at a rate of 25% on the first, 25% on the second and 50% on the third
anniversaries of the date of grant.

Equity incentive plans and change in accounting policy

Prior to January 1, 2006, the Company accounted for employee stock-based awards under the intrinsic value method, which followed the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standard No. 123R, "Share-Based Payment"

7

---



("SFAS 123R").
SFAS 123R requires measurement of compensation cost for employee stock-based awards based upon fair value over the requisite service period for awards expected to vest.
Furthermore, under SFAS 123R, liability based awards are recorded at fair value through to their settlement date.

Pursuant
to the provisions of SFAS 123R, the Company applied the modified-prospective transition method. Under this method, the fair value provisions of SFAS 123R are
applied to new employee share-based payment awards granted or awards modified, repurchased or cancelled after December 31, 2005. Measurement and attribution of compensation cost for unvested
awards at December 31, 2005, granted prior to the adoption of SFAS 123R, are recognized based upon the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), after adjustment for estimated forfeitures. Accordingly, SFAS 123R no longer permits pro-forma disclosure for income statement periods after
December 31, 2005 and compensation expense will be recognized for all share-based payments earned after December 31, 2005 based on grant-date fair value.

The
fair value of restricted stock units and the fair value of stock options are determined using the Black-Scholes valuation model, which is consistent with the valuation techniques
previously utilized for options in the footnote disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure. The Company recorded stock-based compensation expense for equity incentive plans of
$708,000 and $1,596,000 for the 12 and 24 weeks ended June 17, 2006, respectively. This resulted in an adjustment to operating cash flows of $708,000 and $1,596,000 in the 12 and
24 weeks ended June 17, 2006, respectively. The tax benefit associated with compensation expense for the 12 weeks and 24 weeks ended June 17, 2006 is not significant
and no option value has been capitalized.

Executive strategic incentive plan

Prior to the implementation of SFAS 123R, no compensation expense was recorded in the 52 weeks ended December 31, 2005 as the stock price at
December 31, 2005 was less than the threshold target price for the Executive Strategic Incentive Plan.

With
the adoption of SFAS 123R, this incentive plan is classified as a liability based award resulting in the measurement of the estimated fair value at each reporting date, until
December 31, 2007 when the actual liability is determined and the award is settled. The Company records an expense equal to the portion of the fair value relative to the vesting term of the
plan. The Company determines the fair value using a Monte Carlo model. This model uses term-to-expiry and stock price assumptions as at the measurement date, together with
expected volatility, risk-free interest rate and dividend yield assumptions consistent with the valuation of the Company's stock options. The adoption of SFAS 123R resulted in a
cumulative effect of change in accounting principle of $1,242,000, which reflects the estimated accrued liability as of January 1, 2006 (fair value of $6,624,000, based on a stock price of
$15.87), the adoption date of SFAS 123R. Compensation expense of $1,511,000 and $2,964,000 in the 12 weeks and 24 weeks ended June 17, 2006, respectively, reflects the estimated
accrued liability as of June 17, 2006 of $4,206,000 (fair value of $11,216,000, based on a stock price of $19.39).

8

---



Pro-forma disclosure

As a result of the adoption of SFAS 123R, for the 12 weeks ended June 17, 2006, income from continuing operations before income taxes was
reduced by $2,208,000, income from continuing operations was
reduced by $2,117,000, and net income was reduced by $2,117,000. For the 24 weeks ended June 17, 2006, income from continuing operations before income tax was reduced by $4,092,000,
income from continuing operations was reduced by $4,068,000, and net income was reduced by $5,310,000. Basic and diluted earnings per share were both reduced by $0.05 and $0.13 for the 12 and
24 weeks ended June 17, 2006, respectively.

As
the Company adopted the modified prospective-transition method of SFAS 123R, results for the 12 and 24 weeks ended June 18, 2005 have not been restated. If prior
to December 31, 2005, the Company had elected to recognize compensation expense for its stock option plans, based on the fair value of the awards at the grant dates in accordance with
SFAS 123, net income and basic and diluted earnings per share would have changed for the 12 and 24 weeks ended June 18, 2005 to the following pro-forma amounts:

|                                                                                                     |                      | 12 weeks Ended June 18, 2005 |        | 24 weeks Ended June 18, 2005 |  
|---------------------------------------------------------------------------------------------------- | -------------------- | ---------------------------- | ------ | ---------------------------- | -
|Net income, as reported                                                                              |                      | $                            | 12,081 |                              | $
|Total stock-based employee compensation expense determined under fair value-based method, net of tax |                      |                              | (382   | )                            |  
|                                                                                                     |                      |                              |        |                              |  
|Pro forma net income                                                                                 |                      | $                            | 11,699 |                              | $
|                                                                                                     |                      |                              |        |                              |  
|Net income per Common share:                                                                         |                      |                              |        |                              |  
|                                                                                                     | Basic, as reported   |                              | $      | 0.30                         |  
|                                                                                                     | Basic, pro forma     |                              |        | 0.29                         |  
|                                                                                                     | Diluted, as reported |                              |        | 0.29                         |  
|                                                                                                     | Diluted, pro forma   |                              |        | 0.28                         |  

The
following is a summary of the total number of outstanding stock options and restricted Common Stock units under both plans:

|                             |  | Outstanding
Options |   | Weighted Average
Exercise Price |       | Outstanding Non vested
Restricted Common
Stock Units |     | Weighted Average
Exercise Price
|---------------------------- |  | ------------------- | - | ------------------------------- | ----- | ---------------------------------------------------- | --- | -------------------------------
|
|Balance at December 31, 2005 |  | 5,031               |   | $                               | 10.75 |                                                      | 237 |                                
|Granted                      |  |                    |   |                                 |      |                                                      |    |                                
|Exercised                    |  | (207                | ) |                                 | 3.81  |                                                      |    |                                
|Cancelled                    |  | (19                 | ) |                                 | 13.36 |                                                      | (5  | )                              
|                             |  |                     |   |                                 |       |                                                      |     |                                
|Balance at June 17, 2006     |  | 4,805               |   | $                               | 11.03 |                                                      | 232 |                                
|                             |  |                     |   |                                 |       |                                                      |     |                                

9

---



The
following table summarizes information about stock options outstanding at June 17, 2006:

|Range of Exercise Prices |  | Number
Outstanding |  | Weighted-Average
Remaining
Contractual Life |  | Weighted-Average
Exercise Price |       | Number Exercisable |       | Weighted-Average
Exercise Price
|------------------------ |  | ------------------ |  | ------------------------------------------- |  | ------------------------------- | ----- | ------------------ | ----- | -------------------------------
|
|$3.65  $5.96            |  | 719                |  | 6.78                                        |  | $                               | 3.65  |                    | 719   |                                
|$5.97  $7.59            |  | 1,030              |  | 6.02                                        |  |                                 | 7.47  |                    | 1,030 |                                
|$7.60  $13.23           |  | 2,035              |  | 6.11                                        |  |                                 | 12.95 |                    | 1,767 |                                
|$13.24  $15.99          |  | 1,021              |  | 9.11                                        |  |                                 | 15.99 |                    |      |                                
|                         |  | 4,805              |  | 6.83                                        |  |                                 | 11.03 |                    | 3,516 |                                
|                         |  |                    |  |                                             |  |                                 |       |                    |       |                                

As
of June 17, 2006, the aggregate intrinsic value for stock options outstanding and exercisable was $40,151,000 and $34,610,000, respectively.

For
the 24 weeks ended June 17, 2006, cash received from the exercise of stock options was $790,000. As of June 17, 2006, the unrecognized compensation expense
related to stock options totaling $8,765,000 is expected to be recognized over a weighted average period of 1.3 years.

Other
information pertaining to option activity is as follows:

|                                                 |  | 12 weeks Ended |       | 24 weeks Ended
|------------------------------------------------ |  | -------------- | ----- | --------------
|
|Total fair value of stock options vested         |  | $              | 821   |               
|Total intrinsic value of stock options exercised |  |                | 3,140 |               

The
fair value of stock options used to compute the pro forma net income and income per Common share disclosures was calculated as of the grant date. To calculate fair value, the
Company used the Black-Scholes option-pricing model with the following assumptions:

12 weeks Ended

24 weeks EndedWeighted-average assumptions

June 17,
2006

June 18,
2005

June 17,
2006

June 18,
2005Dividend yield

n/a

0.0%

n/a

0.0%Expected volatility

n/a

45.0%

n/a

45.0%Risk-free interest rate

n/a

3.64%

n/a

3.64%Expected option life in years

n/a

5.0

n/a

5.0Weighted average grant date fair value

n/a

$6.70

n/a

$6.70


During
the 24 weeks ended June 17, 2006, the Company did not issue stock options.

The
Company uses the Black-Scholes option-pricing model for estimating the fair value of its stock options. The Black-Scholes option-pricing model was developed for use in estimating the
fair value of

10

---



traded
options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected price
volatility and option life. The expected option life is based on the Predecessor's historical experience as well as the vesting periods and terms of the stock options. The Company uses expected
volatility rates, which are based on a combination of the Company's historical volatility rates, plus the historical volatility rates of other companies in the death care industry, trended into future
years. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair
value of the Company's stock options.

Comparability

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

NOTE 3.    LONG-TERM DEBT

Long-term debt consists of the following:

June 17, 2006

December 31, 2005Revolving credit facility (a)

$


$
4,000Senior secured term loan B due in 2009 (a)(b)


151,683


161,6837.75% Senior unsecured notes due in 2012 (c)


200,000


200,000Promissory notes and capitalized obligations, certain of which are secured by assets of certain subsidiaries


6,546


7,792358,229


373,475Less, current maturities of long-term debt


2,271


2,435$
355,958

$
371,040




11

---





Year

Percentage2008

103.8752009

101.9382010 and thereafter

100.000


The
Credit Agreement and the Eight-Year Senior Unsecured Notes are guaranteed by substantially all of Alderwoods Group's wholly-owned U.S. subsidiaries, other than
Alderwoods Group's insurance subsidiaries and other specified excluded subsidiaries. Alderwoods Group, the parent company, has no

12

---



independent
assets or operations, and the guarantees of its guarantor subsidiaries are full and unconditional, and joint and several.

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

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

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

NOTE 4.    LEGAL CONTINGENCIES

Funeral Consumers Alliance, Inc. et al v. Alderwoods Group, Inc. et alwas filed in the United States
District Court for the Northern District of California in April, 2005. This case has been transferred to the United States District Court for the Southern District of Texas, Case No. CV3394. To
date, six separate class action lawsuits, includingFrancis H. Rocha v. Alderwoods Group, Inc. et al, Marcia Berger v. Alderwoods Group, Inc. et al,
Maria Magsarili and Tony Magsarili v. Alderwoods Group, Inc. et al, Caren Speizer v. Alderwoods Group, Inc. et al,andFrank
Moroz v. Alderwoods Group, Inc. et al, have been consolidated into this case ("Funeral Consumer Case"). Two other cases, also transferred to the
United States District Court for the Southern District of Texas,Pioneer Valley Casket Co. v. Alderwoods Group, Inc. et al("Pioneer Valley") andRalph Fancher et al v. Alderwoods Group, Inc. et al("Fancher"), were consolidated into the Funeral Consumer Case for purposes of discovery only. On June 13, 2006, the United States District
Court for the Southern District of Texas granted Fancher's Notice of Voluntary Dismissal, with permission to

13

---



refile
its case at another time. The only two remaining cases, therefore, are the Funeral Consumer Case and Pioneer Valley.

The
Funeral Consumer Case is a purported class action on behalf of casket consumers throughout the United States.Pioneer Valleyis
a purported class action on behalf of independant casket distributors throughout the United States. Both class suits name as defendants the Company and four other public companies involved in the
funeral or casket industry. The Funeral Consumer Case andPioneer Valleyallege that defendants violated federal and state antitrust laws by engaging in
anticompetitive practices with respect to the sale and pricing of caskets. Both cases seek injunctions, unspecified amounts of monetary damages, and treble damages. Motions to Dismiss filed by the
Company and all other defendants are pending in the Funeral Consumer Case andPioneer Valley. Plaintiffs in these cases have yet to provide any
meaningful information regarding their alleged damages. As a result, the Company cannot quantify its ultimate liability, if any, for the payment of damages. The Company believes plaintiffs' claims are
without merit and intends to vigorously defend itself in these actions.

Richard Sanchez et al v. Alderwoods Group, Inc. et alwas filed in February 2005 in the Superior Court of the
State of California, for the County of Los Angeles, Central District; Case No.BC328962. Plaintiffs seek to certify a nationwide class on behalf of all consumers who purchased funeral goods and
services from the Company. Plaintiffs allege in essence that the Federal Trade Commission's Funeral Rule requires the Company to disclose its markups on all items obtained from third-parties in
connection with funeral service contracts. Plaintiffs' allege further that the Company has failed to make such disclosures. Plaintiffs seek to recover an unspecified amount of monetary damages,
attorney's fees, costs and unspecified "injunctive and declaratory relief." The Company believes that plaintiffs' claims are without merit and intends to vigorously defend itself in
this action.

On
July 7, 2005, the Federal Trade Commission (the "FTC") issued a letter advisory opinion regarding the lawful construction of the term "cash advance item" as used in the
Funeral Rule. The FTC opined with regard to a similar lawsuit in Texas state court: "The Commission believes that the court is incorrect in ruling that all goods or services purchased from a
third-party vendor are cash advance items. This interpretation sweeps far too broadly, potentially bringing within its scope every component good or service that comprises a funeral. This was not and
is not the Commission's intention in the
"cash advance" provisions of the Rule. In our opinion, the term "cash advance item" in the Rule applies only to those items that the funeral provider represents expressly to be "cash advance items" or
represents by implication to be procured on behalf of a particular customer and provided to that customer at the same price the funeral provider paid for them." The FTC sets forth its analysis in the
remainder of the letter.

The
Company has learned that a number of plaintiffs to these actions along with the Funeral Consumers Alliance have filed a petition against the FTC in the District of Columbia Circuit
Court asking the Court to overturn the FTC's July 7, 2005 Advisory Opinion.

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

14

---



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

In
addition, the Company is party to other legal proceedings in the ordinary course of business, and believes it has made adequate provision for estimated potential liabilities. The
Company does not expect the outcome of these proceedings, individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or liquidity.

15

---



NOTE 5.    SUPPLEMENTARY STATEMENTS OF CASH FLOWS DISCLOSURE

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

12 Weeks Ended

24 Weeks EndedJune 17, 2006

June 18, 2005

June 17, 2006

June 18, 2005Decrease (increase) in assets:Receivables, net of allowancesTrade

$
863

$
4,352

$
4,575

$
11,483Other


(5,620
)

(14,991
)

(2,495
)

(14,385
)Inventories


28


(199
)

357


(254
)Prepaid expenses


(102
)

1,043


(1,287
)

17,149Cemetery property


(2,010
)

(3,139
)

(3,434
)

(4,076
)Other assets


(1,532
)

(1,460
)

(2,293
)

(3,547
)Increase (decrease) in liabilities:Accounts payable and accrued liabilities


6,295


906


(3,856
)

(10,501
)Net effect of pre-need receivables and deferred revenue


317


(1,590
)

3,288


2,933Other liabilities


2,294


3,634


5,253


(2,892
)Insurance policy liabilities


(819
)

(244
)

(1,028
)

767Other changes in non-cash balances


(1,656
)

(2,136
)

(5,210
)

(3,529
)$
(1,942
)
$
(13,824
)
$
(6,130
)
$
(6,852
)Supplemental information:Interest paid

$
2,464

$
3,008

$
12,500

$
14,864Income taxes paid, net of refunds


546


1,741


(650
)

2,132Bad debt expense


375


633


1,469


1,166Stock issued as compensation in lieu of cash


67


48


152


63Non-cash investing and financing activities:Restricted cash investing and financing activities:Purchases of funeral, cemetery, and perpetual care trust investments

$
85,629

$
249,159

$
162,601

$
356,433Proceeds on disposition and maturities of funeral, cemetery, and perpetual care trust investments


77,872


265,648


142,336


413,116Increase in non-controlling interests in funeral, cemetery and perpetual care trusts


16,008


11,758


48,779


23,346Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts upon fulfillment of pre-need contracts


13,258


22,397


28,583


36,411


16

---



NOTE 6.    SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

June 17, 2006

December 31,
2005Receivables, net of allowances:Customer receivables

$
47,313

$
50,459Allowance for doubtful accounts


(11,743
)

(10,320
)Other


15,674


12,723$
51,244

$
52,862Pre-need funeral receivables and trust investments:Customer receivables

$
38,973

$
38,438Allowance for contract cancellations and refunds


(14,209
)

(15,988
)Funeral trust investments


303,741


282,084Amounts receivable from funeral trusts


9,547


29,893$
338,052

$
334,427Pre-need cemetery receivables and trust investments:Customer receivables

$
61,819

$
61,749Unearned finance income


(6,259
)

(6,232
)Allowance for contract cancellations and refunds


(15,492
)

(15,648
)Cemetery merchandise and service trust investments


261,553


267,453$
301,621

$
307,322Cemetery property:Developed land and lawn crypts

$
39,240

$
38,368Undeveloped land


30,225


31,243Mausoleums


46,631


46,856$
116,096

$
116,467Property and equipment:Land

$
163,133

$
162,287Buildings and improvements


392,125


386,068Automobiles


10,119


10,652Furniture, fixtures and equipment


72,397


69,570Computer hardware and software


31,350


29,061Accumulated depreciation and amortization


(128,170
)

(114,737
)$
540,954

$
542,901


17

---



Other assets:Intangible assets

$
19,930

$
18,741Deferred finance costs


23,291


23,359Accumulated amortization


(16,166
)

(15,258
)Notes receivable


2,829


3,016Other


13,169


12,992$
43,053

$
42,850Accounts payable and accrued liabilities:Bank overdraft

$
5,561

$
7,191Trade payables


15,454


13,634Interest


5,148


5,169Accrued liabilities


13,881


21,629Accrued insurance


19,965


21,261Accrued taxes


39,974


32,199Other


14,001


18,651$
113,984

$
119,734Deferred pre-need contract revenue:Funeral

$
44,517

$
72,087Cemetery


31,313


19,531$
75,830

$
91,618Other liabilities:Perpetual care liability

$
7,958

$
7,860Deferred compensation


15,209


9,929Other


5,304


4,194$
28,471

$
21,983


NOTE 7.    SEGMENT REPORTING

The Company's reportable segments are comprised of the three businesses it operates, each of which offers different products and services: funeral homes,
cemeteries and insurance. There has been no change in the basis of this segmentation, accounting policies of the segments or the basis of measurement of segment profit or loss from that disclosed in
the Company's Annual Report on Form 10-K for the 52 weeks ended December 31, 2005, as filed with the SEC.

18

---



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

For the 12 Weeks Ended:

Funeral

Cemetery

Insurance

Other

ConsolidatedRevenue earned from external sales:June 17, 2006

$
107,522

$
41,505

$
23,417

$


$
172,444June 18, 2005

$
110,501

$
43,914

$
22,363

$


$
176,778Income from operations:June 17, 2006

$
20,101

$
6,224

$
1,135

$
(18,042
)
$
9,418June 18, 2005

$
20,493

$
7,275

$
830

$
(1,702
)
$
26,896Depreciation and amortization:June 17, 2006

$
5,971

$
3,038

$
24

$
723

$
9,756June 18, 2005

$
5,724

$
3,970

$
26

$
1,238

$
10,958Purchase of property and equipment:June 17, 2006

$
2,016

$
1,940

$
37

$
725

$
4,718June 18, 2005

$
5,411

$
916

$
11

$
5,371

$
11,709Development of cemetery property:June 17, 2006

$


$
1,714

$


$


$
1,714June 18, 2005

$


$
1,040

$


$


$
1,040For the 24 Weeks Ended:Revenue earned from external sales:June 17, 2006

$
228,653

$
79,336

$
46,272

$


$
354,261June 18, 2005

$
234,514

$
82,218

$
43,931

$


$
360,663Income from operations:June 17, 2006

$
45,870

$
10,898

$
2,083

$
(32,557
)
$
26,294June 18, 2005

$
50,254

$
13,752

$
2,113

$
(12,346
)
$
53,773Depreciation and amortization:June 17, 2006

$
11,701

$
5,953

$
51

$
1,561

$
19,266June 18, 2005

$
11,436

$
7,255

$
66

$
2,338

$
21,095Purchase of property and equipment:June 17, 2006

$
3,549

$
4,035

$
40

$
1,849

$
9,473June 18, 2005

$
7,320

$
1,941

$
75

$
6,978

$
16,314Development of cemetery property:June 17, 2006

$


$
3,035

$


$


$
3,035June 18, 2005

$


$
1,672

$


$


$
1,672


19

---



Funeral

Cemetery

Insurance

Other

ConsolidatedTotal assets at:June 17, 2006

$
1,095,436

$
813,313

$
336,655

$
35,385

$
2,280,789December 31, 2005

$
1,107,916

$
807,673

$
326,160

$
32,554

$
2,274,303Goodwill at:June 17, 2006

$
295,913

$


$


$


$
295,913December 31, 2005

$
295,890

$


$


$


$
295,890


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

12 Weeks Ended

24 Weeks EndedJune 17, 2006

June 18, 2005

June 17, 2006

June 18, 2005Earnings from operations of funeral, cemetery and insurance segments

$
27,460

$
28,598

$
58,851

$
66,119Other expenses of operations:General and administrative expenses


(18,042
)

(1,702
)

(32,557
)

(12,346
)Income from operations

$
9,418

$
26,896

$
26,294

$
53,773


20

---





NOTE 8.    CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION

The following presents the condensed consolidating guarantor financial information as of June 17, 2006 and December 31, 2005 and for the 12 and
24 weeks ended June 17, 2006 and June 18, 2005 for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the 7.75% Senior Unsecured Notes due in
2012, and the Company's subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Canadian and Puerto Rican subsidiaries, insurance subsidiaries and certain
domestic subsidiaries that are prohibited by law from guaranteeing the 7.75% Senior Unsecured Notes due in 2012.

Condensed Consolidating Balance Sheets

|                                     |                                                     | June 17, 2006                                                                                                      
|------------------------------------ | --------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------
|
|ASSETS                               |                                                     |                                                                                                                    
|                                     | Cash and cash equivalents                           |                                                                                                                    
|                                     | Other current assets                                |                                                                                                                    
|                                     | Pre-need funeral receivables and
trust investments  |                                                                                                                    
|                                     | Pre-need cemetery receivables and
trust investments |                                                                                                                    
|                                     | Cemetery property and property
and equipment        |                                                                                                                    
|                                     | Insurance invested assets                           |                                                                                                                    
|                                     | Goodwill                                            |                                                                                                                    
|                                     | Investment in subsidiaries                          |                                                                                                                    
|                                     | Cemetery perpetual care trust investment            |                                                                                                                    
|                                     | Other assets                                        |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     | Total assets                                                                                                       
|                                     |                                                     |                                                                                                                    
|LIABILITIES AND
STOCKHOLDERS' EQUITY |                                                     |                                                                                                                    
|                                     | Liabilities                                         |                                                                                                                    
|                                     |                                                     | Current liabilities                                                                                                
|                                     |                                                     | Current maturities of long-term debt                                                                               
|                                     |                                                     | Intercompany, net of investments in and advances to affiliates                                                     
|                                     |                                                     | Long-term debt                                                                                                     
|                                     |                                                     | Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts
|                                     |                                                     | Insurance policy liabilities                                                                                       
|                                     |                                                     | Other liabilities                                                                                                  
|                                     | Non-controlling interest in perpetual care trusts   |                                                                                                                    
|                                     | Stockholders' equity                                |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     |                                                                                                                    

21

---



Condensed Consolidating Balance Sheets

|                                     |                                                     | December 31, 2005                                                                                                  
|------------------------------------ | --------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------
|
|ASSETS                               |                                                     |                                                                                                                    
|                                     | Cash and cash equivalents                           |                                                                                                                    
|                                     | Other current assets                                |                                                                                                                    
|                                     | Pre-need funeral receivables and
trust investments  |                                                                                                                    
|                                     | Pre-need cemetery receivables and
trust investments |                                                                                                                    
|                                     | Cemetery property and property
and equipment        |                                                                                                                    
|                                     | Insurance invested assets                           |                                                                                                                    
|                                     | Goodwill                                            |                                                                                                                    
|                                     | Investment in subsidiaries                          |                                                                                                                    
|                                     | Cemetery perpetual care trust investment            |                                                                                                                    
|                                     | Other assets                                        |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|LIABILITIES AND
STOCKHOLDERS' EQUITY |                                                     |                                                                                                                    
|                                     | Liabilities                                         |                                                                                                                    
|                                     |                                                     | Current liabilities                                                                                                
|                                     |                                                     | Current maturities of long-term debt                                                                               
|                                     |                                                     | Intercompany, net of investments in and advances to affiliates                                                     
|                                     |                                                     | Long-term debt                                                                                                     
|                                     |                                                     | Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts
|                                     |                                                     | Insurance policy liabilities                                                                                       
|                                     |                                                     | Other liabilities                                                                                                  
|                                     | Non-controlling interest in perpetual care trusts   |                                                                                                                    
|                                     | Stockholders' equity                                |                                                                                                                    
|                                     |                                                     |                                                                                                                    
|                                     |                                                     | Total liabilities and
stockholders' equity                                                                         
|                                     |                                                     |                                                                                                                    

22

---



|                                                                         |  | 12 Weeks Ended June 17, 2006
|------------------------------------------------------------------------ |  | ----------------------------
|
|Revenues                                                                 |  | $                           
|Costs and expenses                                                       |  |                             
|General and administrative expenses                                      |  |                             
|                                                                         |  |                             
|Income (loss) from operations                                            |  |                             
|Interest on long-term debt                                               |  |                             
|Intercompany charges                                                     |  |                             
|Other expense (income), net                                              |  |                             
|                                                                         |  |                             
|Income (loss) before income taxes                                        |  |                             
|Income taxes                                                             |  |                             
|                                                                         |  |                             
|Income (loss) from continuing
operations                                 |  |                             
|                                                                         |  |                             
|Equity in subsidiaries                                                   |  |                             
|Loss from discontinued operations                                        |  |                             
|                                                                         |  |                             
|Income (loss) before cumulative effect of change in accounting principle |  |                             
|Cumulative effect of change in
accounting principle                      |  |                             
|                                                                         |  |                             
|Net income (loss)                                                        |  | $                           
|                                                                         |  |                             

23

---



Condensed Consolidating Statement of Operations (unaudited)

|                                                                         |  | 12 Weeks Ended June 18, 2005 |       
|------------------------------------------------------------------------ |  | ---------------------------- | ------
|
|Revenues                                                                 |  | $                            |      
|Costs and expenses                                                       |  |                              |      
|General and administrative expenses                                      |  |                              | (181  
|Provision for asset impairment                                           |  |                              |      
|                                                                         |  |                              |       
|Income (loss) from operations                                            |  |                              | 181   
|Interest on long-term debt                                               |  |                              | 6,798 
|Intercompany charges                                                     |  |                              | 2,938 
|Other expense (income), net                                              |  |                              |      
|                                                                         |  |                              |       
|Income (loss) before income taxes                                        |  |                              | (9,555
|Income taxes                                                             |  |                              | (839  
|                                                                         |  |                              |       
|Income (loss) from continuing
operations                                 |  |                              | (8,716
|                                                                         |  |                              |       
|Equity in subsidiaries                                                   |  |                              | 20,799
|Loss from discontinued operations                                        |  |                              |      
|                                                                         |  |                              |       
|Income (loss) before cumulative effect of change in accounting principle |  |                              | 12,083
|Cumulative effect of change in
accounting principle                      |  |                              |      
|                                                                         |  |                              |       
|Net income (loss)                                                        |  | $                            | 12,083
|                                                                         |  |                              |       

24

---



Condensed Consolidating Statement of Operations (unaudited)

|                                                                  |  | 24 Weeks Ended June 17, 2006 |        
|----------------------------------------------------------------- |  | ---------------------------- | -------
|
|Revenues                                                          |  | $                            |       
|Costs and expenses                                                |  |                              |       
|General and administrative expenses                               |  |                              | 2,637  
|                                                                  |  |                              |        
|Income (loss) from operations                                     |  |                              | (2,637 
|Interest on long-term debt                                        |  |                              | 12,957 
|Intercompany charges                                              |  |                              | 8,279  
|Other expense (income), net                                       |  |                              |       
|                                                                  |  |                              |        
|Income (loss) before income taxes                                 |  |                              | (23,873
|Income taxes                                                      |  |                              | (7     
|                                                                  |  |                              |        
|Income (loss) from continuing
operations                          |  |                              | (23,866
|                                                                  |  |                              |        
|Equity in subsidiaries                                            |  |                              | 28,506 
|Loss from discontinued operations                                 |  |                              |       
|                                                                  |  |                              |        
|Income before cumulative effect of change in accounting principle |  |                              | 4,640  
|Cumulative effect of change in
accounting principle               |  |                              |       
|                                                                  |  |                              |        
|Net income (loss)                                                 |  | $                            | 4,640  
|                                                                  |  |                              |        

25

---



|                                                                         |  | 24 Weeks Ended June 18, 2005 |        
|------------------------------------------------------------------------ |  | ---------------------------- | -------
|
|Revenues                                                                 |  | $                            |       
|Costs and expenses                                                       |  |                              |       
|General and administrative expenses                                      |  |                              | (262   
|Provision for asset impairment                                           |  |                              |        
|                                                                         |  |                              |        
|Income (loss) from operations                                            |  |                              | 262    
|Interest on long-term debt                                               |  |                              | 14,108 
|Intercompany charges                                                     |  |                              | 5,147  
|Other expense (income), net                                              |  |                              |       
|                                                                         |  |                              |        
|Income (loss) before income taxes                                        |  |                              | (18,993
|Income taxes                                                             |  |                              | (663   
|                                                                         |  |                              |        
|Income (loss) from continuing
operations                                 |  |                              | (18,330
|                                                                         |  |                              |        
|Equity in subsidiaries                                                   |  |                              | 43,548 
|Loss from discontinued operations                                        |  |                              |       
|                                                                         |  |                              |        
|Income (loss) before cumulative effect of change in accounting principle |  |                              | 25,218 
|Cumulative effect of change in
accounting principle                      |  |                              |       
|                                                                         |  |                              |        
|Net income (loss)                                                        |  | $                            | 25,218 
|                                                                         |  |                              |        

26

---



Condensed Consolidating Statement of Cash Flows (unaudited)

|                                                              |  | 12 Weeks Ended June 17, 2006 |       
|------------------------------------------------------------- |  | ---------------------------- | ------
|
|CASH PROVIDED BY (APPLIED TO)                                 |  |                              |       
|Cash flows from operating activities of continuing operations |  | $                            | 4,306 
|Cash flows from investing activities of continuing operations |  |                              |      
|Cash flows from financing activities of continuing operations |  |                              | (4,274
|                                                              |  |                              |       
|Increase (decrease) in cash and cash equivalents              |  |                              | 32    
|Cash and cash equivalents, beginning
of period                |  |                              | (32   
|                                                              |  |                              |       
|Cash and cash equivalents, end of period                      |  | $                            |      
|                                                              |  |                              |       

|                                                                |  | 12 Weeks Ended June 18, 2005 |        
|--------------------------------------------------------------- |  | ---------------------------- | -------
|
|CASH PROVIDED BY (APPLIED TO)                                   |  |                              |        
|Cash flows from operating activities of continuing operations   |  | $                            | 18,893 
|Cash flows from operating activities of discontinued operations |  |                              |       
|Cash flows from investing activities of continuing operations   |  |                              |       
|Cash flows from investing activities of discontinued operations |  |                              |       
|Cash flows from financing activities of continuing operations   |  |                              | (18,893
|Cash flows from financing activities of discontinued operations |  |                              |       
|                                                                |  |                              |        
|Increase (decrease) in cash and cash equivalents                |  |                              |       
|Cash and cash equivalents, beginning of period                  |  |                              |       
|                                                                |  |                              |        
|Cash and cash equivalents, end of
period                        |  | $                            |       
|                                                                |  |                              |        

27

---



|                                                              |  | 24 Weeks Ended June 17, 2006 |        
|------------------------------------------------------------- |  | ---------------------------- | -------
|
|CASH PROVIDED BY (APPLIED TO)                                 |  |                              |        
|Cash flows from operating activities of continuing operations |  | $                            | 13,234 
|Cash flows from investing activities of continuing operations |  |                              |       
|Cash flows from financing activities of continuing operations |  |                              | (13,202
|                                                              |  |                              |        
|Increase in cash and cash equivalents                         |  |                              | 32     
|Cash and cash equivalents, beginning of period                |  |                              | (32    
|                                                              |  |                              |        
|Cash and cash equivalents, end of period                      |  | $                            |       
|                                                              |  |                              |        

28

---



Condensed Consolidating Statement of Cash Flows (unaudited)

|                                                                |  | 24 Weeks Ended June 18, 2005 |        
|--------------------------------------------------------------- |  | ---------------------------- | -------
|
|CASH PROVIDED BY (APPLIED TO)                                   |  |                              |        
|Cash flows from operating activities of continuing operations   |  | $                            | 49,534 
|Cash flows from operating activities of discontinued operations |  |                              |       
|Cash flows from investing activities of continuing operations   |  |                              |       
|Cash flows from investing activities of discontinued operations |  |                              |       
|Cash flows from financing activities of continuing operations   |  |                              | (49,534
|Cash flows from financing activities of discontinued operations |  |                              |       
|                                                                |  |                              |        
|Increase in cash and cash equivalents                           |  |                              |       
|Cash and cash equivalents, beginning of period                  |  |                              |       
|                                                                |  |                              |        
|Cash and cash equivalents, end of
period                        |  | $                            |       
|                                                                |  |                              |        

29

---



NOTE 9.    PROVISION FOR ASSET IMPAIRMENT

In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 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. SFAS No. 144 requires that
long-lived assets to be held and used be recorded at the lower of carrying amount or fair value. Long-lived assets to be disposed of are to be recorded at the lower of carrying
amount or fair value, less estimated costs to sell.

As
part of the Company's ongoing assessment to ensure that each of the Company's properties fit into the Company's strategy, as at June 17, 2006 the Company had available for sale
one funeral home and one cemetery property business. These properties remain unsold as of June 17, 2006. The carrying amount of these locations was $527,000 which was less than estimated
aggregate fair market value. The fair market values were determined by specific offers or bids, or estimates based on comparable recent sales transactions. For the 24 weeks ended
June 17, 2006, these properties had revenues and costs of $304,000 and $269,000 (June 18, 2005$321,000 and $295,000), respectively.

The
assets of $3,224,000 (December 31, 2005$3,285,000) and liabilities of $2,697,000 (December 31, 2005$2,731,000) of these locations have not
been reclassified to assets held for sale and liabilities associated with assets held for sale in the balance sheet.

In
addition, for the 24 weeks ended June 17, 2006, the Company disposed of 7 funeral home businesses which were not reclassified to discontinued operations. Revenues
and costs of these disposed of locations were $312,000 and $414,000 (June 18, 2005$894,000 and $884,000) for the 24 weeks ended June 17, 2006, respectively.

In
addition to those funeral home and cemetery businesses held for sale or disposed of as identified above, the Company closed 8 funeral home locations during the 24 weeks
ended June 17, 2006. The criteria for identifying a location to be closed includes among other items, synergies from transferring the ongoing business to an adjacent location and the valuation
of the real estate assets compared to sale as a business.

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

NOTE 10.    DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE

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

As
of January 1, 2005, the Company had 18 funeral, six cemetery and four combination locations which had not been sold within one year of being added to the disposal list.
The Company completed the sale of all these locations during 2005, except for one cemetery which was reclassified back to continuing operations.

30

---



The
revenues and costs and impairment provisions for the locations identified as discontinued operations are presented in the following table:

|                                                                 |          | 12 Weeks
Ended
June 18, 2005 |      | 24 Weeks
Ended
June 18, 2005 |  
|---------------------------------------------------------------- | -------- | ---------------------------- | ---- | ---------------------------- | -
|Revenue                                                          |          |                              |      |                              |  
|                                                                 | Funeral  |                              | $    | 394                          |  
|                                                                 | Cemetery |                              |      | 144                          |  
|                                                                 |          |                              |      |                              |  
|                                                                 |          | $                            | 538  |                              | $
|                                                                 |          |                              |      |                              |  
|Gross margin                                                     |          |                              |      |                              |  
|                                                                 | Funeral  |                              | $    | (170                         | )
|                                                                 | Cemetery |                              |      | (60                          | )
|                                                                 |          |                              |      |                              |  
|                                                                 |          |                              | (230 | )                            |  
|Provision for asset impairment                                   |          |                              |     |                              |  
|                                                                 |          |                              |      |                              |  
|Loss from discontinued operations                                |          |                              | (230 | )                            |  
|Interest on long-term debt                                       |          |                              | (22  | )                            |  
|Other expense (income), net                                      |          |                              | 371  |                              |  
|                                                                 |          |                              |      |                              |  
|Loss from discontinued operations, before tax                    |          |                              | (579 | )                            |  
|Income tax provision for discontinued operations                 |          |                              | 266  |                              |  
|                                                                 |          |                              |      |                              |  
|Loss from discontinued operations                                |          | $                            | (845 | )                            | $
|                                                                 |          |                              |      |                              |  
|Depreciation included in gross margin of discontinued operations |          | $                            | 7    |                              | $
|                                                                 |          |                              |      |                              |  

NOTE 11.    INCOME PER SHARE

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

|                                                                                  |                                                                                 | 12 Weeks Ended |        | 24 Weeks Ended
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------- | ------ | --------------
|
|Income (numerator):                                                               |                                                                                 |                |        |               
|Net income attributable to Common stockholders                                    |                                                                                 | $              | 153    |               
|                                                                                  |                                                                                 |                |        |               
|Shares (denominator):                                                             |                                                                                 |                |        |               
|                                                                                  | Basic weighted average number of shares of Common stock outstanding (thousands) |                |        | 40,652        
|                                                                                  | Effect of stock options assumed exercised (thousands)                           |                |        | 2,025         
|                                                                                  |                                                                                 |                |        |               
|Diluted weighted average number of shares of Common stock outstanding (thousands) |                                                                                 |                | 42,677 |               
|                                                                                  |                                                                                 |                |        |               

31

---



For
the 12 and 24 weeks ended June 17, 2006, 4,804,750 employee and director stock options were dilutive to earnings and are included in the computation of diluted
earnings per share. Warrants to purchase 2,992,000 shares of Common stock were not included in the computation of diluted earnings per share, because they were anti-dilutive.

NOTE 12.    EFFECT OF HURRICANE KATRINA

The
Company operated 30 funeral homes, four cemeteries and a limousine company in those areas of Louisiana and Mississippi that were affected by the hurricane on August 29,
2005. The Company has experienced some damage at all of these locations. Of the 30 funeral homes, seven experienced significant damage, were not in operation at the end of the 2005 fiscal year
and are not expected to reopen. All four cemeteries are in operation. The New Orleans limousine company that had provided services both to the
Company's funeral operations and other third-parties experienced significant damage to its fleet of vehicles and will not be resuming operations.

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

Financial results

The Company's financial results include the results from operations for those locations affected by Hurricane Katrina as outlined in the following table:

|              |                                     | 12 Weeks Ended                                 |   | 24 Weeks Ended
|------------- | ----------------------------------- | ---------------------------------------------- | - | --------------
|
|Funeral Homes |                                     |                                                |   |               
|              | Revenue                             |                                                | $ | 5,604         
|              |                                     | Number of funeral services performed           |   |               
|              |                                     | Number of same-site funeral services performed |   |               
|              | Costs and expenses                  |                                                | $ | 3,403         
|              | Gross margin                        |                                                | $ | 2,201         
|              | Pre-need funeral contracts written  |                                                | $ | 1,546         
|Cemeteries    |                                     |                                                |   |               
|              | Revenue                             |                                                | $ | 788           
|              |                                     | Number of cemetery interments                  |   |               
|              | Costs and expenses                  |                                                | $ | 704           
|              | Gross margin                        |                                                | $ | 84            
|              | Pre-need cemetery contracts written |                                                | $ | 347           

Insurance coverage and long-term asset gain or loss

The Company purchases insurance coverage for property damage, including damage from wind and flood, subject to separate limits, sub-limits and
deductible amounts. The Company, along with its insurance providers, is continuing to assess and estimate the extent of damages. Based on a review of the Company's insurance policy, the Company
expects to recover a substantial portion of the costs associated with the storm damage through insurance, including the capital costs of rebuilding. For those properties not in operation and requiring
significant repair or rebuilding, the Company has considered the properties destroyed or abandoned and based

32

---



on
estimated insurance proceeds of $12,550,000, has realized a gain of $1,000,000 in the 12 weeks ended June 17, 2006 on the writeoff of the applicable buildings and contents.

The
Company has initiated or completed much of the damage repairs and along with its insurance companies, is continuing to estimate the full extent of repairs and replacement costs. The
Company may record additional expense for changes to its expected deductible under its insurance policies and other expenses not expected to be reimbursed under the insurance policy. During the
12 weeks ended June 17, 2006, the Company reduced its expected costs by $200,000.

The
Company has business interruption insurance that allows the recovery of operating costs and lost profits. The Company is preparing its analysis in support of a claim. Potential
proceeds from this claim cannot currently be reasonably estimated and therefore no receivable or recovery has been recorded as of June 17, 2006.

NOTE 13.    PROPOSED MERGER AGREEMENT

On April 3, 2006, Service Corporation International ("SCI") and the Company announced that they have entered into a merger agreement. Pursuant to the
agreement, each share of the Company will be converted into the right to receive $20.00 per share in cash. In addition, SCI will assume approximately $358 million of the Company's debt. The
Company's stockholders voted on May 31, 2006 to approve this agreement.

Completion
of the proposed transaction is contingent on regulatory review, including Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the Competition Act (Canada),
and subject to notification under the Investment Canada Act.

As
previously disclosed, subsequent to the stockholders vote the Company together with SCI entered into a timing agreement with the staff of the Federal Trade Commission ("FTC") in
connection with the proposed merger of the Company with a subsidiary of SCI. As also previously disclosed, each of the Company and SCI have received "Second Requests" from the FTC, and as a result
thereof, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, during which the parties may not consummate the proposed merger, has been extended. The parties
are working toward responding to the Second Requests.

As
a result of the timing agreement, Alderwoods and SCI expect to seek to negotiate a consent decree with the FTC, in which case the proposed merger could close as early as on or before
September 30, 2006. Alderwoods and SCI have agreed with the FTC that if the parties are unable to reach agreement on a consent agreement with the FTC, they will not close the proposed merger
before October 30, 2006. In addition, Alderwoods and SCI have agreed, under a standard provision of a recently adopted FTC protocol for administering Second Requests that if the FTC challenges
the proposed transaction by filing an application for preliminary injunction in federal court, Alderwoods and SCI, jointly with the FTC, will propose a scheduling order that provides for a
60-day pre-hearing discovery period.

The
Company and SCI continue to expect that the transaction will close by the end of 2006.

33

---



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

Overview

Alderwoods Group, Inc., a Delaware corporation ("Alderwoods Group" and, together with its subsidiaries unless the context otherwise requires, the
"Company"), is the second largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of June 17, 2006, the Company operated
579 funeral homes, 72 cemeteries and 61 combination funeral homes and cemeteries throughout North America. As of June 18, 2005, the Company operated 623 funeral
homes, 73 cemeteries and 60 combination funeral homes and cemeteries throughout North America.

Alderwoods
Group is a holding company owning, directly or indirectly, the capital stock of approximately 200 subsidiaries through which funeral, cemetery and insurance businesses
are operated.

The
Company provides services and products through three business segments:

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

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

Insurance Operations.The Company operates an insurance subsidiary licensed in a total of 34 states and the District
of Columbia. This insurance subsidiary sells a variety of insurance products for the funding of pre-need funeral services.

Critical Accounting Policies

Accounting policies that the Company believes are both most important to the portrayal of the Company's financial condition and results, and require management's
most difficult, subjective or complex judgments are described under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Alderwoods
Group's Annual Report on Form 10-K for the 52 weeks ended December 31, 2005, as filed with the U.S. Securities and Exchange Commission ("SEC") and in
Note 2 included in Item 1 of Part I of this Quarterly Report on Form 10-Q. Aside from the adoption of SFAS 123R as described in Note 2 included in
Item 1 of Part I of this Quarterly Report on Form 10-Q, there have been no changes to the Company's critical accounting policies in the 12 and 24 weeks ended
June 17, 2006.

Basis of Presentation

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

34

---



Results of Operations

The operations of the Company comprise three businesses: funeral activities, cemetery activities and an insurance business in support of its pre-need
funeral business. Additional segment
information is provided in Note 7 to the Company's interim consolidated financial statements included in Item 1 of Part I of this Quarterly Report on
Form 10-Q.

Hurricane Katrina

During the 52 weeks ended December 31, 2005, some of the Company's operations were affected by Hurricane Katrina. The Company operates
30 funeral homes, four cemeteries and a limousine company in those areas of Louisiana and Mississippi that were affected by the hurricane on August 29, 2005. The Company has experienced
some damage at all of these locations. Of the 30 funeral homes, seven experienced significant damage, were not in operation at the end of the 2005 fiscal year and are not expected to reopen.
All four cemeteries are in operation. The New Orleans limousine company that had provided services both to the Company's funeral operations and other third-parties experienced significant
damage to its fleet of vehicles and will not be resuming operations.

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

The
Company purchases insurance coverage for property damage, including damage from wind and flood, subject to separate limits, sub-limits and deductible amounts. The
Company, along with its insurance providers, is continuing to assess and estimate the extent of damages. Based on a review of the Company's insurance policy, the Company expects to recover a
substantial portion of the costs associated with the storm damage through insurance, including the capital costs of rebuilding. For those properties not in operation and requiring significant repair
or rebuilding, the Company has considered the properties destroyed or abandoned and based on estimated insurance proceeds of $12.6 million, has realized a gain of $1.0 million in the
12 weeks ended June 17, 2006 on the writeoff of the applicable buildings and contents.

The
Company has initiated or completed much of the damage repairs and along with its insurance providers, is continuing to estimate the full extent of repairs and replacement costs. The
Company may record additional expense for changes to its expected deductible under its insurance policies and other expenses not expected to be reimbursed under the insurance policy. During the
12 weeks ended June 17, 2006, the Company reduced its expected costs by $0.2 million.

The
Company has business interruption insurance that allows the recovery of operating costs and lost profits. The Company is preparing its analysis in support of a claim. Potential
proceeds from this claim cannot currently be reasonably estimated and therefore no receivable or recovery has been recorded as of June 17, 2006.

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

35

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12 Weeks Ended June 17, 2006 Compared to 12 Weeks Ended June 18, 2005

Detailed
below are the operating results of the Company for the 12 weeks ended June 17, 2006 and June 18, 2005. The operating results are expressed in dollar amounts
as well as relevant percentages, presented as a percentage of revenue.

|                                  |                                | 12 Weeks Ended |      
|--------------------------------- | ------------------------------ | -------------- | -----
|
|
|Revenue                           |                                |                |      
|                                  | Funeral                        |                | $    
|                                  | Cemetery                       |                |      
|                                  | Insurance                      |                |      
|                                  |                                |                |      
|                                  |                                | Total          |      
|                                  |                                |                |      
|Gross margin                      |                                |                |      
|                                  | Funeral                        |                | $    
|                                  | Cemetery                       |                |      
|                                  | Insurance                      |                |      
|                                  |                                |                |      
|                                  |                                | Total          |      
|                                  |                                |                |      
|Expenses                          |                                |                |      
|                                  | General and administrative     |                |      
|                                  | Provision for asset impairment |                |      
|                                  |                                |                |      
|Income from operations            |                                |                | 9,418
|Interest on long-term debt        |                                |                | 6,471
|Other expense (income), net       |                                |                | 285  
|                                  |                                |                |      
|Income before income taxes        |                                |                | 2,662
|Income taxes                      |                                |                | 2,509
|                                  |                                |                |      
|Income from continuing operations |                                | $              | 153  
|                                  |                                |                |      

Other
information from continuing operations for the 12 weeks ended June 17, 2006, and 12 weeks ended June 18, 2005, is summarized in the
following table:

12 Weeks ended June 17, 2006 and 12 Weeks ended June 18, 2005

|Continuing Operations:                            |                                                | June 17, 2006 |        | June 18, 2005 |   | Increase (decrease) |       
|------------------------------------------------- | ---------------------------------------------- | ------------- | ------ | ------------- | - | ------------------- | ------
|
|FuneralOther Information                         |                                                |               |        |               |   |                     |       
|Number of funeral services performed              |                                                |               | 25,139 |               |   | 26,693              |       
|                                                  | Number of same site funeral services performed |               |        | 25,082        |   |                     | 25,907
|Average revenue per funeral service               |                                                | $             | 4,277  |               | $ | 4,140               |       
|                                                  | Same site average revenue per funeral service  |               | $      | 4,278         |   | $                   | 4,145 
|Pre-need funeral contracts written (in millions)  |                                                | $             | 44.7   |               | $ | 47.0                |       
|Pre-need funeral conversion (percentages)         |                                                |               | 26     |               |   | 27                  |       
|CemeteryOther Information                        |                                                |               |        |               |   |                     |       
|Number of cemetery interments                     |                                                |               | 10,096 |               |   | 10,984              |       
|Pre-need cemetery contracts written (in millions) |                                                | $             | 24.0   |               | $ | 24.8                |       

36

---



Continuing Operations

Consolidated revenue of $172.4 million for the 12 weeks ended June 17, 2006, decreased by $4.3 million, or 2.5%, compared to the
corresponding period in 2005, reflecting decreases in the funeral and cemetery segments partially offset by an increase in insurance revenue. Consolidated gross margin as a percentage of revenue was
15.9% for the 12 weeks ended June 17, 2006, consistent with the comparative period in 2005.

Funeral
revenue of $107.5 million for the 12 weeks ended June 17, 2006, decreased by $3.0 million, or 2.7%, compared to $110.5 million for the
corresponding period in 2005, primarily as a result of a decrease in the number of funeral services performed partially offset by an increase of $137, or 3.3%, in average revenue per funeral service
performed. The number of funeral services performed during the 12 weeks ended June 17, 2006 decreased by 5.8% from the corresponding period in 2005. The increase in average revenue per
funeral service performed was achieved through adjusting the pricing and mix of merchandise and services offered to customer families designed to both meet customer family needs and to increase
average revenues.

Included
in the funeral revenue for the 12 weeks ended June 17, 2006 is $5.6 million from 1,227 funeral services performed in New Orleans, Louisiana
and on the Gulf Coast of Mississippi compared to $6.7 million of funeral revenue from 1,409 funeral services performed for the 12 weeks ended June 18, 2005. The Company's
funeral operations in these areas were significantly affected by Hurricane Katrina.

On
a same site basis, funeral revenue was $107.3 million for the 12 weeks ended June 17, 2006, compared to $107.4 million for the corresponding period in
2005. Same site calls decreased by 825 or 3.2% compared to the comparative period in 2005. This was offset by an increase in same site average revenue per funeral service of $133 or 3.2% compared to
the comparative period in 2005. If the locations affected by Hurricane Katrina were removed, the number of funeral services performed on a same site basis would have declined 3.5% from the
corresponding period in 2005.

The
number of cremation services performed as a percentage of total services performed increased to 38.3% for the 12 weeks ended June 17, 2006, compared to 36.9% for the
corresponding period in 2005, consistent with national trends. The number of cremation services performed may impact funeral revenue, as the average revenue per cremation service is typically lower
than the average revenue for a traditional funeral service.

Funeral
gross margin as a percentage of revenue increased to 18.7% for the 12 weeks ended June 17, 2006, compared to 18.2% for the corresponding period in 2005. The
increase in gross margin was primarily due to $1.0 million gain related to the estimated insurance settlement of destroyed or abandoned properties and lower wage and benefit costs of
$1.7 million offset by reduced revenue as a result of a lower number of services performed.

Pre-need
funeral contracts written for the 12 weeks ended June 17, 2006, were $44.7 million, compared to $47.0 million for the corresponding
period in 2005, and $40.8 million in the first quarter 2006. The Company is continuing its program to increase pre-need sales. For the 12 weeks ended June 17, 2006,
26% of the funeral services performed were derived from the pre-need backlog, a decrease of 1% from the comparative period in 2005. The Company manages the cash impact of its
pre-need funeral sales program primarily by offsetting direct costs, including commissions paid to counselors, with either general agency commissions received from third party and related
insurance companies or amounts not required to be trusted. Pre-need funeral sales are important, because over time, they build the foundation for future funeral revenue and generate
positive cash flow when the funeral service is performed.

Cemetery
revenue of $41.5 million for the 12 weeks ended June 17, 2006, was $2.4 million, or 5.4%, lower than cemetery revenue for the corresponding period in
2005, primarily due to lower revenue recognized from pre-need space sales.

37

---



Cemetery
gross margin as a percentage of revenue decreased to 15.0% for the 12 weeks ended June 17, 2006, compared to 16.6% for the corresponding period in 2005, primarily
due to lower revenue recognized from pre-need space sales offset by lower pre-need space cost of goods sold of $0.9 million and decreased wage and benefit costs of $0.6 million.

Pre-need
cemetery contracts written for the 12 weeks ended June 17, 2006, were $24.0 million, compared to $24.8 million for the corresponding
period in 2005. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially collected is insufficient to cover the amount required to be trusted, sales
commissions, and other direct costs paid out. However, this initial net cash flow impact is not significant, as the Company sets minimum down payments, maximum terms and sales commission rates to
maximize cash flow. The Company believes that pre-need cemetery sales are important, because over time, they generate positive cash flow and build the foundation for future
cemetery revenue.

Insurance
revenue for the 12 weeks ended June 17, 2006, increased $1.1 million, or 4.7%, compared to the corresponding period in 2005, primarily due to increased
investment income of $0.7 million. Insurance production represents the insurance segment's participation in the Company's pre-need funeral contracts and for the 12 weeks
ended June 17, 2006 was $30.9 million compared to $33.2 million for the corresponding period in 2005. Insurance gross margin as a percentage of revenue increased to 4.8% for the
12 weeks ended June 17, 2006, compared to 3.7% for the corresponding period in 2005.

General
and administrative expenses for the Company for the 12 weeks ended June 17, 2006, were $18.0 million, or 10.5% of consolidated revenue, compared to
$1.7 million, or 1.0% of consolidated revenue, for the corresponding period in 2005. General and administrative expenses included the following items affecting the comparison of the
12 weeks ended June 17, 2006 to the 12 weeks ended June 18, 2005:

|                                                                                                           |  | 12 Weeks Ended |     
|---------------------------------------------------------------------------------------------------------- |  | -------------- | ----
|
|
|Legal expenses related to Funeral Consumers Alliance litigation                                            |  | $              | 1.0 
|Legal and other expenses related to the proposed Service Corporation International merger agreement        |  |                | 2.2 
|Equity incentive plan stock based compensation expense related to stock options and restricted stock units |  |                | 0.7 
|Increase in long term executive incentive expense                                                          |  |                | 1.0 
|Foreign exchange impact on Canadian dollar based support centre expenses                                   |  |                | 1.4 
|Decrease in retirement allowance accrual                                                                   |  |                | (0.8
|Recovery of corporate receivable previously fully reserved against                                         |  |                |    

Included
in general and administrative expenses for the 12 weeks ended June 17, 2006 was $0.7 million of stock based compensation expense from stock options and
restricted stock units resulting from the adoption of SFAS 123R using the modified prospective method. For the 12 weeks ended June 18, 2005,
the Company applied APB No. 25 and related interpretations to account for stock based compensation and no stock based compensation expense was recognized.

From
2003 to 2005 the Company had a long term incentive plan for its executive officers based on Company performance targets for which an expense of $0.5 million was recorded in
general and administrative expenses for the 12 weeks ended June 18, 2005. In July, 2005 the Company adopted the 2005-2007 Executive Strategic Incentive Plan, a stock price
based incentive plan for its executive officers. This stock price based incentive plan is accounted for under SFAS 123R as a liability based award, resulting in the measurement of the estimated
fair value at each reporting date. On adoption of SFAS 123R, the Company recorded a cumulative effect of change in accounting principle as of January 1, 2006 of $1.2 million based
on a estimated fair value of $6.6 million as at January 1, 2006. On June 17, 2006,

38

---



additional
compensation expense of $1.5 million was recorded for the 12 weeks ended June 17, 2006 based on estimated fair value of $11.2 million as at
June 17, 2006.

Interest
expense on long-term debt for the 12 weeks ended June 17, 2006, was $6.5 million, reflecting the effect of principal repayments and lower
interest rates compared to interest expense in the corresponding period in 2005, as detailed in the following table:

|                                                       |  | 12 Weeks Ended
|------------------------------------------------------ |  | --------------
|
|
|Interest on long-term debt                             |  | $             
|Amortization of debt issue costs                       |  |               
|                                                       |  |               
|Total interest on long-term debt and refinancing costs |  | $             
|                                                       |  |               

Income
tax expense for the 12 weeks ended June 17, 2006 was $2.5 million compared to $7.0 million for the corresponding period in 2005. The Company's
financial statement effective tax rate for the 12 weeks ended June 17, 2006 was 94.3%. The effective tax rate will vary from the statutory rate because, (i) stock option
compensation expense recorded as a result of the adoption of SFAS 123R is a permanent difference in certain jurisdictions, (ii) costs related to the proposed transaction with SCI may not
be deductible, (iii) the realization of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 will result in a reduction to goodwill
established on January 2, 2002, (iv) the realization of tax assets that had a corresponding valuation allowance established after January 2, 2002 will result in a benefit, and
(v) losses incurred in certain jurisdictions may not offset the tax expense in profitable jurisdictions.

At
December 31, 2001, the Company had accrued $57.1 million of reorganization costs related to costs incurred during its predecessor's reorganization, as well as costs
incurred in connection with the actual emergence from reorganization proceedings and various related activities. As of June 17, 2006, the balance of $1.1 million of reorganization costs,
primarily consisting of an accrual for a legal fee reimbursement, has been included in accounts payable and accrued liabilities.

During
the 12 weeks ended June 17, 2006, the Company sold two funeral locations for gross proceeds of $0.3 million.

Discontinued Operations

In fiscal years 2002 through 2004, the Company engaged in a strategic market rationalization assessment to dispose of cemetery and funeral operating locations
that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The Company will, on a smaller scale and over time, continue to
assess the Company's portfolio of funeral and cemetery locations to ensure they continue to fit in the Company's strategy.

As
of June 18, 2005, the Company had completed the strategic market rationalization program except for one cemetery which was classified back to continuing operations during the
12 and 24 weeks ended June 18, 2005.

39

---



24 Weeks Ended June 17, 2006 Compared to 24 Weeks Ended June 18, 2005

Detailed below are the operating results of the Company for the 24 weeks ended June 17, 2006 and June 18, 2005. The operating results are
expressed in dollar amounts as well as relevant percentages, presented as a percentage of revenue.

|                                  |                                | 24 Weeks Ended |       
|--------------------------------- | ------------------------------ | -------------- | ------
|
|
|Revenue                           |                                |                |       
|                                  | Funeral                        |                | $     
|                                  | Cemetery                       |                |       
|                                  | Insurance                      |                |       
|                                  |                                |                |       
|                                  |                                | Total          |       
|                                  |                                |                |       
|Gross margin                      |                                |                |       
|                                  | Funeral                        |                | $     
|                                  | Cemetery                       |                |       
|                                  | Insurance                      |                |       
|                                  |                                |                |       
|                                  |                                | Total          |       
|                                  |                                |                |       
|Expenses                          |                                |                |       
|                                  | General and administrative     |                |       
|                                  | Provision for asset impairment |                |       
|                                  |                                |                |       
|Income from operations            |                                |                | 26,294
|Interest on long-term debt        |                                |                | 12,949
|Other expense (income), net       |                                |                | 129   
|                                  |                                |                |       
|Income before income taxes        |                                |                | 13,216
|Income taxes                      |                                |                | 7,318 
|                                  |                                |                |       
|Income from continuing operations |                                | $              | 5,898 
|                                  |                                |                |       

Other
information from continuing operations for the 24 weeks ended June 17, 2006, and 24 weeks ended June 18, 2005, is summarized in the
following table:

24 Weeks ended June 17, 2006 and 24 Weeks ended June 18, 2005

|                                                  |                                                |   |        |        |   | Increase (decrease) |       
|------------------------------------------------- | ---------------------------------------------- | - | ------ | ------ | - | ------------------- | ------
|
|
|FuneralOther Information                         |                                                |   |        |        |   |                     |       
|Number of funeral services performed              |                                                |   | 53,247 |        |   | 56,735              |       
|                                                  | Number of same site funeral services performed |   |        | 53,070 |   |                     | 55,073
|Average revenue per funeral service               |                                                | $ | 4,294  |        | $ | 4,133               |       
|                                                  | Same site average revenue per funeral service  |   | $      | 4,294  |   | $                   | 4,138 
|Pre-need funeral contracts written (in millions)  |                                                | $ | 85.5   |        | $ | 90.3                |       
|Pre-need funeral conversion (percentages)         |                                                |   | 27     |        |   | 27                  |       
|CemeteryOther Information                        |                                                |   |        |        |   |                     |       
|Number of cemetery interments                     |                                                |   | 21,057 |        |   | 22,501              |       
|Pre-need cemetery contracts written (in millions) |                                                | $ | 45.1   |        | $ | 45.8                |       

40

---



Continuing Operations

Consolidated revenue of $354.3 million for the 24 weeks ended June 17, 2006, decreased by $6.4 million, or 1.8%, compared to the
corresponding period in 2005, reflecting decreases in the funeral and cemetery segments partially offset by an increase in insurance revenue. Consolidated gross margin as a percentage of revenue
decreased to 16.6% for the 24 weeks ended June 17, 2006, from 17.9% for the corresponding period in 2005.

Funeral
revenue of $228.7 million for the 24 weeks ended June 17, 2006, decreased by $5.8 million, or 2.5%, compared to $234.5 million for the
corresponding period in 2005, primarily as a result of a decrease in the number of funeral services performed partially offset by an increase of $161, or 3.9%, in average revenue per funeral service
performed. The number of funeral services performed during
the 24 weeks ended June 17, 2006 decreased by 6.1% from the corresponding period in 2005. The increase in average revenue per funeral service performed was achieved through adjusting the
pricing and mix of merchandise and services offered to customer families designed to both meet customer family needs and to increase average revenues.

Included
in the funeral revenue for the 24 weeks ended June 17, 2006 is $12.5 million from 2,690 funeral services performed in New Orleans, Louisiana
and on the Gulf Coast of Mississippi compared to $14.4 million of funeral revenue from 3,079 funeral services performed for the 24 weeks ended June 18, 2005. The Company's
funeral operations in these areas were significantly affected by Hurricane Katrina.

On
a same site basis, funeral revenue was $227.9 million for both the 24 weeks ended June 17, 2006 and for the corresponding period in 2005. Same site calls
decreased by 2,003 or 3.6% compared to the comparative period. This was offset by an increase in same site average revenue per funeral service of $156 or 3.8% compared to the comparative period in
2005. If the locations affected by Hurricane Katrina were removed, the number of funeral services performed on a same site basis would have declined 4.0% from the corresponding period in 2005.

The
number of cremation services performed as a percentage of total services performed increased to 37.5% for the 24 weeks ended June 17, 2006, compared to 36.2% for the
corresponding period in 2005, consistent with national trends. The number of cremation services performed may impact funeral revenue, as the average revenue per cremation service is typically lower
than the average revenue for a traditional funeral service.

Funeral
gross margin as a percentage of revenue decreased to 20.1% for the 24 weeks ended June 17, 2006, compared to 21.3% for the corresponding period in 2005. The
decrease in gross margin was primarily due to reduced revenue as a result of a lower number of services performed offset by $1.0 million gain related to the estimated insurance
settlement of destroyed or abandoned properties and lower wage and benefit costs of $1.3 million.

Pre-need
funeral contracts written for the 24 weeks ended June 17, 2006, were $85.5 million, compared to $90.3 million for the corresponding
period in 2005. The Company is continuing its program to increase pre-need sales. For the 24 weeks ended June 17, 2006, 27% of the funeral services performed were derived
from the pre-need backlog, consistent with the comparative period in 2005. The Company manages the cash impact of its pre-need funeral sales program primarily by offsetting
direct costs, including commissions paid to counselors, with either general agency commissions received from third party and related insurance companies or amounts not required to be trusted.
Pre-need funeral sales are important, because over time, they build the foundation for future funeral revenue and generate positive cash flow when the funeral service is performed.

Cemetery
revenue of $79.3 million for the 24 weeks ended June 17, 2006, was $2.9 million, or 3.5%, lower than cemetery revenue for the corresponding period in
2005, primarily due to lower revenue recognized from pre-need space sales.

41

---



Cemetery
gross margin as a percentage of revenue decreased to 13.7% for the 24 weeks ended June 17, 2006, compared to 15.1% for the corresponding period in 2005, primarily
due to lower revenue from pre-need space sales offset by lower pre-need space cost of goods sold of $1.5 million and decreased wage and benefit costs of $0.6 million.

Pre-need
cemetery contracts written for the 24 weeks ended June 17, 2006, were $45.1 million, compared to $45.8 million for the corresponding
period in 2005. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially collected is insufficient to cover the amount required to be trusted, sales
commissions, and other direct costs paid out. However, this initial net cash flow impact is not significant, as the Company sets minimum down payments, maximum terms and sales commission rates to
maximize cash flow. The Company believes that pre-need cemetery sales are important, because over time, they generate positive cash flow and build the foundation for future
cemetery revenue.

Insurance
revenue for the 24 weeks ended June 17, 2006, increased $2.3 million, or 5.3%, compared to the corresponding period in 2005, primarily due to increases in
premiums of $1.4 million and increased investment income of $1.3 million offset by $0.4 million of capital gains in 2005 not repeated in 2006. Insurance premium revenue is
dependent on the level of pre-need funeral contracts written over time that are funded by the Company's insurance subsidiary. Insurance production represents the insurance segment's
participation in the Company's pre-need funeral contracts and for the 24 weeks ended June 17, 2006 was $60.6 million compared to $64.0 million for the
corresponding period in 2005. Insurance gross margin as a percentage of revenue decreased to 4.5% for the 24 weeks ended June 17, 2006, compared to 4.8% for the corresponding period in
2005. The 24 weeks ended June 17, 2006 showed improvement from business growth offset by approximately $0.3 million of expenses from the impact of Hurricane Katrina on
outstanding policies.

General
and administrative expenses for the Company for the 24 weeks ended June 17, 2006, were $32.6 million, or 9.2% of consolidated revenue, compared to
$12.3 million, or 3.4% of consolidated revenue, for the corresponding period in 2005. General and administrative expenses included the following items affecting the comparison of the
24 weeks ended June 17, 2006 to the 24 weeks ended June 18, 2005:

|                                                                                                           |  | 24 Weeks Ended |     
|---------------------------------------------------------------------------------------------------------- |  | -------------- | ----
|
|
|Legal expenses related to Funeral Consumers Alliance litigation                                            |  | $              | 1.5 
|Legal and other expenses related to the proposed Service Corporation International merger agreement        |  |                | 2.8 
|Equity incentive plan stock based compensation expense related to stock options and restricted stock units |  |                | 1.6 
|Increase in long term executive incentive expense                                                          |  |                | 1.7 
|Foreign exchange impact on Canadian based support centre expenses                                          |  |                | 2.1 
|Decrease in retirement allowance accrual                                                                   |  |                | (0.7
|Reduction in accrual on settlement of US trustee bankruptcy fee                                            |  |                |    
|Recovery of corporate receivable previously fully reserved against                                         |  |                |    

Included
in general and administrative expenses for the 24 weeks ended June 17, 2006 was $1.6 million of stock based compensation expense from stock options and
restricted stock units resulting from the adoption of SFAS 123R using the modified prospective method. For the 24 weeks ended June 18, 2005, the Company applied
APB No. 25 and related interpretations to account for stock based compensation and no stock based compensation expense was recognized.

From
2003 to 2005 the Company had a long term incentive plan for its executive officers based on Company performance targets for which an expense of $1.3 million was recorded in
general and administrative expenses for the 24 weeks ended June 18, 2005. In July, 2005 the Company adopted the

42

---



2005-2007
Executive Strategic Incentive Plan, a stock price based incentive plan for its executive officers. This stock price based incentive plan is accounted for under SFAS 123R
as a liability based award, resulting in the measurement of the estimated fair value at each reporting date. On adoption of SFAS 123R, the Company recorded a cumulative effect of change in
accounting principle as of January 1, 2006 of $1.2 million based on a estimated fair value of $6.6 million as at January 1, 2006. On June 17, 2006, additional
compensation expense of $3.0 million was recorded for the 24 weeks ended June 17, 2006 based on estimated fair value of $11.2 million as at June 17, 2006.

Interest
expense on long-term debt for the 24 weeks ended June 17, 2006, was $12.9 million, reflecting the effect of principal repayments and lower
interest rates compared to interest expense and tender premium in the corresponding period in 2005, as detailed in the following table:

|                                                                                  |  | 24 Weeks Ended
|--------------------------------------------------------------------------------- |  | --------------
|
|
|Interest on long-term debt                                                        |  | $             
|Amortization of debt issue costs                                                  |  |               
|Tender premium on the repurchase of the 12.25% Senior Unsecured Notes due in 2009 |  |               
|                                                                                  |  |               
|Total interest on long-term debt and refinancing costs                            |  | $             
|                                                                                  |  |               

Income
tax expense for the 24 weeks ended June 17, 2006 was $7.3 million compared to $18.2 million for the corresponding period in 2005. The Company's
financial statement effective tax rate for the 24 weeks ended June 17, 2006 was 55.4%. The effective tax rate will vary from the statutory rate because, (i) stock option
compensation expense recorded as a result of the adoption of SFAS 123R is a permanent difference in certain jurisdictions, (ii) costs related to the proposed transaction with SCI may not
be deductible, (iii) the realization of the benefits of the tax assets that had a corresponding valuation allowance established on January 2, 2002 will result in a reduction to goodwill
established on January 2, 2002, (iv) the realization of tax assets that had a corresponding valuation allowance established after January 2, 2002 will result in a benefit, and
(v) losses incurred in certain jurisdictions may not offset the tax expense in profitable jurisdictions.

During
the 24 weeks ended June 17, 2006, the Company sold five funeral locations for gross proceeds of $1.2 million.

Discontinued Operations

In fiscal years 2002 through 2004, the Company engaged in a strategic market rationalization assessment to dispose of cemetery and funeral operating locations
that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The Company will, on a smaller scale and over time, continue to
assess the Company's portfolio of funeral and cemetery locations to ensure they continue to fit in the Company's strategy.

As
of June 18, 2005, the Company had completed the strategic market rationalization program except for one cemetery which was classified back to continuing operations during the
12 and 24 weeks ended June 18, 2005.

Pre-need Funeral and Cemetery Backlog for Continuing Operations

The Company's backlog represents pre-need funeral and cemetery arrangements with customer families. These arrangements are subject to trust or
insurance funding requirements. The activities in the

43

---



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

|                                |                                                                                    | 12 weeks Ended |           | 24 Weeks Ended |  
|------------------------------- | ---------------------------------------------------------------------------------- | -------------- | --------- | -------------- | -
|
|
|Funeral backlog:                |                                                                                    |                |           |                |  
|                                | Beginning balance                                                                  |                | $         | 1,337,220      |  
|                                | Sales, net of cancellations                                                        |                |           | 40,943         |  
|                                | Maturities                                                                         |                |           | (32,298        | )
|                                | Net increase in insurance benefits and earnings realized on funeral trust balances |                |           | 4,661          |  
|                                | Change in cancellation reserve                                                     |                |           | (1,966         | )
|                                | Other                                                                              |                |           | 2,485          |  
|                                |                                                                                    |                |           |                |  
|                                | Ending balance                                                                     |                | $         | 1,351,045      |  
|                                |                                                                                    |                |           |                |  
|Trust funded                    |                                                                                    | $              | 344,222   |                | $
|Third party insurance companies |                                                                                    |                | 651,486   |                |  
|Subsidiary insurance company    |                                                                                    |                | 355,337   |                |  
|                                |                                                                                    |                |           |                |  
|                                |                                                                                    | $              | 1,351,045 |                | $
|                                |                                                                                    |                |           |                |  

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

|                  |                                              | 12 weeks Ended |   | 24 Weeks Ended |  
|----------------- | -------------------------------------------- | -------------- | - | -------------- | -
|
|
|Cemetery backlog: |                                              |                |   |                |  
|                  | Beginning balance                            |                | $ | 278,833        |  
|                  | Sales, net of cancellations                  |                |   | 20,619         |  
|                  | Maturities                                   |                |   | (18,330        | )
|                  | Earnings realized on cemetery trust balances |                |   | 2,851          |  
|                  | Change in cancellation reserve               |                |   | 89             |  
|                  |                                              |                |   |                |  
|                  | Ending balance                               |                | $ | 284,062        |  
|                  |                                              |                |   |                |  

Liquidity and Capital Resources

Cash Flows

The Company derives the majority of its cash from at-need funeral and cemetery revenue. Cash flow is also impacted by the funeral and cemetery
pre-need activities. Pre-need funeral and cemetery activities are discussed in detail in Item 1. "Business" in Alderwoods Group's Annual Report on
Form 10-K for the 52 weeks ended December 31, 2005, as filed with the SEC.

Net
cash from continuing operating activities was $19.9 million for the 12 weeks ended June 17, 2006, compared to $28.7 million for the corresponding period
in 2005. The decrease is due primarily to higher expenses and decreased revenues in the current period.

Net
cash from continuing operating activities was $40.3 million for the 24 weeks ended June 17, 2006, compared to $70.9 million for the corresponding period
in 2005. The decrease is primarily due to the following three components from the corresponding period in 2005 i) a $18.1 million in withdrawals of excess funds from funeral and cemetery
trusts resulting from the Company's ongoing review process;

44

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ii) $16.1 million
related to collateral for liability lines of insurance coverage replaced with a letter of credit and iii) a $9.1 million payment in connection with the
US Trustee bankruptcy fee.

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

Net
cash used in continuing investing activities was $14.8 million for the 12 weeks ended June 17, 2006, compared to $18.5 million for the corresponding
period in 2005, primarily due to the decrease of $6.0 million in property and equipment purchases.

Net
cash used in continuing investing activities was $24.9 million for the 24 weeks ended June 17, 2006, compared to $22.9 million for the corresponding
period in 2005.

Net
cash used in continuing financing activities was $4.8 million for the 12 weeks ended June 17, 2006, compared to $21.0 million for the corresponding period
in 2005. The decrease of $16.2 million was due primarily to lower repayments of debt during the 12 weeks ended June 17, 2006, compared to the corresponding period in 2005.

Net
cash used in continuing financing activities was $14.5 million for the 24 weeks ended June 17, 2006, compared to $52.7 million for the corresponding
period in 2005. The decrease of $38.2 million was primarily due to lower repayments of debt during the 24 weeks ended June 17, 2006, compared to the corresponding period
in 2005.

Long-Term Indebtedness

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

|Issue                                            |                  | Long-Term Indebtedness Carrying Value December 31, 2005 |       | Net increase
(decrease) |   | Long-Term Indebtedness Carrying Value June 17, 2006
|------------------------------------------------ | ---------------- | ------------------------------------------------------- | ----- | ----------------------- | - | ---------------------------------------------------
|
|Revolving Credit Facility                        |                  | $                                                       | 4.0   |                         | $ | (4.0                                               
|Senior secured Term Loan B due in 2009           |                  |                                                         | 161.7 |                         |   | (10.0                                              
|7.75% Senior unsecured notes due in 2012         |                  |                                                         | 200.0 |                         |   |                                                   
|Promissory notes and capitalized obligations (a) |                  |                                                         | 7.7   |                         |   | (1.2                                               
|                                                 |                  |                                                         |       |                         |   |                                                    
|                                                 | Carrying amounts |                                                         | $     | 373.4                   |   | $                                                  
|                                                 |                  |                                                         |       |                         |   |                                                    

---

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

Financial
covenants under the Credit Agreement require the Company to maintain a minimum interest coverage ratio and fixed charge coverage ratio, and not to exceed a maximum leverage
ratio. As of June 17, 2006, the Company met all of the financial covenants required by the Credit Agreement.

45

---



Contractual Obligations and Commercial Commitments

The following table details the Company's contractual obligations of continuing operations as of June 17, 2006. Significant changes to
long-term debt are discussed above under "Long-Term Indebtedness."

|                                                     |  |   |         | Payments Due by Period
|---------------------------------------------------- |  | - | ------- | ----------------------
|
|
|Long-term debt (a)                                   |  | $ | 351,683 |                       
|Interest obligation on long-term debt                |  |   | 157,046 |                       
|Promissory notes and capitalized obligations (a) (b) |  |   | 6,546   |                       
|Operating leases (c)                                 |  |   | 37,040  |                       
|                                                     |  |   |         |                       
|Total                                                |  | $ | 552,315 |                       
|                                                     |  |   |         |                       

---

In
addition to the operating leases noted in the table above, as of June 17, 2006, the Company leased approximately 1,140 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 $8.4 million over the next 12 months.

The
Company issues purchase orders for the supply of goods and services for its operations. As of June 17, 2006, there were no significant or unusual purchase orders outstanding.
The Company entered into agreements with certain suppliers of funeral and cemetery merchandise, and office supplies to
obtain volume discounts. However, none of these agreements have committed purchase quantities or prices.

The
following table details the Company's commercial commitments as of June 17, 2006.

|                                   |  |   |      | Amount of Commitment Expiration Per Period
|---------------------------------- |  | - | ---- | ------------------------------------------
|
|
|Lines of credit (a)                |  | $ |     |                                           
|Standby letters of credit (b)      |  |   | 18.9 |                                           
|                                   |  |   |      |                                           
|Total contractual cash obligations |  | $ | 18.9 |                                           
|                                   |  |   |      |                                           

---

At
June 17, 2006, the aggregate fair value of the Company's forward foreign currency exchange contracts and foreign currency option contracts was an asset of $1.1 million.
There has been no material

46

---



change
in the Company's forward foreign currency exchange contract and foreign currency option commitments, which are described under Item 7A. "Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the 52 weeks ended December 31, 2005, as filed with the SEC.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as of June 17, 2006, consist of operating leases noted above under "Contractual Obligations and
Commercial Commitments".

Other Information

EBITDA from Continuing Operations

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

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



47

---





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

|                                                                                              |  | 12 weeks Ended |      | 24 weeks Ended |  
|--------------------------------------------------------------------------------------------- |  | -------------- | ---- | -------------- | -
|
|
|EBITDA from continuing operations before cumulative effect of change in accounting principle: |  |                |      |                |  
|Income from continuing operations                                                             |  | $              | 0.2  |                | $
|Income taxes                                                                                  |  |                | 2.5  |                |  
|Interest on long-term debt and refinancing costs                                              |  |                | 6.5  |                |  
|Depreciation                                                                                  |  |                | 9.8  |                |  
|Provision for asset impairment                                                                |  |                |     |                |  
|                                                                                              |  |                |      |                |  
|EBITDA from continuing operations                                                             |  | $              | 19.0 |                | $
|                                                                                              |  |                |      |                |  

Restrictions

The Credit Agreement and the indenture governing the Eight-Year Senior Unsecured Notes restrict the Company's ability to engage in asset sales. The
Credit Agreement and indenture governing the Eight-Year Senior Unsecured Notes prohibit dispositions of assets unless the assets disposed of fulfill the requirements of specified
exceptions. The indenture governing the Eight-Year Senior Unsecured Notes excepts, among other exceptions, assets with a fair market value less than $5,000,000. One specified exception
contained in the Credit Agreement is dispositions of any of a group of identified "discontinued assets;" another is dispositions of assets not exceeding $35,000,000 book value in the aggregate over
the life of the Credit Agreement, provided that (i) the consideration received is at least equal to fair market value and (ii) not less than 75% of the consideration is paid in cash or
cash equivalents. Within 270 days of the receipt of net proceeds from any such asset sale, the Company has the ability to apply such net proceeds at its option (or as otherwise required)
to invest in non-current operating assets (or enter into agreements for such investment which agreements are consummated within 360 days of such receipt of asset sale
proceeds). Up to $10,000,000 of such net proceeds in any fiscal year (but not in excess of $40,000,000 in the aggregate over the term of the Credit Agreement) may be applied to make capital
expenditures. To the extent the Company receives net proceeds in excess of additional specified thresholds and such excess is not applied to invest in non-current operating assets or make
capital expenditures as described in the two immediately preceding sentences, the Company must make
mandatory repayments under the Credit Agreement and, after all indebtedness under the Credit Agreement has been repaid, offer to purchase the Eight-Year Senior Unsecured Notes at a
purchase price equal to 100.0% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture governing the Eight-Year Senior
Unsecured Notes), if any.

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

The
Company's insurance subsidiary is subject to certain state regulations that restrict distributions, loans and advances from the subsidiary to the Company and its other subsidiaries.
The cash flow provided by operations of the insurance subsidiary for the 12 and 24 weeks ended June 17, 2006, was approximately $11.0 million and $18.4 million,
respectively, all of which premiums have been used for net purchases of insurance invested assets.

48

---



Operating Locations

The Company's number of operating locations by country, state and province as of June 17, 2006, and the overall totals as of June 17, 2006, and
December 31, 2005, are summarized in the table below.

|                                       |                  | Number of Operating Locations |    |   
|-------------------------------------- | ---------------- | ----------------------------- | -- | --
|
|
|Canada                                 |                  |                               |    |   
|                                       | British Columbia |                               | 17 |   
|                                       | Alberta          |                               | 11 |   
|                                       | Saskatchewan     |                               | 22 |   
|                                       | Manitoba         |                               | 3  |   
|                                       | Ontario          |                               | 22 |   
|                                       | Quebec           |                               | 14 |   
|                                       | Nova Scotia      |                               | 6  |   
|                                       |                  |                               |    |   
|Total Canadian                         |                  | 95                            |    | 1 
|United States                          |                  |                               |    |   
|                                       | Alabama          |                               | 7  |   
|                                       | Alaska           |                               | 3  |   
|                                       | Arizona          |                               | 5  |   
|                                       | Arkansas         |                               | 3  |   
|                                       | California       |                               | 44 |   
|                                       | Colorado         |                               | 3  |   
|                                       | Connecticut      |                               | 1  |   
|                                       | Florida          |                               | 32 |   
|                                       | Georgia          |                               | 23 |   
|                                       | Idaho            |                               | 3  |   
|                                       | Illinois         |                               | 6  |   
|                                       | Indiana          |                               | 10 |   
|                                       | Kansas           |                               | 7  |   
|                                       | Louisiana        |                               | 18 |   
|                                       | Maryland         |                               | 2  |   
|                                       | Massachusetts    |                               | 13 |   
|                                       | Michigan         |                               | 12 |   
|                                       | Minnesota        |                               | 9  |   
|                                       | Mississippi      |                               | 17 |   
|                                       | Montana          |                               | 4  |   
|                                       | Nevada           |                               | 2  |   
|                                       | New Hampshire    |                               | 4  |   
|                                       | New Mexico       |                               | 5  |   
|                                       | New York         |                               | 36 |   
|                                       | North Carolina   |                               | 26 |   
|                                       | Ohio             |                               | 13 |   
|                                       | Oklahoma         |                               | 18 |   
|                                       | Oregon           |                               | 18 |   
|                                       | Pennsylvania     |                               | 5  |   
|                                       | Rhode Island     |                               | 3  |   
|                                       | South Carolina   |                               | 6  |   
|                                       | Tennessee        |                               | 31 |   
|                                       | Texas            |                               | 52 |   
|                                       | Virginia         |                               | 18 |   
|                                       | Washington       |                               | 19 |   
|                                       | West Virginia    |                               | 3  |   
|                                       | Puerto Rico      |                               | 3  |   
|                                       |                  |                               |    |   
|Total United States                    |                  | 484                           |    | 71
|                                       |                  |                               |    |   
|Overall total, as of June 17, 2006     |                  | 579                           |    | 72
|                                       |                  |                               |    |   
|Overall total, as of December 31, 2005 |                  | 594                           |    | 72
|                                       |                  |                               |    |   

49

---



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 31, 2005, as filed with the SEC. As of June 17, 2006, there were no
material changes in such matters disclosed in the Form 10-K.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure 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 and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As of the end of the period
covered by this report, an evaluation was carried out, under the supervision and with the participation of the Company's management, including the Chief Executive Officer, the Company's principal
executive officer (the "CEO"), and the Chief Financial Officer, the Company's principal financial officer (the "CFO"), of the effectiveness of the Company's disclosure controls and
procedures as of June 17, 2006. Based on that evaluation, as of the date of the evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures
are effective.

Changes In Internal Controls Over Financial Reporting

During the 12 weeks ended June 17, 2006, the Company continued implementing a new pre-need trust accounting software system. The
implementation has involved changes to processes, and accordingly, has required changes to internal controls.

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

FORWARD-LOOKING STATEMENTS

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, the expected closing of the
merger with Service Corporation International, and any financial guidance provided in this Quarterly Report on Form 10-Q, are forward-looking statements within the meaning of
Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of 1934. The words "believe," "may," "will," "estimate," "continues," "anticipate,"
"intend," "expect" and similar expressions identify these forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are
made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Risks and uncertainties that could cause or contribute to such differences
include, without limitation, those discussed elsewhere in this Quarterly Report on Form 10-Q and particularly below under "Risk Factors" and under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

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

50

---





PART II    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

ITEM 1A.    RISK FACTORS

Other than as set forth below, there have been no material changes from the risk factors previously disclosed in the Company's Annual Report on
Form 10-K for the 52 weeks ended December 31, 2005, as filed with the SEC.

Risks Related to the Proposed Transaction with Service Corporation International

The proposed merger of the Company into a wholly owned subsidiary of Service Corporation International is subject to certain closing conditions that, if not satisfied or
waived, will result in the transaction not being completed, which may cause the price of the Company's common stock to decline.

The
proposed merger of the Company into a wholly owned subsidiary of Service Corporation International is subject to customary conditions to closing, including the receipt of required
regulatory approvals. Many of the conditions to the closing of the transaction are outside of the control of the Company. If any condition to the closing of the transaction is not satisfied or, if
permissible, waived, the transaction will not be completed.

If
the Company does not complete the transaction, the price of its common stock may fluctuate to the extent that the current market price reflects a market assumption that the
transaction will be completed with each share of the Company's common stock being converted into the right to receive $20 in cash. The Company will also be obligated to pay certain professional fees
and related expenses in connection with the transaction, whether or not the transaction is completed. In addition, the Company has expended, and will continue to expend, significant management
resources in an effort to complete the transaction. If the transaction is not completed, the Company will have incurred significant costs, including the diversion of management resources, for which it
will have received little or no benefit. Further, upon termination of the merger agreement under certain specified circumstances the Company or Service Corporation International may be required to pay
a termination fee of $25 million to the other party.

Whether or not the transaction with Service Corporation International is completed, the announcement and pendency of the transaction could cause disruptions in the Company's
business, which could have an adverse effect on its business and financial results.

Whether
or not the transaction with Service Corporation International is completed, the announcement and pendency of the transaction could cause disruptions in the Company's
business. Specifically:



51

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

The
2005 Annual Meeting of stockholders was held on May 31, 2006. The following items of business, as proposed in the Proxy Statement dated as of April 28, 2006, were presented to the
stockholders.

The Merger

The
proposed Merger of the Company into a wholly owned subsidiary of Service Corporation International, as described in more detail in the Proxy Statement under the caption "Item
1  The Merger" was approved. The vote with respect to such proposal was as follows:

|Total Vote For |  | Total Vote Against |  | Abstentions |  | Broker Non-votes
|-------------- |  | ------------------ |  | ----------- |  | ----------------
|29,791,680     |  | 161,508            |  | 3,493       |  | 5,234,876       

Election of Directors

The
ten director nominees, information with respect to which was set forth in the Proxy Statement under the captioned "Item 2  Election of
Directors," were elected. The vote with respect to the election of these directors was as follows (there were no abstentions or broker non-votes with respect to this proposal):

|Name (in alphabetical order of last name) |  | Total Vote For |  | Total Vote Withheld
|----------------------------------------- |  | -------------- |  | -------------------
|Lloyd E. Campbell                         |  | 35,117,420     |  | 74,137             
|Cheryl R. Cooper                          |  | 34,958,279     |  | 233,278            
|Anthony G. Eames                          |  | 35,117,295     |  | 74,262             
|Charles M. Elson                          |  | 35,089,378     |  | 102,179            
|David R. Hilty                            |  | 34,944,750     |  | 246,807            
|Paul A. Houston                           |  | 35,116,266     |  | 75,291             
|Olivia F. Kirtley                         |  | 34,596,622     |  | 594,935            
|John S. Lacey                             |  | 34,804,939     |  | 386,608            
|William R. Riedl                          |  | 34,810,404     |  | 381,153            
|W. MacDonald Snow, Jr.                    |  | 34,937,450     |  | 254,107            

ITEM 6.    EXHIBITS

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                               
|2.1            |  | Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 99.1 to the
Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed September 10, 2001)                         
|2.2            |  | Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.2
to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)       
|2.3            |  | Second Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to
Exhibit 2.3 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
|               |  |                                                                                                                                                                                                                                                                                                               

52

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|2.4 |  | Order Approving Modification of Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries and Compromise and Settlement of Claims
Filed by Thomas Hardy (incorporated by reference to Exhibit 2.4 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001) 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.5 |  | Findings of Fact, Conclusions of Law and Order Confirming Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries, As Modified,
dated December 5, 2001 (incorporated by reference to Exhibit 2.5 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
|2.6 |  | Final Order dated December 7, 2001 (incorporated by reference to Exhibit 2.6 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)                                                                                                                                                                                                             
|2.7 |  | Stock Purchase Agreement dated as of June 17, 2004, by and between Citizens Insurance Company of America and Mayflower National Life Insurance Company (incorporated by reference to Exhibit 2.7 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 26, 2004)                                                                                         
|2.8 |  | Agreement and Plan of Merger, dated April 2, 2006, by and among Service Corporation International, Coronado Acquisition Corporation and Alderwoods Group, Inc. (incorporated by reference to Exhibit 2.1
to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed April 4, 2006)                                                                                  
|3.1 |  | Certificate of Incorporation of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                                                                                                                                        
|3.2 |  | Bylaws of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                                                                                                                              
|4.1 |  | Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Form 10-12G/A of Loewen Group International, Inc., SEC File No. 000-33277, filed December 17,
2001)                                                                                                                                                                                   
|4.2 |  | Equity Registration Rights Agreement among Alderwoods Group, Inc. and certain holders of Common Stock. (incorporated by reference to Exhibit 4.2 to the Form 10-K of Alderwoods Group, Inc., SEC
File No. 000-33277, filed March 28, 2002)                                                                                                                                        
|4.3 |  | Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                                                                                                                                             
|4.4 |  | Form of Warrant Certificate (incorporated by reference to Exhibit A to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed on March 28, 2002)                                                                                                                                                                                                   
|4.5 |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo, Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of
Alderwoods Group, Inc., SEC file No. 000-33277, filed July 24, 2002)                                                                                                                             
|4.6 |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                     
|4.7 |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                     
|    |  |                                                                                                                                                                                                                                                                                                                                                                                   

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|4.8    |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9    |  | Indenture governing the 73/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277,
 filed November 18, 2004)                                                                                                                                                                                                                                
|10.1   |  | Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party
hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16,
2004)
|10.2   |  | Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by
reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)                                                                                                    
|10.3   |  | Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto
(incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)                                                                                       
|10.4   |  | Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                     
|10.5   |  | Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)                                                                                      
|10.6   |  | Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)                                                                                          
|*10.7  |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.3 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)                                                                                                                                                                  
|*10.8  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                                                                                                                                                                 
|*10.9  |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.4 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)                                                                                                                                                                 
|*10.10 |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Richard J. Scully (incorporated by reference to Exhibit 10.35 to Form 10-Q of Alderwoods Group, Inc., SEC
File No. 000-33277, filed May 1, 2003)                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      

54

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|*10.11 |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and John S. Lacey (incorporated by reference to Exhibit 10.1 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)  
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.12 |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.2 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
|*10.13 |  | Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Aaron Shipper (incorporated by reference to Exhibit 10.1 to Form 8-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed May 12, 2005)                                    
|*10.14 |  | Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Mark W. H. Wilson (incorporated by reference to Exhibit 10.2 to Form 8-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed May 12, 2005)                                
|*10.15 |  | Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                           
|*10.16 |  | Alderwoods Group, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3,
2005)                                                                                
|*10.17 |  | Alderwoods Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3,
2005)                                                                              
|*10.18 |  | Director Compensation Plan (incorporated by reference to Exhibit 10.28 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                  
|*10.19 |  | Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.40 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed
July 24, 2003)                                                        
|*10.20 |  | Amendment to the Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 8-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed July 25, 2005)                                     
|*10.21 |  | Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.19 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2005)                                                                               
|10.22  |  | Description of Compensation of Directors (incorporated by reference to Exhibit 10.20 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed April 28, 2005)                                                                                    
|10.23  |  | Form of Indemnification Agreement between Alderwoods Group, Inc. and each of its directors and executive officers (incorporated by reference to Exhibit 10.33 to Form S-1/A of Alderwoods Group, Inc.,
SEC File No. 333-85316, filed July 25, 2002)               
|*10.24 |  | 2005-2007 Executive Strategic Incentive Plan of Alderwoods Group Canada Inc. (incorporated by reference to Exhibit 10.6 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277,
filed July 25, 2005)                                                   
|*10.25 |  | Form of Director Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.7 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277,
filed July 25, 2005)                                             
|       |  |                                                                                                                                                                                                                                                                   

55

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|*10.26 |  | Form of Employee Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.8 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277,
filed July 25, 2005)                            
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.27 |  | Form of Restricted Stock Units Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.9 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed
July 25, 2005)                                         
|*10.28 |  | Performance Plan Definitions and Performance Criteria on the Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC
File No. 000-33277, filed March 3, 2006)
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**                                                                                                                                             
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**                                                                                                                                             
|32.1   |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**                                                                                                                

---

*      Indicates
management contract or compensatory plan or arrangement.

**    Filed
herewith.

56

---





SIGNATURES

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

|                     |  | ALDERWOODS GROUP, INC.
|-------------------- |  | ----------------------
|Dated: July 19, 2006 |  | By:                   

57

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INDEX TO EXHIBITS

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 99.1 to the
Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed September 10, 2001)                                                                                             
|2.2            |  | Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to Exhibit 2.2
to the Form 8-K of The Loewen Group Inc.,
SEC File No. 1-12163, filed December 11, 2001)                                                                           
|2.3            |  | Second Modification to the Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries (incorporated by reference to
Exhibit 2.3 to the Form 8-K of The Loewen Group Inc.,
SEC File No. 1-12163, filed December 11, 2001)                                                                    
|2.4            |  | Order Approving Modification of Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries and Compromise and Settlement of Claims
Filed by Thomas Hardy (incorporated by reference to Exhibit 2.4 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001) 
|2.5            |  | Findings of Fact, Conclusions of Law and Order Confirming Fourth Amended Joint Plan of Reorganization of Loewen Group International, Inc., Its Parent Corporation and Certain of Their Debtor Subsidiaries, As Modified,
dated December 5, 2001 (incorporated by reference to Exhibit 2.5 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)
|2.6            |  | Final Order dated December 7, 2001 (incorporated by reference to Exhibit 2.6 to the Form 8-K of The Loewen Group Inc., SEC File No. 1-12163, filed December 11, 2001)                                                                                                                                                                                                             
|2.7            |  | Stock Purchase Agreement dated as of June 17, 2004, by and between Citizens Insurance Company of America and Mayflower National Life Insurance Company (incorporated by reference to Exhibit 2.7 to the
Form 10-Q of Alderwoods Group, Inc. SEC File No. 000-33277, filed July 26, 2004)                                                                                          
|2.8            |  | Agreement and Plan of Merger, dated April 2, 2006, by and among Service Company International, Coronado Acquisition Corporation and Alderwoods Group, Inc., (incorporated by reference to Exhibit 2.1
to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, Filed April 4, 2006)                                                                                     
|3.1            |  | Certificate of Incorporation of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                                                                                                                                        
|3.2            |  | Bylaws of Alderwoods Group, Inc. (incorporated by reference to Exhibit 3.2 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                                                                                                                              
|4.1            |  | Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Form 10-12G/A of Loewen Group International, Inc., SEC File No. 000-33277, filed December 17,
2001)                                                                                                                                                                                   
|4.2            |  | Equity Registration Rights Agreement among Alderwoods Group, Inc. and certain holders of Common Stock. (incorporated by reference to Exhibit 4.2 to the Form 10-K of Alderwoods Group, Inc., SEC
File No. 000-33277, filed March 28, 2002)                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                   

58

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|4.3  |  | Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4  |  | Form of Warrant Certificate (incorporated by reference to Exhibit A to Exhibit 4.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed on March 28, 2002)                                                                                                                                                                                                                                                      
|4.5  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo, Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of
Alderwoods Group, Inc. SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                                 
|4.6  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                        
|4.7  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                        
|4.8  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                      
|4.9  |  | Indenture governing the 73/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277,
 filed November 18, 2004)                                                                                                                                                                                                                                
|10.1 |  | Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party
hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16,
2004)
|10.2 |  | Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by
reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)                                                                                                    
|10.3 |  | Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto
(incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)                                                                                       
|10.4 |  | Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                     
|10.5 |  | Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)                                                                                      
|10.6 |  | Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      

59

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|10.7  |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.3 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005) 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                
|10.9  |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.4 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)
|10.10 |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Richard J. Scully (incorporated by reference to Exhibit 10.35 to Form 10-Q of Alderwoods Group, Inc., SEC
File No. 000-33277, filed May 1, 2003)                             
|10.11 |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and John S. Lacey (incorporated by reference to Exhibit 10.1 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)    
|10.12 |  | Amended and Restated Employment Agreement dated August 1, 2005, by and between Alderwoods Group Canada Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.2 to the Form 8-K of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 25, 2005)  
|10.13 |  | Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Aaron Shipper (incorporated by reference to Exhibit 10.1 to Form 8-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed May 12, 2005)                                      
|10.14 |  | Employment Agreement dated May 10, 2005, by and between Alderwoods Group, Inc. and Mark W. H. Wilson (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC
File No. 000-33277, filed May 12, 2005)                              
|10.15 |  | Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                             
|10.16 |  | Alderwoods Group, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3,
2005)                                                                                  
|10.17 |  | Alderwoods Group, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 3,
2005)                                                                                
|10.18 |  | Director Compensation Plan (incorporated by reference to Exhibit 10.28 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2002)                                                                                                    
|10.19 |  | Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.40 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed
July 24, 2003)                                                          
|10.20 |  | Amendment to the Alderwoods Group Canada Inc. 2003-2005 Executive Strategic Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 8-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed July 25, 2005)                                       
|      |  |                                                                                                                                                                                                                                                                     

60

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|10.21 |  | Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.19 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28, 2005)                                                                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 |  | Description of Compensation of Directors (incorporated by reference to Exhibit 10.20 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed April 28, 2005)                                                                     
|10.23 |  | Form of Indemnification Agreement between Alderwoods Group, Inc. and each of its directors and executive officers (incorporated by reference to Exhibit 10.33 to Form S-1/A of Alderwoods Group, Inc.,
SEC File No. 333-85316, filed July 25, 2002)
|10.24 |  | 2005-2007 Executive Strategic Incentive Plan of Alderwoods Group Canada Inc. (incorporated by reference to Exhibit 10.6 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277,
filed July 25, 2005)                                    
|10.25 |  | Form of Director Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.7 to the Form 8-K of Alderwoods Group, Inc.,
SEC File No. 000-33277, filed July 25, 2005)                              
|10.26 |  | Form of Employee Non-Qualified Stock Option Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.8 to the Form 8-K of Alderwoods Group, Inc.,
SEC File No. 000-33277, filed July 25, 2005)                              
|10.27 |  | Form of Restricted Stock Units Agreement (2005 Equity Incentive Plan) (incorporated by reference to Exhibit 10.9 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed
July 25, 2005)                                           
|10.28 |  | Performance Plan Definitions and Performance Criteria for the Alderwoods Support Function Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC
File No. 000-33277, filed March 3, 2006) 
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                                                                                                                                 
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                                                                                                                                 
|32.1  |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                    

61

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Exhibit 31.1

CERTIFICATION

I,
Paul A. Houston, certify that:

|Date: July 19, 2006 | By: | /s/PAUL A. HOUSTONPaul A. Houston
President, Chief Executive Officer and Director
(Principal Executive Officer)
|------------------- | --- | ---------------------------------------------------------------------------------------------------------------

---



Exhibit 31.2

CERTIFICATION

I,
Kenneth A. Sloan, certify that:

|Date: July 19, 2006 | By: | /s/KENNETH A. SLOANKenneth A. Sloan
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
|------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

---



Exhibit 32.1

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

In connection with the Quarterly Report of Alderwoods Group, Inc. (the "Company") on Form 10-Q for the twelve weeks ended
June 17, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

|Dated: July 19, 2006 | /s/PAUL A. HOUSTONPaul A. Houston
President, Chief Executive Officer
and Director
(Principal Executive Officer)    
|-------------------- | -------------------------------------------------------------------------------------------------------------------
|                     | /s/KENNETH A. SLOANKenneth A. Sloan
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)

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

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