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

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the 52 weeks (fiscal year) ended January 1, 2005
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|  | 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

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

|None                  |  | None                                       
|--------------------- |  | -------------------------------------------
|(Title of each class) |  | (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share(Title of class)

Warrants to purchase Common Stock(Title of class)

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

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

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

The
aggregate market value of the Common Stock and Warrants to purchase Common Stock held by non-affiliates of the registrant (assuming that the registrant's only affiliates
are its officers and directors), based on their closing prices on the Nasdaq Stock Market on June 19, 2004 was $505,865,000 and $3,022,000, respectively.

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

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

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At
February 26, 2005, there were 40,060,010 shares of Common Stock outstanding and Warrants to purchase 2,992,000 shares of Common Stock outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

Listed hereunder is the document to be incorporated by reference and the Parts of the Form 10-K into which portions of the document will
be incorporated:

|Document                                                                                                                            |  | Part of Form 10-K
|----------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|Proxy Statement to be delivered to stockholders in connection with the annual meeting of stockholders to be held on April 28, 2005. |  | Part III         

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TABLE OF CONTENTS

|                    |  |                                                                                                              |  | Page
|------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                    |  |                                                                                                              |  |     
|GENERAL INFORMATION |  | 1                                                                                                           
|Item
Number         |  |                                                                                                              |  |     
|PART I             
|1.                  |  | BUSINESS                                                                                                     |  | 2   
|2.                  |  | PROPERTIES                                                                                                   |  | 7   
|3.                  |  | LEGAL PROCEEDINGS                                                                                            |  | 8   
|4.                  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 8   
|                    |  | EXECUTIVE OFFICERS OF ALDERWOODS GROUP                                                                       |  | 8   
|PART II            
|5.                  |  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 10  
|6.                  |  | SELECTED FINANCIAL DATA                                                                                      |  | 11  
|7.                  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 13  
|                    |  | FORWARD-LOOKING STATEMENTS AND RISK FACTORS                                                                  |  | 43  
|7A.                 |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 49  
|8.                  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 52  
|9.                  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 106 
|9A.                 |  | CONTROLS AND PROCEDURES                                                                                      |  | 106 
|9B.                 |  | OTHER INFORMATION                                                                                            |  | 107 
|PART III           
|10.                 |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 107 
|11.                 |  | EXECUTIVE COMPENSATION                                                                                       |  | 108 
|12.                 |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 108 
|13.                 |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 108 
|14.                 |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  | 108 
|PART IV            
|15.                 |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  | 109 
|                    |  | SIGNATURES                                                                                                   |  | 115 

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GENERAL INFORMATION

Unless the context otherwise requires (a) "Alderwoods Group" refers to Alderwoods Group, Inc., a Delaware corporation, (b) "Loewen Group" or
the "Predecessor" refers to The Loewen Group Inc., a British Columbia corporation, (c) "Loewen International" refers to Loewen Group International, Inc., (a Delaware
corporation and a wholly-owned subsidiary of Loewen Group which, on January 2, 2002, was reorganized and renamed Alderwoods Group, Inc. and thereupon ceased to be affiliated with Loewen
Group), (d) the "Company" refers to Alderwoods Group together with its subsidiaries and associated companies, (e) "Debtors" refers to, collectively, Loewen Group, Loewen International
and their debtor subsidiaries prior to January 2, 2002, and (f) "Loewen Companies" refers to Loewen Group, Loewen International and their subsidiaries prior to
January 2, 2002.

All
dollar amounts are in United States dollars unless otherwise indicated. When discussing the Company's financial condition and results of operations, unless the context otherwise
requires, references to "2004" or "fiscal 2004," "2003" or "fiscal 2003" and "2002" or "fiscal 2002" refer to the 52 weeks ended January 1, 2005, the 53 weeks
ended January 3, 2004, and the 52 weeks ended December 28, 2002, respectively.

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PART I

ITEM 1.    BUSINESS

Overview

Alderwoods Group, Inc. is the second largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of
January 1, 2005, the Company operated 648 funeral homes, 79 cemeteries and 63 combination funeral homes and cemeteries throughout North America. The Company provides funeral and cemetery
services and products on both an at-need (time of death) and pre-need basis. In support of its pre-need business, the Company operates insurance subsidiaries that
provide customers with a funding mechanism for the pre-arrangement of funerals.

Alderwoods
Group is a holding company owning, directly or indirectly, the capital stock of approximately 212 subsidiaries through which the funeral, cemetery and insurance
businesses are operated. The principal executive office of the Company is located at 311 Elm Street, Suite 1000, Cincinnati, Ohio 45202. Under the Fourth Amended Joint Plan
of Reorganization of Loewen Group International, Inc., its Parent Corporation and certain of their Debtor Subsidiaries, as modified (the "Plan"), Loewen International (incorporated in
Delaware on February 25, 1987), as reorganized and renamed Alderwoods Group, Inc., succeeded to the business previously conducted by Loewen Group on January 2, 2002 (the "Effective
Date").

Since
January 2, 2002, the Company's new management team has focused on stabilizing core business operations and reducing debt while maintaining stable cash flow for operating
purposes. The Company is focused on achieving improved levels of organic growth, engaging in strategic and targeted key market development to strengthen core operations, strengthening its balance
sheet and working toward achieving its commitment of setting the industry standard for customer service, administration, and financial management.

The
Company's operations are geographically diversified across 38 states, seven provinces in Canada and Puerto Rico. Consistent with the Company's urban-based clustering strategy,
the Company has a significant number of funeral homes and cemeteries located in Los Angeles, Chicago, New York City, Atlanta, Miami, Houston, and Toronto. The Company's Rose Hills facility,
located approximately 14 miles from downtown Los Angeles, is the largest single-location cemetery and funeral home combination facility in the United States. According to the
United States Bureau of the Census, many of the metropolitan areas the Company serves have a large population over the age of 65, which represents a principal target market for the Company's
pre-need sales program as well as at-need sales. The Company has a pre-need sales program that builds future revenue and which the Company believes enhances future
market share. In addition, the Company believes the implementation of its specialty retail and marketing approach has led to an increase in average revenue per call for at-need sales since
2002.

Business Operations

The Company's segments primarily consist of the funeral and cemetery activities. The Company's segments also include an insurance business in support of its
funeral business. Within the Company's segments, the Company maintains a regional operating structure for the funeral and cemetery businesses that is organized into multiple geographic regions in the
United States and Canada. For certain financial information by segment and geographic area, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," and
Note 17 to the Company's Consolidated Financial Statements. Funeral operations constituted approximately 66% of consolidated revenue of the Company for 2004, compared to approximately 68% for
2003, and approximately 69% for 2002. Cemetery operations constituted approximately 23% of consolidated revenue of the Company for 2004, 2003, and 2002. Insurance operations constituted approximately
11% of consolidated revenue of the Company for 2004, as compared to approximately 9% for 2003, and approximately 8% for 2002.

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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 a higher
incidence of deaths, as a result of illnesses brought on by cold weather.

Amounts
paid for funeral services are recorded as revenue at the time the service is performed. Payments made for pre-need funeral contracts are either placed in trust or are
used on behalf of the purchaser of the pre-need contract to pay premiums on life insurance polices, under which the Company is designated as the beneficiary. Realized earnings on funeral
trust funds and related expenses of the trusts are recognized in other expense (income). Typically, an offsetting accretion expense for the non-controlling interest in the trusts is included as
interest expenses in other expense (income). At the date of performing a pre-need funeral service, the original contract amount, together with related accrued net earnings from trust and
increased insurance benefits, is recorded as funeral revenue. Selling costs related to the sale of pre-need funeral contracts are expensed in the period incurred.

Cemetery Operations

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

Provided
certain collectibility criteria are met, pre-need cemetery interment right sales of developed cemetery property are deferred until a minimum of 10% percent of the sales price
has been collected, while pre-need cemetery interment right sales of undeveloped cemetery property are deferred and revenue is recognized on a percentage of completion basis as cemetery property is
developed. Pre-need sales of cemetery merchandise or services are deferred until the delivery of such merchandise or performance of such services occurs.

Pursuant
to various state and provincial laws, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trusts, which
are included in pre-need cemetery receivables and trust investments in the Company's Consolidated Financial Statements. Realized earnings on merchandise and services trust funds and
related expenses of the trusts are recognized in other expense (income). Typically, an offsetting accretion expense for the non-controlling interest in the trusts is included as interest expense in
other expense (income). The net amount of realized earnings on merchandise and service trust funds is recorded as cemetery revenue when the merchandise is delivered and service performed. Selling
costs related to the sale of pre-need cemetery interment rights, merchandise and services are expensed in the period incurred.

Pursuant
to various state and provincial laws, the Company provides for the long-term maintenance of its cemetery properties by placing a portion, typically 10% to 15%, of
the proceeds from the sale of interment rights into a perpetual care trust fund (these amounts are generally contributed to trust when the contract is fully paid). As allowed by these laws, the annual
income earned on these funds is used to partially offset the maintenance costs of operating the cemeteries. As of January 1, 2005, the Company's continuing operations of cemeteries had
approximately $245 million of cemetery perpetual care trust investments.

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Combined Funeral and Cemetery Operations

The Company operates 63 combination funeral homes and cemeteries in which a funeral operation is physically located within or adjoining a cemetery operation. The
Company's combination operations allow synergies between funeral and cemetery sales, and reduction in personnel, equipment and other costs. In addition, customers are provided with the convenience of
a single location to purchase funeral and cemetery services and merchandise.

Insurance Operations

The Company operates two insurance subsidiaries licensed in a total of 35 states. These insurance subsidiaries sell a variety of insurance products, primarily for
the funding of pre-need funerals.

Discontinued Operations

Over the previous three fiscal years, the Company engaged in a strategic market rationalization assessment to identify and 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 program to identify cemetery and funeral
operating locations for disposal is complete. 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. Once a property is added to the disposal list, the Company expects to complete the sale within one year. As of January 1, 2005, the Company had
18 funeral, six cemetery and four combination locations which have not been sold within one year of being added to the disposal list. The Company has entered into sale agreements for all
of these locations, but is awaiting regulatory approval or purchaser financing arrangements,
which have been unexpectedly delayed. The Company continues to include these locations in discontinued operations of assets held for sale.

During
2004, 2003 and 2002, the Company identified 154 funeral, 89 cemetery and five combination locations for disposal. The funeral locations included all 39 funeral locations in the
United Kingdom, which were sold on October 20, 2003.

During
2003, the Company identified Security Plan Life Insurance Company, its wholly-owned home service insurance company, as a non-strategic asset, because it was not part
of the Company's pre-need funeral sales efforts. The Company's continuing insurance operations include Mayflower National Life Insurance Company and National Capital Life Insurance
Company, its wholly-owned pre-need life insurance companies. On June 17, 2004, the Company announced the signing of an agreement by its subsidiary, Mayflower National Life Insurance
Company, to sell all the outstanding shares of Security Plan Life Insurance Company for $85.0 million. The sale concluded on October 1, 2004. After payment of applicable taxes and
expenses, and the recapitalization of Mayflower National Life Insurance Company, the Company utilized $65.0 million of the proceeds to further reduce long-term debt. The Company
recorded a pre-tax gain on the sale of $16.0 million.

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

Death Care Industry

Number of deaths

There is an inevitable need for the products and services the death care industry offers. According to the United States Bureau of the Census, the number
of deaths per year in the United States is expected to increase from approximately 2.4 million in 2003 to 2.6 million in 2010. Moreover, the average age of the population in the
United States is increasing. According to the United States Bureau of the Census, the

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United States
population over 50 years of age is expected to increase from 76.1 million in 2000 to 97.1 million in 2010. The Company believes that the aging of the
population is particularly important because it expands the Company's target market for pre-need services and merchandise as older persons, especially those over 50 years of age,
are most likely to make pre-need funeral and cemetery arrangements.

Competition

The United States death care industry is estimated to have generated approximately $15 billion of revenue in 2003, of which small family-owned
businesses represent approximately 80%. During most of the 1990s, there was a trend of family-owned businesses consolidating with larger organizations such as the Company. However, this trend slowed
in the late 1990s, and the industry continues to be characterized by a large number of locally-owned, independent operations. There are approximately 22,000 funeral homes and
10,500 cemeteries in the United States. The market share of a single funeral home or cemetery in any community is a function of the name, reputation and location of that funeral home or
cemetery although competitive pricing, professional service and attention, and well-maintained locations are also important. Customer families tend to choose a funeral home because it
previously served their family and because of the funeral home's reputation, which must be developed over time. The three largest public operators in the death care industry in the
United States, based on the total revenue and number of locations, are Service Corporation International, Alderwoods Group, Inc., and Stewart Enterprises, Inc., and the Company
believes that these three companies collectively represent approximately 20% of funeral service revenues in the United States.

Cremation

Substantially all of the Company's funeral homes provide basic cremation services through Company owned or third party crematories, and the Company has
proprietary programs designed to provide a full range of merchandise and services to families choosing cremation. In 2004, cremations accounted
for approximately 35% of all funeral services performed by the Company, compared to approximately 34% in 2003 and 33% in 2002. According to the latest industry studies available, cremations increased
by approximately 1% annually from 1997 to 2003, as a percentage of all funeral services in the United States and, in 2003, accounted for approximately 29% of all funeral services performed in the
United States. This trend of increasing cremations is expected to continue into the future.

Regulation

The funeral service and cemetery industry is regulated primarily on a state and provincial basis with a vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. Most jurisdictions also regulate the sale of pre-need services and the administration of any resulting trusts or insurance
contracts. The laws and regulations are complex, are subject to interpretation by regulators, vary from jurisdiction to jurisdiction and are subject to change from time to time.
Non-compliance with these regulations can result in fines or suspension of licenses required to sell pre-need services and merchandise. In addition, concerns regarding lack of
competition have led a few jurisdictions to enact legislation restricting the common ownership of funeral homes, cemeteries and related operations within a specific geographic region.

The
Company's operations in the United States must also comply with federal legislation, including the laws administered by the Occupational Safety and Health Administration, the
Americans with Disabilities Act and the Federal Trade Commission ("FTC") regulations. The FTC administers the Trade Regulation Rule on Funeral Industry Practices, the purpose of which is to prevent
unfair or deceptive acts or practices in connection with the provision of funeral goods or services. Certain regulatory requirements also exist in Canada.

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The
Company's operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities in the jurisdictions in which the Company
operates. On a continuing basis, the Company's business practices are designed to assess and evaluate environmental risk and, when necessary, conduct appropriate corrective measures. Liabilities are
recorded when known or considered probable and reasonably estimable. Actual environmental liabilities could differ significantly from the Company's estimates.

The
Company's insurance subsidiaries are subject to regulation by the states in which they are domiciled and the states in which their products are sold.

The
Company believes that it complies in all material respects with the provisions of the laws and regulations under which it operates. There are no material regulatory actions
pending.

Employees

As of February 26, 2005, the Company employed approximately 8,500 people, with approximately 550 people employed at the executive and
administrative offices in Cincinnati, Ohio, Toronto, Ontario and Burnaby, British Columbia. The Company believes that relationships with employees are good. As of February 26, 2005,
approximately 180 of the Company's employees were members of collective bargaining units.

Web Site Access to Periodic and Current Reports

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

Basis of Accounting

Alderwoods Group succeeded to substantially all of the assets and operations of Loewen Group on the Effective Date, and continues to operate the businesses
previously conducted by the Loewen Companies. The Company's accounting information contained in this Form 10-K is presented on the basis of United States generally accepted accounting
principles ("GAAP").

In
January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which was revised in
December 2003 ("FIN No. 46R"). FIN No. 46R clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
enterprises that have a variable interest in variable interest entities, and is effective no later than the end of the first reporting period that ends after March 15, 2004.

The
Company elected to adopt FIN No. 46R at the beginning of its 2004 fiscal year on January 4, 2004. The adoption of FIN No. 46R resulted in the
prospective consolidation in the Company's balance sheet of approximately 600 funeral, cemetery merchandise and service, and perpetual care trusts, and several pooled investment funds created
for such trusts, but did not change the legal relationships among these trusts, pooled investment funds, the Company, and its holders of pre-need contracts. The Company does not
consolidate certain funeral trusts for which the Company does not absorb a majority of their expected losses and, therefore, is not considered a primary beneficiary of these funeral trusts under
FIN No. 46R. The adoption of FIN No. 46R has not materially impacted the Company's stockholder's equity, net income or its consolidated statement of cash flows. For the
impact of FIN No. 46R on the Company's consolidated balance sheet, see Notes 3, 4, 5, and 6 to the Company's consolidated financial statements as of and for the
52 weeks ended January 1, 2005 (the "Consolidated Financial Statements").

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Predecessor Overview

From the inception of Loewen Group in 1985 until the last half of 1998, Loewen Group's business philosophy centered on a growth strategy in the funeral home and
cemetery businesses. Beginning in the second half of 1998, in light of negative cash flow from its businesses and increasing difficulties in meeting its debt service obligations, Loewen Group
virtually ceased its acquisition program. During the last quarter of 1998, Loewen Group began attempting to sell various operations. As of March 31, 1999, Loewen Group's consolidated balance
sheet reflected approximately $2.1 billion of long-term debt (of which approximately $742.2 million was due currently) and approximately $48.8 million of other
current debt.

On
June 1, 1999 (the "Petition Date"), Loewen Group, approximately 850 United States subsidiaries of Loewen Group (including Loewen International) and one foreign
subsidiary of Loewen Group each voluntarily filed a petition for creditor protection under Chapter 11 ("Chapter 11") of title 11 of the United States Code in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Concurrent with the Chapter 11 filing, Loewen Group and 117 of its Canadian subsidiaries filed for
creditor protection under the Companies' Creditors Arrangement Act ("Creditors Arrangement Act") with the Ontario Superior Court of Justice (the "Canadian Court"). Subsequent to the Petition Date,
five additional subsidiaries of Loewen Group voluntarily filed petitions for creditor protection and 41 subsidiaries were voluntarily deleted. The Loewen Companies' insurance, United Kingdom
and certain funeral and cemetery subsidiaries were excluded from the Chapter 11 and Creditors Arrangement Act filings.

The
Bankruptcy Court confirmed the Plan on December 5, 2001, the Canadian Court recognized the Plan on December 7, 2001, and the Plan became effective on
January 2, 2002.

Pursuant
to the Plan, the following transactions, among other things, were completed on the Effective Date:



ITEM 2.    PROPERTIES

The Company's properties consist primarily of funeral homes and cemeteries. Of the Company's 648 funeral homes as of January 1, 2005, 67 were leased
facilities and the balance were owned by the Company. In some cases, the Company has a right of first refusal and/or an option to purchase its leased premises. Of the funeral, cemetery, and
combination locations owned by the Company, 365 properties in the United States are pledged through mortgages as security for the Company's $443.0 million senior secured credit facility entered
into on September 17, 2003 (as amended, the "Credit Agreement"). In addition, 22 funeral homes are pledged through mortgages as security for other debt. As of January 1, 2005,
there were 543 funeral homes located in the United States and 105 in Canada.

As
of January 1, 2005, the Company operated 63 combination funeral homes and cemeteries, of which 60 were located in the United States and three in Canada and, of which two
funeral homes were leased, and the balance were owned by the Company.

As
of January 1, 2005, the Company operated or provided management and sales services pursuant to various management and sales agreements to 76 cemeteries located in the United
States and three in Canada. The cemeteries (including those in combination funeral homes and cemeteries) operated by the

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Company
as of January 1, 2005, contained an aggregate of approximately 9,000 acres, of which approximately 61% were developed.

The
Company's office in Cincinnati, Ohio occupies approximately 21,000 square feet of leased office space. The Company's office in Toronto, Ontario occupies approximately 29,000 square
feet of owned office space. The Company's office in Burnaby, British Columbia occupies approximately 72,000 square feet of leased office space. The Company's office in Burnaby, British Columbia will
be relocating in 2005 to a new leased office space of approximately 67,000 square feet.

The
Company's facilities are well-maintained and kept in good condition, which, management believes, meets the standards required for the Company's nature of business.

ITEM 3.    LEGAL PROCEEDINGS

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

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

None.

EXECUTIVE OFFICERS OF ALDERWOODS GROUP

The following table sets forth certain information with respect to executive officers of Alderwoods Group as of March 15, 2005.

|Name              |  | Age |  | Position                                                                                          
|----------------- |  | --- |  | --------------------------------------------------------------------------------------------------
|John S. Lacey     |  | 61  |  | Chairman of the Board                                                                             
|Paul A. Houston   |  | 56  |  | Director, President and Chief Executive Officer                                                   
|Ross S. Caradonna |  | 53  |  | Executive Vice President, Chief Information Officer                                               
|Kenneth A. Sloan  |  | 55  |  | Executive Vice President, Chief Financial Officer                                                 
|Ellen Neeman      |  | 54  |  | Senior Vice President, Legal & Compliance, Corporate Secretary                                    
|Richard J. Scully |  | 46  |  | Senior Vice President, Sales and Marketing                                                        
|Aaron Shipper     |  | 52  |  | Senior Vice President, Advance Planning and President of Mayflower National Life Insurance Company

Certain
biographical information relating to each of these individuals is set forth below.

John S. Laceybecame the Chairman of the Board of Directors of Alderwoods Group on January 2, 2002. From January 1999 to
January 2002, Mr. Lacey was the Chairman of the Board of Directors of Loewen Group. In December 1998, Mr. Lacey became a director of Loewen Group. From July 1998 to
November 1998, Mr. Lacey was President and Chief Executive Officer of The Oshawa Group Ltd., a marketer of food and pharmaceutical products, in Toronto, Ontario. From
November 1996 to July 1998, Mr. Lacey was President and Chief Executive Officer of WIC Western International Communications Inc., a private broadcaster, in Vancouver,
British Columbia. Mr. Lacey is also a director of Telus Corporation, Canadian Tire Corporation, Limited, and the Canadian Imperial Bank of Commerce.

Paul A. Houstonbecame a director, President and Chief Executive Officer of Alderwoods Group on January 2, 2002. From
December 1999 to January 2002, Mr. Houston was President and Chief Executive Officer of Loewen Group and President of Loewen International. Additionally, Mr. Houston served
as a director of Loewen Group from June 1999 to January 2002. From August 1996 to October 1999,

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Mr. Houston
was President and Chief Executive Officer of Scott's Restaurants Inc., a quick service food company. Mr. Houston is also a director of CFM Corporation.

Ross S. Caradonnabecame Executive Vice President, Chief Information Officer of Alderwoods Group on January 22, 2003. From
September 2002 to January 21, 2003, Mr. Caradonna was Senior Vice President, Chief Information Officer of Alderwoods Group. From September 2001 to September 2002,
Mr. Caradonna served as Senior Vice President, Chief Information Officer of Sobey's Inc., a grocery retailer and distributor. From October 2000 to July 2001,
Mr. Caradonna was a Senior Retail Consultant with Karabus Management. From June 1991 to September 2000, Mr. Caradonna served as Senior Vice President, Chief Information
Officer of Scott's Hospitality Inc., an international consumer service company.

Kenneth A. Sloanbecame Executive Vice President, Chief Financial Officer of Alderwoods Group on January 22, 2003. From
January 2, 2002, to January 21, 2003, Mr. Sloan was Senior Vice President, Chief Financial Officer of Alderwoods Group. From November 2000 to
January 2002, Mr. Sloan was Senior Vice President, Chief Financial Officer of Loewen Group and of Loewen International. From September 1987 to September 2000,
Mr. Sloan served as Senior Executive Vice President, Finance and Planning and Chief Financial Officer of Shoppers Drug Mart Ltd., an operator of drug stores.

Ellen Neemanbecame Senior Vice President, Legal & Compliance, Corporate Secretary of Alderwoods Group in June 2002. From May 2001
to January 2002, Ms. Neeman was Vice President & Corporate Secretary for 724 Solutions, Inc., a provider of Internet infrastructure software. From March 2000 to April 2001, Ms. Neeman
was Vice President & Corporate Secretary for Geac Computer Corporation Limited, a software provider. From March 1997 to January 2000, Ms. Neeman was Senior Vice President, General Counsel &
Corporate Secretary for UniHost Corporation, a company engaged in hotel ownership, franchising and management businesses.

Richard J. Scullybecame Senior Vice President, Sales and Marketing of Alderwoods Group in January 2003. From June 2001 to
January 2003, Mr. Scully was Vice President, Sales and Marketing of Alderwoods Group. From 2000 to June 2001, Mr. Scully served as Director, E-Commerce of
Tucows International Corp., an internet channel management company. From 1989 to 2000, Mr. Scully was Director, Knowledge Management at Glaxowellcome Canada Inc., a pharmaceutical
manufacturing and marketing company.

Aaron Shipperbecame President of Mayflower National Life Insurance Company in November 2001, which position he still retains, and was
appointed Senior Vice President, Advance Planning for the Company in October 2004. From August 1995 to October 2001, Mr. Shipper was Vice President of Marketing for Loewen Group
International, Inc.

Each
executive officer holds office until his or her successor is appointed by the Board of Directors or until his or her resignation or retirement.

No
executive officer of Alderwoods Group is related by blood, marriage or adoption to any director or other executive officer of Alderwoods Group.

There
are no arrangements or understandings between any executive officer of Alderwoods Group and any other person pursuant to which the executive officer was selected as an executive
officer of Alderwoods Group.

9

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Shares of the Company's common stock ("Common Stock") are traded on The NASDAQ Stock Market, Inc. ("Nasdaq") as National Market securities under the symbol
"AWGI".

The
following table sets forth, for the periods indicated, the range of high and low sales prices of the Company's Common Stock, as reported on Nasdaq.

|                                |                                      | Price Range
|------------------------------- | ------------------------------------ | -----------
|
|52 Weeks Ended January 1, 2005: |                                      |            
|                                | 12-week period ended March 27, 2004  |            
|                                | 12-week period ended June 19, 2004   |            
|                                | 16-week period ended October 9, 2004 |            
|                                | 12-week period ended January 1, 2005 |            
|                                |                                      |            
|53 Weeks Ended January 3, 2004: |                                      |            
|                                | 12-week period ended March 22, 2003  |            
|                                | 12-week period ended June 14, 2003   |            
|                                | 16-week period ended October 4, 2003 |            
|                                | 13-week period ended January 3, 2004 |            

As
of February 26, 2005, there were 602 record holders of the Common Stock.

Dividend Policy

Since the Effective Date, Alderwoods Group has not paid any cash dividends, and it is not anticipated that Alderwoods Group will pay any dividends on the Common
Stock in the foreseeable future. Covenants in the Credit Agreement and the indenture governing the 7.75% Senior unsecured notes, due in 2012 (the "Eight-Year Senior Unsecured Notes")
restrict, and under specified circumstances prohibit, the payment of dividends by Alderwoods Group. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations  Other Information  Restrictions" and Note 7 to the Company's Consolidated Financial Statements.

10

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ITEM 6.    SELECTED FINANCIAL DATA

Alderwoods Group succeeded to substantially all of the assets and operations of Loewen Group on the Effective Date, and continues to operate the businesses
previously conducted by the Loewen Companies. For financial reporting purposes, the effective date of the reorganization was December 31, 2001, because U.S. GAAP requires that the
financial statements reflect fresh start reporting as of the confirmation date or as of a later date when all material conditions precedent to the Plan becoming binding are resolved.

Certain
consolidated financial and other information concerning the Predecessor may be of limited interest to stockholders of the Company and has been included in this
Form 10-K. However, the consolidated financial and other information of the Company issued subsequent to the Plan implementation are not comparable with the consolidated financial
information and other information issued by the Predecessor prior to the Plan implementation due to:



Accordingly,
the accompanying selected consolidated financial information should be reviewed with caution, and the Predecessor's selected consolidated financial information should not be
relied upon as being indicative of future results of the Company or providing an accurate comparison of financial performance. A black line has been drawn to separate and distinguish between the
consolidated financial information that relates to the Company and the consolidated financial information that relates to the Predecessor.

Set
forth below is certain selected consolidated financial and operating information for the Company as of January 1, 2005, January 3, 2004, December 28, 2002, and
December 31, 2001, and for the 52 weeks ended January 1, 2005, the 53 weeks ended January 3, 2004, and the 52 weeks ended December 28, 2002, and, for
the Predecessor, consolidated financial and operating information as of December 31, 2000, and for the years ended December 31, 2001 and 2000. The selected consolidated financial information
set forth below is derived from the Company's and the Predecessor's respective audited consolidated financial statements for such periods, and should be read in conjunction with the Company's
Consolidated Financial

11

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Statements
in Item 8 of this Form 10-K (including the notes thereto), as well as the discussion contained in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

|                                                                 |  | Alderwoods Group |   | Predecessor |        
|---------------------------------------------------------------- |  | ---------------- | - | ----------- | -------
|
|
|
|
|                                                                 |  |                  |   |             |        
|Consolidated Statements of Operations Information:               |  |                  |   |             |        
|Revenue                                                          |  | 716,790          |   | $           | 720,281
|Gross margin (a)                                                 |  | 124,810          |   |             | 143,944
|Provision for goodwill impairment (b)                            |  |                 |   |             |       
|Provision for asset impairment (c)                               |  | 1,922            |   |             | 4,395  
|Income (loss) from operations                                    |  | 71,670           |   |             | 83,268 
|Net income (loss) from continuing operations (d)                 |  | (3,793           | ) |             | 9,244  
|Basic net income (loss) per share from continuing operations (e) |  | (0.09            | ) |             | 0.23   
|Aggregate dividends declared per share                           |  |                 |   |             |       

|                                                         |  | Alderwoods Group |           | Predecessor |  
|-------------------------------------------------------- |  | ---------------- | --------- | ----------- | -
|
|
|                                                         |  |                  |           |             |  
|Balance Sheet Information:                               |  |                  |           |             |  
|Total assets (f)(g)                                      |  | $                | 2,372,428 |             | $
|Liabilities subject to compromise (h)                    |  |                  |          |             |  
|Total long-term debt including current maturities (h)(i) |  |                  | 463,640   |             |  
|Stockholders' equity (deficit)                           |  |                  | 555,912   |             |  

---

12

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

Overview

Alderwoods Group is the second largest operator of funeral homes and cemeteries in North America based on total revenue and number of locations. As of
January 1, 2005, the Company operated 648 funeral homes, 79 cemeteries and 63 combination funeral homes and cemeteries throughout North America. As of
January 3, 2004, the Company operated 729 funeral homes, 149 cemeteries and 61 combination funeral homes and cemeteries throughout North America.

Alderwoods
Group is a holding company owning, directly or indirectly, the capital stock of approximately 212 subsidiaries through which the funeral, cemetery and insurance businesses are
operated.

The
Company provides services and products through three business segments:



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Death Care Industry

Consumer preferences in the death care industry tend to change slowly. However, one significant trend is an increase in the preference for cremation over a
traditional burial. Cremation is becoming more popular in the United States, as ties to tradition weaken and this service becomes more acceptable as a form of disposition within society.
According to the Cremation Association of North America, approximately 29% of all deaths in 2003 in the United States were followed by cremation. This figure has grown at approximately 1%
annually since 1997 and is projected to continue to grow at a comparable rate over the next three to five years. The number of cremation services performed by the Company as a percentage of total
services performed increased to 35% in 2004, compared to 34% for 2003. Although cremation services have historically generated higher gross margins than funeral services involving burials, overall
revenues are lower because cremations have typically included few, if any, additional products or services for the customer family beyond the cremation itself. However, industry research has shown
that the consumer chooses cremation frequently for reasons other than cost, and the Company believes this provides the Company with the opportunity to better serve customer families by offering a
larger variety of goods and services.

According
to the United States Bureau of the Census, the number of deaths per year in the United States is expected to increase from approximately 2.4 million in
2003 to 2.6 million in 2010. Moreover, the average age of the population in the United States is increasing. According to the United States Bureau of the Census, the
United States population over 50 years of age is expected to increase from 76.1 million in 2000 to 97.1 million in 2010. The Company believes the aging of the population is
particularly important because it expands the Company's target market for pre-need services and merchandise because older persons, especially those over 50 years of age, are most
likely to make pre-need funeral and cemetery arrangements.

The
United States death care industry is estimated to have generated approximately $15 billion of revenue in 2003, of which small family-owned businesses represent
approximately 80%. During most of the 1990s, there was a trend of family-owned businesses consolidating with larger organizations such as the Company. However, this trend slowed in the late 1990s, and
the industry continues to be characterized by a large number of locally-owned, independent operations. There are approximately 22,000 funeral homes and 10,500 cemeteries in the
United States. The market share of a single funeral home or cemetery in any community is a function of the name, reputation and location of that funeral home or cemetery although competitive
pricing, professional service and attention, and well-maintained locations are also important. Customer families tend to choose a funeral home because it previously served their family and
because of the funeral home's reputation, which must be developed over time. The three largest public operators in the death care industry in the United States, based on total revenue and
number of locations, are Service Corporation International, Alderwoods Group, Inc., and Stewart Enterprises, Inc., and the Company believes that these three companies collectively
represent approximately 20% of funeral service revenues in the United States.

Recent Accounting Standards

The Company elected to adopt FIN No. 46R at the beginning of its 2004 fiscal year on January 4, 2004. The adoption of
FIN No. 46R resulted in the prospective consolidation in the Company's balance

14

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sheet
of approximately 600 funeral, cemetery merchandise and service, and perpetual care trusts, and several pooled investment funds created for such trusts, but did not change the legal
relationships among these trusts, pooled investments funds, the Company, and its holders of pre-need contracts. The Company does not consolidate certain funeral trusts for which the
Company does not absorb a majority of their expected losses and, therefore, is not considered a primary beneficiary of these funeral trusts under FIN No. 46R. The adoption of
FIN No. 46R has not materially impacted the Company's stockholders' equity, net income or its consolidated statement of cash flows. For the impact of FIN No. 46R on the
Company's consolidated balance sheet, see Notes 3, 4, 5, and 6 to the Company's consolidated financial statements as of and for the 52 weeks ended January 1, 2005
(the "Consolidated Financial Statements").

For
other recent accounting standards, see Note 3 to the Company's Consolidated Financial Statements included in Item 8.

Business Strategy

Overview

Since emergence on January 2, 2002, the Company has focused on optimizing its core business operations, and reducing and refinancing debt while maintaining
stable cash flow for operating purposes. As of January 1, 2005, the successful results of this strategy are evident in that the Company has:



Looking
ahead to 2005, the Company's strategic objectives are to:



15

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Key Strategies



The Company's continued focus on its core businesses will be directed towards improved levels of organic growth. The Company will focus on three key
areas  growth in funeral services, average revenue per funeral service and financially prudent growth in pre-need
sales  to enhance future market share.

The
Company experienced a decline in the number of funeral services performed during 2004. To address this decline, the Company plans to invest an additional
$7-10 million into programs in 2005, that will reposition the Company's operations to support future growth. For 2005, the Company has already implemented an expanded field
management structure to increase the number of market managers and thus the amount of time market managers have available to spend coaching employees at the locations. Additional programs include
increased spending on training and recruitment support, facility improvements, advertising and pre-need sales.

The
Company plans to initiate market awareness programs in target test markets that afford the highest growth potential for the investment. The Company will invest in advertising and
promotion, community relations and pre-need sales. Results from these test markets will be used to support the Company's future marketing expenditures that are expected to enhance
revenue-creation opportunities.

The
Company is improving its retailing strategies, primarily for at-need customers, which are expected to increase average revenue per service. The strategy involves creating
a comfortable retail environment for the customer families that includes service and product information, a well lit display room and more merchandise choices. The Company is currently rolling out
standardized merchandise display layouts and pricing presentation in its merchandise selection rooms at its funeral homes. The Company has rolled out this merchandising strategy in
234 locations as of the end of 2004 and expects to implement it in a further 110 locations in 2005.

The
Company has a strong pre-need sales program that is designed to build future revenue, develop market share growth and enhance market awareness. The Company is careful to
manage the cash flow and expense impacts of such a pre-need sales program. In an effort to build on this program, the Company tested a more aggressive pre-need sales program in
seven markets in 2004. The test markets generally achieved stronger pre-need sales growth in 2004. The Company is revising portions of the program and expanding the test to an additional
10 markets for 2005. If successful, full roll out over all markets is expected to occur over the next two years. The program involves recruitment of additional sales professionals and a new
training program for counselors and managers to support these efforts. In addition, the program involves closer integration of market advertising efforts with the pre-need sales program.

Industry
data shows that cremation continues to be an increasing choice of many consumers. This shift away from the traditional funeral service appears indicative of the changing
demographics of society, the increased mobility of the population, and the change in view towards memorialization alternatives. This shift may negatively impact Company revenues, however, the Company
plans to offer families of cremation customers a larger variety of goods and services, primarily by emphasizing these in our merchandise selection rooms.



The Company believes that it has made progress in developing a culture supporting outstanding customer service, strong community relations, excellence in
administration and strong financial management. The Company is satisfied with the progress made to date. However, management is committed to setting the industry standard for customer service,
community involvement, administration and financial management. The Company is taking steps to achieve this goal, which include implementing tools to assist in consistent assessment of the performance
of individuals and expansion of training programs for customer and community service and local management skills.

16

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For the past three years, the Company engaged in a strategic market rationalization program to dispose of operating locations that were under-performing or did
not fit into the Company's market or business strategies. This program is complete. On a smaller scale and over time, the Company will continue to assess its portfolio of funeral and cemetery
locations to ensure they continue to fit in the Company's strategy.

In
addition, the Company plans to commence strategic initiatives to improve its revenue growth. This is expected to be accomplished through, among other things, strategic and targeted
key market development, in line with the Company's operating philosophy and financial goals. The Company expects such controlled growth will help strengthen the Company's core operations, enabling
further synergies and operating efficiencies.

Market
development may include tactics such as acquisition of local competitors, moving locations, closing smaller locations and developing more combination operating locations to
provide enhanced, seamless service to customers. The Company has identified combination opportunities within its underlying base of operating locations and expects to develop five to seven of these
locations annually for the next two to three years.



The Company successfully reduced its emergence debt level by approximately 44.0% during its first three years of operations. This reduction came from the
generation of operating cash flow, the sale of non-strategic operating locations and real estate, the recovery of excess trust fund contributions and improvements in working capital
levels. In addition, the Company successfully refinanced certain of its debt, effectively reducing interest costs. The Company intends to continue to reduce debt during 2005.

The
Company expects cash flow from operations to be adequate to maintain existing operations and capital needs, allowing some excess to be used to fund its growth strategies and further
reduce debt. Additionally, the Company's disposition of remaining assets held for sale including real estate is expected to generate approximately $25.0 million, which will be utilized
primarily for further debt reduction. Finally, although the efforts to withdraw excess contributions and unwithdrawn earnings from trusts are substantially complete, the Company will continue its
efforts to identify and withdraw such funds.

Overview of Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with U.S. GAAP, which require management to make estimates and assumptions (see
Note 3 to the Consolidated Financial Statements) that impact all of its business segments. Management believes that, of the significant accounting policies described in Note 3
to the Company's Consolidated Financial Statements, the following are the most important to the representation of the Company's financial position, results of operations and cash flows. These
require management's most difficult, subjective and complex judgment efforts. All of these critical accounting policies have been discussed and reviewed with the Company's audit committee. While the
Company believes that its assumptions and estimates have been reasonable and appropriate, different assumptions and estimates could materially impact the Company's reported financial results.

Collectibility of Customer Receivables

Management must make estimates of the allowance for uncollectible amounts of customer receivables arising from at-need funeral services. The Company
estimates this allowance based primarily on historical experience of collections and write-offs, as well as other analytical procedures, such as assessment of the change in the aging of
receivables. The Company has historically estimated the allowance for uncollectible amounts at 1.2% to 1.4% of funeral revenue, and actual experience in 2004 and 2003 indicated uncollected

17

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receivables
written off to be within this range. To the extent that future collection experience differs from historical rates, the Company may adjust its allowance for uncollectible amounts and
record equivalent reduced or additional funeral expense.

Management
must make estimates of the allowance for contract cancellations and refunds of customer receivables arising from pre-need funeral contracts. However, any change to
the estimated rate or balance would be offset by a corresponding adjustment in the allowance for contract cancellations and refunds against deferred pre-need funeral revenue. There would
be no impact on net income or cash flows. Accordingly, such allowance for contract cancellations and refunds is not considered a critical accounting policy.

Management
must make estimates of the allowance for contract cancellations and refunds arising from pre-need cemetery contracts. Pre-need cemetery contracts may
contain both pre-need cemetery interment rights and pre-need cemetery merchandise and services. As pre-need cemetery interment rights are recognized in income when
sold, an estimate of the related uncollectible amounts is charged to income. The estimate of the allowance for contract cancellations and refunds related to the pre-need cemetery
merchandise and service portion of the contracts is offset with a corresponding adjustment in the allowance for contract cancellations and refunds against deferred pre-need cemetery
revenue.

Estimates
of the allowance for contract cancellations and refunds arising from pre-need cemetery contracts are based primarily on historical experience of collections and
write-offs, as well as other analytical procedures, such as assessment of the change in the aging of receivables. The Company has estimated the allowance for contract cancellations and
refunds of current sales of pre-need cemetery contracts at 5% to 10% of pre-need cemetery sales. The Company's experience has not indicated any change to this rate is
necessary. To the extent that future collection experience differs from this estimate, a 1% change in the rate of the estimated allowance for contract cancellations and refunds of pre-need
cemetery interment rights would affect income by approximately $0.9 million.

The
Company's customer receivables arising from pre-need cemetery contracts includes receivables with balances outstanding entered into by the Predecessor. During the
Predecessor's reorganization proceedings, it began to change the pre-need cemetery contract terms to include larger mandatory down payments and shorter contract maturities. The Company
estimated the allowance for contract cancellations and refunds using the best information available at December 31, 2001.

During
2002 and 2003, the Company's focused collection efforts resulted in higher collections than anticipated on the pre-emergence receivables. As a result of the
improvement in actual collections, the Company reversed $3.9 million of the allowance for contract cancellations and refunds on receivables arising from pre-need cemetery interment
rights during the 53 weeks ended January 3, 2004. As of January 1, 2005, the Company had approximately $11.8 million
(2003  $20.8 million) of pre-emergence customer receivables remaining, of which an allowance for contract cancellations and refunds of
$7.5 million (2003  $11.2 million) had been established. Due to the significant number of estimates and projections utilized in determining an
expected rate of uncollectible receivables, actual results of collections could be materially different from these estimates.

Changes
in customer circumstances outside of the Company's control may also impact the collectibility of customer receivables.

Valuation of Long-Lived Assets

During 2002, 2003, and 2004, the Company engaged in a strategic market rationalization assessment to dispose of funeral and cemetery operating locations that did
not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144") requires that long-lived assets
to be disposed of are to be recorded at the lower of carrying amount or fair market value, less estimated costs to sell. The Company determines the fair market

18

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value
of its discontinued operations by specific offer or bid, or an estimate based on comparable sales transactions. Such offers or bids are outside of the Company's control.

The
estimated fair market values may change due to offers or bids changing as a result of continued negotiations with buyers or bids or offers being different than management estimates
based on previous comparable sales transactions. Such changes in fair market values will be reflected by the Company recording corresponding impairment charges or reversals of previous impairment
charges.

In
many cases, the Company receives offers or bids for groups of operating locations. The evaluation for possible impairment aggregates the carrying amounts of the relevant operating
locations and compares this against the corresponding offer or bid. It is possible that although the aggregate expected proceeds may not change, the group of locations comprising the various bids or
offers may change such that a subsequent impairment evaluation may consider the operating locations grouped differently. As a result, the Company may record additional impairment on some of the
changed groups while other changed groups may result in deferred gains (estimated proceeds are greater than the carrying amount).

The
Company may also decide to remove an operating location from those held for sale or add another location to those held for sale based on further analysis of the potential sale
proceeds to be realized or the location's impact on the Company's business strategy. Such additions or removals may result in an impairment charge, or reversal of previous impairment charges.

As
of January 1, 2005, the Company had 18 funeral, six cemetery and four combination locations for disposal with an aggregate carrying amount of $7.6 million, which approximates
the estimated net proceeds after selling costs. Changes to the carrying amounts or estimated net proceeds may result in impairment charges or reversals or gains or losses upon final sale.

The
identification of cemetery and funeral operating locations that do not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery
land, is complete. 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.

Valuation of Goodwill

Goodwill of the funeral reporting unit is not amortized. It is tested annually, as well as on the occurrence of certain significant events, as prescribed by
relevant accounting requirements, to determine whether or not the carrying value has been impaired. Such testing entails determining an estimated fair value of goodwill ("implied goodwill") for
comparison to the carrying amount of goodwill, to assess whether or not impairment has occurred. Impairment occurs when the estimated fair value of goodwill associated with the funeral reporting unit
is less than the respective carrying amount of such goodwill, resulting in a write down to the estimated fair value of goodwill. Determination of the estimated fair value of goodwill entails
determining the estimated fair value of the funeral reporting unit in total, and allocating such value to the estimated fair value of the assets and liabilities of the funeral reporting unit, in a
method similar to purchase accounting. The determination of the estimated fair value of the funeral reporting unit involves many complex assumptions, including underlying cash flow projections,
estimated discount rates and residual values.

While
the Company believes that its assumptions and estimates have been reasonable and appropriate, different assumptions and estimates could materially impact the Company's reported
financial results. The Company's assessment as of October 4, 2003, determined that the estimated fair value of the funeral reporting unit exceeded its carrying value. The Company carried
forward the 2003 goodwill valuation to 2004, as there were no significant changes in the key parameters used in the valuation exercise and no significant change in the Company's overall operations
from 2003 to 2004.

The
discount rate used for the analysis as of October 4, 2003, was determined based on assumptions regarding the current interest rate environment and desired capital structure.
If the discount rate had been estimated at 0.5% higher, the estimated fair value of the funeral reporting business unit would have been

19

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approximately
$50 million lower, and the fair value of the funeral reporting unit would have been equal to its carrying value. The estimated cash flows used for the analysis as of
October 4, 2003, were determined based on the Company's projections. If the annual cash flows were reduced by 3% and the discount rate left unchanged, the estimated fair value of the funeral
reporting unit would have been approximately $50 million lower and the fair value of the funeral reporting unit would have been equal to its carrying value. The Company's valuation of the
funeral reporting unit was prepared with the assistance of independent advisors.

The
Company recorded a $228.1 million provision for goodwill impairment for the 52 weeks ended December 28, 2002, as the Company experienced a reduction in the
projected financial results used in the valuation of the funeral reporting unit compared to those used during the reorganization process and the determination of reorganization value as at
December 31, 2001.

Accounting for Income Taxes

The Company must estimate income taxes for its business segments in each of the jurisdictions in which such business segments operate. This involves estimating
actual current tax expense, assessing temporary differences resulting from different treatment of various assets and liabilities for book and tax purposes, such as depreciation, and evaluating
potential tax exposures based on current relevant facts and circumstances.

The
determination of temporary differences associated with assets and liabilities results in deferred tax assets or liabilities, which are recorded in the Company's consolidated
financial statements. The Company then assesses the likelihood that it will recover or realize its deferred tax assets from expected future taxable income and, to the extent that recovery is not
considered to be "more likely than not," establishes a corresponding valuation allowance. In general, to the extent that a valuation allowance increases or decreases in a period, it will be included
as an expense or recovery within the
tax provision for such period. If the relevant valuation allowance was established upon emergence from bankruptcy, any decrease as a result of the utilization of benefits must reduce goodwill and, if
insufficient goodwill exists, be credited to additional paid-in capital. The majority of the Company's valuation allowances were established upon emergence from bankruptcy.

Significant
management judgment is required in determining the valuation allowance or change therein. The Company established a valuation allowance against substantially all of its net
federal deferred tax assets, excluding those of its insurance operations, upon emergence from bankruptcy as it did not have sufficient history of income to support realization of the net deferred tax
assets. The valuation allowance is subject to change due to matters such as timing and manner of reversals of deferred tax liabilities, sales of operations and future actual income or losses. The
Company has not assumed future accounting income for purposes of assessing its valuation allowance.

To
the extent that the provision for income taxes increases or decreases by 1% of income from continuing operations before income taxes, consolidated income from continuing operations
would have declined or improved by less than $0.1 million in the 52 weeks ended January 1, 2005.

Liabilities for Insurance Future Policy Benefits

The Company calculates and maintains liabilities for insurance future policy benefits for the estimated future payment of claims to policyholders based on
actuarial assumptions, such as mortality (life expectancy), persistency, and interest rates. The assumptions used are based on best estimates of future experience at the time the policies are issued
(or, if applicable, on the date fresh start accounting was implemented) with an adjustment for the risk of adverse deviation. Once established, assumptions are generally not changed.

The
Company's estimates of mortality and persistency are based on both the Company's and industry historical experience. The Company has estimated an assumed weighted average investment
yield of 4.1%.

20

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For
the 52 weeks ended January 1, 2005, the Company achieved an investment yield of 5.0%. Because the liabilities are based on extensive estimates, assumptions and historical experience,
it is possible that actual experience may differ materially from that resulting from actuarial assumptions. However, the risk of a material change in assumptions causing a material impact to the
Company's financial position and results of operations is mitigated by the type and small dollar nature of the policies. The pre-need insurance products have discretionary growth that
accrues to the policy holder, and to the extent investment returns are significantly below those assumed, the Company has the ability to reduce the future policy growth.

Annually,
the Company evaluates the collective adequacy of its insurance policy liabilities by determining whether the insurance premiums expected to be collected over the life of the
insurance contracts are sufficient to recover the current unamortized balance in deferred acquisition costs, as well as to provide for expected future benefits and expense, based on current
assumptions. If the recoverability tests indicate a deficiency in the ability to pay all future benefits and expenses, including the deferred acquisition costs, the loss is recognized and charged to
expense as an adjustment to the current year's deferred acquisition costs balance, or if the loss is greater than the deferred acquisition costs balance, by an increase in its liabilities for future
policy benefits. The Company's recoverability tests have indicated no deficiency in its reserves during the past three years.

Basis of Presentation

The
Company's fiscal year ends on the Saturday nearest to December 31 in each year (whether before or after such date).

The
first and second fiscal quarters each consist of 12 weeks and the third fiscal quarter consists of 16 weeks. The fourth fiscal quarter will typically consist of
12 weeks, but this period may be altered, if necessary, in order to cause the fourth fiscal quarter to end on the same day as the fiscal year. As a result of this, the fourth fiscal quarter
will consist of 13 weeks in certain years. In fiscal 2004, 2003, and 2002, the fourth quarter consisted of 12, 13, and 12 weeks, respectively.

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 Consolidated Financial
Statements included in Item 8 of this Form 10-K (including the notes thereto).

Results of Operations

Detailed below are the operating results of the Company for the 52 weeks ended January 1, 2005, the 53 weeks ended January 3, 2004,
and the 52 weeks ended December 28, 2002. The operating results are expressed in dollar amounts as well as relevant percentages, presented as a percentage of revenue.

The
following provides a detailed discussion of continuing operations, which consist of those businesses the Company owned and operated both for the entire current and prior fiscal years
and that the Company plans to retain, and those businesses that have been opened during either the current or prior fiscal years and that the Company plans to retain. Discontinued operations consist
of those that have been sold or closed during either the current or prior fiscal years and the businesses that are currently being offered for sale.

21

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The
operations of the Company comprise three businesses: funeral homes, cemeteries and insurance. Additional segment information is provided in Note 17 of the Company's
consolidated financial statements.

52 Weeks Ended January 1, 2005 Compared to 53 Weeks Ended January 3, 2004

|                                                 |                                | 52 Weeks Ended January 1, 2005 |      | 53 Weeks Ended January 3, 2004 |       | 52 Weeks Ended January 1, 2005 |       | 53 Weeks Ended January 3, 2004 |     
|------------------------------------------------ | ------------------------------ | ------------------------------ | ---- | ------------------------------ | ----- | ------------------------------ | ----- | ------------------------------ | ----
|
|Revenue                                          |                                |                                |      |                                |       |                                |       |                                |     
|                                                 | Funeral                        |                                | $    | 473.0                          |       | $                              | 491.6 |                                | 66.0
|                                                 | Cemetery                       |                                |      | 163.7                          |       |                                | 167.6 |                                | 22.8
|                                                 | Insurance                      |                                |      | 80.1                           |       |                                | 61.1  |                                | 11.2
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|                                                 |                                | Total                          |      | $                              | 716.8 |                                | $     | 720.3                          |     
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Gross margin                                     |                                |                                |      |                                |       |                                |       |                                |     
|                                                 | Funeral                        |                                | $    | 96.3                           |       | $                              | 113.4 |                                | 20.4
|                                                 | Cemetery                       |                                |      | 23.8                           |       |                                | 28.8  |                                | 14.5
|                                                 | Insurance                      |                                |      | 4.7                            |       |                                | 1.7   |                                | 5.9 
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|                                                 |                                | Total                          |      |                                | 124.8 |                                |       | 143.9                          |     
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Expenses                                         |                                |                                |      |                                |       |                                |       |                                |     
|                                                 | General and administrative     |                                |      | 51.2                           |       |                                | 56.3  |                                | 7.1 
|                                                 | Provision for asset impairment |                                |      | 1.9                            |       |                                | 4.4   |                                | 0.3 
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Income from operations                           |                                |                                | 71.7 |                                |       | 83.2                           |       | 10.0                           |     
|Interest on long-term debt and refinancing costs |                                |                                | 78.1 |                                |       | 76.5                           |       | 10.9                           |     
|Other expenses (income), net                     |                                |                                | (1.2 | )                              |       | 4.0                            |       | (0.2                           | )   
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Income (loss) before income taxes                |                                |                                | (5.2 | )                              |       | 2.7                            |       | (0.7                           | )   
|Income taxes                                     |                                |                                | (1.4 | )                              |       | (6.5                           | )     | (0.2                           | )   
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Net income (loss) from continuing operations     |                                |                                | (3.8 | )                              |       | 9.2                            |       | (0.5                           | )   
|Income from discontinued operations, net of tax  |                                |                                | 13.1 |                                |       | 1.6                            |       | 1.8                            |     
|                                                 |                                |                                |      |                                |       |                                |       |                                |     
|Net income                                       |                                | $                              | 9.3  |                                | $     | 10.8                           |       | 1.3                            | %   
|                                                 |                                |                                |      |                                |       |                                |       |                                |     

Other
information for the 52 weeks ended January 1, 2005, and 53 weeks ended January 3, 2004, is summarized in the following table. The impact
of the 53rd week for the 53 weeks ended January 3, 2004, was estimated by calculating the weekly average of the 13 weeks ended January 3, 2004. The Company

22

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believes
the discussion below regarding the impact of the 53rd week facilitates direct comparability of fiscal year results.

|Continuing Operations:                                                                     |  | January 1,
2005 |         | January 3,
2004 |   | Increase (decrease) |  
|------------------------------------------------------------------------------------------ |  | --------------- | ------- | --------------- | - | ------------------- | -
|
|Funeral  Other Information                                                                |  |                 |         |                 |   |                     |  
|Number of funeral services performed                                                       |  |                 | 117,525 |                 |   | 124,798             |  
|Estimated impact of the 53rd week on the number of funeral services performed              |  |                 |        |                 |   | (2,421              | )
|Number of funeral services performed adjusted for the impact of the 53rd week              |  |                 | 117,525 |                 |   | 122,377             |  
|Average revenue per funeral service                                                        |  | $               | 4,024   |                 | $ | 3,939               |  
|Pre-need funeral contracts written (in millions)                                           |  | $               | 179.5   |                 | $ | 164.8               |  
|Estimated impact of the 53rd week on pre-need funeral contracts written (in millions)      |  | $               |        |                 | $ | (3.0                | )
|Pre-need funeral contracts written adjusted for the impact of the 53rd week (in millions)  |  | $               | 179.5   |                 | $ | 161.8               |  
|Pre-need funeral conversion (percentages)                                                  |  |                 | 26      |                 |   | 26                  |  
|Cemetery  Other Information                                                               |  |                 |         |                 |   |                     |  
|Pre-need cemetery contracts written (in millions)                                          |  | $               | 86.8    |                 | $ | 82.9                |  
|Estimated impact of the 53rd week on pre-need cemetery contracts written (in millions)     |  |                 |         |                 | $ | (1.7                | )
|Pre-need cemetery contracts written adjusted for the impact of the 53rd week (in millions) |  | $               | 86.8    |                 | $ | 81.2                |  
|Number of cemetery interments                                                              |  |                 | 46,272  |                 |   | 47,693              |  
|Estimated impact of the 53rd week on the number of cemetery interments                     |  |                 |        |                 |   | (909                | )
|Number of cemetery interments adjusted for the impact of the 53rd week                     |  |                 | 46,272  |                 |   | 46,784              |  

Continuing Operations

As there have been no material acquisitions or construction of new locations in 2004 and 2003, results from continuing operations reflect those of "same site"
locations.

Consolidated
revenue of $716.8 million for the 52 weeks ended January 1, 2005, decreased by $3.5 million, or 0.5%, compared to $720.3 million for the
53 weeks ended January 3, 2004. After adjusting for an estimated impact of $14.4 million due to the additional fifty-third week in fiscal 2003 over fiscal 2004, consolidated
revenue increased by $10.9 million. This increase is primarily due to a $20.1 million increase in insurance revenue, partially offset by an $8.9 million and $0.3 million
decrease in funeral and cemetery revenue, respectively. Consolidated gross margin as a percentage of revenue decreased to 17.4% for the 52 weeks ended January 1, 2005, from 20.0% in
2003.

Funeral
revenue of $473.0 million for the 52 weeks ended January 1, 2005, decreased by $18.6 million, compared to $491.6 million in 2003, partially as
a result of an estimated decrease of $9.7 million due to the additional fifty-third week in 2003 over 2004. After adjusting for the effect of the fifty-third week, funeral revenue decreased by
$8.9 million, primarily as a result of a decrease of 4,852, or 4.0%, in the number of funeral services performed, partially offset by an increase of $85, or 2.2%, in average revenue per funeral
service performed. The increase in average revenue per funeral service performed was the result of the Company's continuing efforts to adjust the Company's mix of merchandise and services.

23

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The
number of cremation services performed as a percentage of total services performed increased to 35% for the 52 weeks ended January 1, 2005, compared to 34% for 2003,
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
traditional funeral services.

Funeral
gross margin as a percentage of revenue decreased to 20.4% for the 52 weeks ended January 1, 2005, compared to 23.1% in 2003. The decrease in gross margin was
primarily due to the decrease in funeral revenue and increases in cost of goods sold, wages, and facilities costs, partially offset by decreases in operating costs and selling expenses. Due to the
fixed nature of funeral costs over the short term, the Company believes that decreases in funeral revenue will not result in a corresponding decrease in funeral costs and will negatively impact
funeral gross margins.

Pre-need
funeral contracts written for the 52 weeks ended January 1, 2005, were $179.5 million. After adjusting for the effect of the fifty-third week,
pre-need funeral contracts written for the 53 weeks ended January 3, 2004, were $161.8 million. The Company is continuing its program to increase pre-need
sales. For both the 52 weeks ended January 1, 2005, and 53 weeks ended January 3, 2004, 26% of funeral volume was derived from backlog. 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 $163.7 million for the 52 weeks ended January 1, 2005, was $3.8 million, or 2.3%, lower than cemetery revenue in 2003, primarily due to
the following:



24

---





Cemetery
gross margin as a percentage of revenue decreased to 14.5% for the 52 weeks ended January 1, 2005, compared to 17.2% for 2003. For the 52 weeks ended
January 1, 2005, wages, and regional management costs decreased, while cost of goods sold, selling costs, and advertising and promotion increased compared to 2003. In addition, there was
a one-time $3.9 million increase in other cemetery revenue for the 53 weeks ended January 3, 2004, as discussed above.

Pre-need
cemetery contracts written for the 52 weeks ended January 1, 2005, were $86.8 million. After adjusting for the effects of the fifty-third week
in 2003, pre-need cemetery contracts for the 52 weeks ended January 1, 2005, were $5.6 million higher than in 2003. For the 52 weeks ended January 1,
2005, 67% of interments were at-need and 33% were pre-need fulfillments. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially
collected is insufficient to cover the amount required to be trusted, sales commissions, and other direct costs paid out. However, this cash flow impact is not significant, as the Company sets minimum
down payments, maximum terms and sales commission rates to maximize cash flow. 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 52 weeks ended January 1, 2005, increased $19.0 million, or 31.1%, compared to 2003. After adjusting for the estimated effect of the
fifty-third week in 2003, insurance revenue increased $20.1 million, or 33.6%, primarily due to increases in premiums of $16.6 million, interest, dividend and other investment income of
$1.9 million, and realized investment gains of $1.6 million. Insurance premium revenue is up in 2004 primarily due to the impact of the Company's subsidiary, Rose Hills, beginning to
sell the Company's insurance products. Insurance premiums are dependent on insurance production, as increases in insurance production generate increased insurance premiums over time. Insurance
production, which represents the insurance segment's participation in the Company's pre-need funeral contracts for the 52 weeks ended January 1, 2005, was
$102.8 million compared to $69.5 million for corresponding period in 2003. Insurance gross margin as a percentage of revenue increased to 5.9% for the 52 weeks ended
January 1, 2005, compared to 2.9% for the corresponding period in 2003, primarily due to the revenue increase being at a rate higher than that of the cost increase. The Company expects the
insurance gross margin percentage to grow modestly over the near term.

Interest
expense on long-term debt and refinancing costs for the 52 weeks ended January 1, 2005, was $78.1 million, an increase of $1.6 million
compared to the corresponding period in 2003. The effect of lower effective interest rates and debt repayments made by the Company during 2003 and the 52 weeks ended January 1, 2005,
were partially offset by costs associated primarily with the Company's refinancing

25

---



of
long-term debt that occurred during the 52 weeks ended January 1, 2005, as detailed in the following table.

|                                                                                                                             |  | 52 Weeks Ended
January 1, 2005 |      | 53 Weeks Ended
January 3, 2004
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---- | ------------------------------
|
|Tender premium on the repurchase of the 12.25% Senior unsecured notes due in 2009                                            |  | $                              | 32.5 |                               
|Unamortized deferred finance costs expensed relating to the Credit Agreement that was refinanced                             |  |                                | 1.2  |                               
|Unamortized deferred finance costs expensed relating to payments made on the Credit Agreement during 2004                    |  |                                | 2.3  |                               
|Refinancing fees and costs on the Credit Agreement that was refinanced                                                       |  |                                | 3.3  |                               
|Unamortized deferred finance costs expensed relating to the subordinated bridge loan due in 2005 that was fully repaid       |  |                                | 0.9  |                               
|Unamortized premium credited to interest expense on 12.25% Convertible subordinated notes due in 2012 that was fully retired |  |                                | (7.2 | )                             
|Tender premium on the repurchase of the 9.5% Senior subordinated notes due in 2004                                           |  |                                |     |                               
|Unamortized discount expensed relating to the 9.5% Senior subordinated notes due in 2004 that was fully repaid               |  |                                |     |                               
|Fees and costs for early termination of the Company's previous credit facility entered into on January 2, 2002               |  |                                |      |                               
|Interest on long-term debt                                                                                                   |  |                                | 45.1 |                               
|                                                                                                                             |  |                                |      |                               
|Total interest on long-term debt and refinancing costs                                                                       |  | $                              | 78.1 |                               
|                                                                                                                             |  |                                |      |                               

As
a result of the debt reduction and lower rates of interest on the Company's remaining debt, the Company expects interest expense in 2005, excluding the effects of the
tender premium, unamortized deferred finance costs, and refinancing fees and costs, to decline compared to 2004.

General
and administrative expenses for the Company for the 53 weeks ended January 1, 2005, were $51.2 million, or 7.1% of consolidated revenue, compared to
$56.3 million, or 7.8% of consolidated revenue in 2003. For the 53 weeks ended January 1, 2005, general and administrative expenses included the following items:



26

---





For
the 53 weeks ended January 3, 2004, general and administrative expenses included the following items affecting the comparison with 2004:





Income
tax benefit for the 52 weeks ended January 1, 2005, was $1.4 million compared to income tax benefit of $6.5 million for the corresponding period in
2003. The effective tax benefit rate was 27.7% for the 52 weeks ended January 1, 2005, compared to the effective tax benefit rate of 235.0% for the 53 weeks ended
January 3, 2004. The effective tax rate varied from the statutory rate for the 52 weeks ended January 1, 2005, primarily due to changes in the ratio of permanent differences to
income before income taxes, losses incurred in certain jurisdictions that did not offset tax expenses in profitable jurisdictions, and the favorable settlement of income tax audits. For the
53 weeks ended January 3, 2004, the effective income tax rate varied from the statutory rate, primarily because of a $9.7 million favorable settlement of a federal income tax
audit. Future income and losses may require the Company to record a change in the valuation allowance of tax assets that were taken into account in determining the net amount of liability for deferred
income taxes recorded on its balance sheet at January 1, 2005. If this occurs, any resulting increase in the valuation allowance would generally be treated as an additional income tax expense
in the period in which it arises, while any resulting decrease reflecting realization of the benefits of tax assets that had a corresponding valuation allowance established on January 2, 2002,
would be treated as a reduction of goodwill established on January 2, 2002, with any excess over the value assigned to such goodwill recognized as a capital transaction.

27

---



In
accordance with FAS 142, the Company undertook its annual goodwill impairment review during the 16 weeks ended October 9, 2004. Goodwill impairment must be
further assessed, if a reporting unit's carrying amount exceeds its estimated fair value. The Company's reporting units are funeral, cemetery and insurance, which are consistent with the Company's
operating segments. All of the Company's goodwill is recorded in the funeral reporting unit. As a result of the Company's annual goodwill impairment review, there was no indication of goodwill
impairment, as the estimated fair value of the funeral reporting unit exceeded its carrying amount as at October 9, 2004.

At
December 31, 2001, the Company had accrued $57.1 million of reorganization costs related to costs incurred during the Predecessor's reorganization, as well as costs
incurred in connection with the actual emergence and various related activities. As of January 1, 2005, the balance of $11.9 million of reorganization costs, primarily consisting of
accruals for a trustee fee dispute and legal fee reimbursements, has been included in accounts payable and accrued liabilities.

Discontinued Operations

Over the previous three fiscal years, the Company engaged in a strategic market rationalization assessment to dispose of cemetery and funeral operating locations
that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The identification of business operations for disposal is complete.
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. Once a property is added to the disposal list, the Company expects to complete the sale within one year. As of January 1, 2005, the Company had 18
funeral, six cemetery and four combination locations, which have not been sold within one year of being added to the disposal list. The Company has entered into sale agreements for all of these
locations, but is awaiting regulatory approval or purchaser financing arrangements, which have been unexpectedly delayed. The Company continues to include these locations in discontinued operations of
assets held for sale.

During
2003, the Company identified Security Plan Life Insurance Company, its wholly-owned home service insurance company, as a non-strategic asset as it did not support the
Company's pre-need funeral sales efforts. The Company's continuing insurance operations include Mayflower National Life Insurance Company and National Capital Life Insurance Company, its
wholly-owned pre-need life insurance companies. On June 17, 2004, the Company announced the signing of an agreement by its subsidiary Mayflower National Life Insurance Company to
sell all the outstanding shares of Security Plan Life Insurance Company for $85.0 million. The sale concluded on October 1, 2004. After payment of applicable taxes and expenses, and the
recapitalization of Mayflower National Life Insurance Company, the Company utilized $65.0 million of the proceeds to reduce long-term debt. The Company recorded a
pre-tax gain on the sale of $16.0 million for the 52 weeks ended January 1, 2005.

During
the 12 weeks ended March 27, 2004, the Company reduced its estimated proceeds on the group of assets held for sale and as a result recorded an $11.3 million
long-lived asset impairment provision. At that time and previously, the Company expected certain locations to sell as two distinct groups. One group ("Group A") included 23 locations while
another group ("Group B") consisted of 93 locations. The Company had a commitment from a single purchaser to purchase all of Group A, and had interest shown by six different purchasers in
bidding on all of Group B. The impairment reviews done for each of Group A and Group B for the first quarter of the 2004 fiscal year aggregated the carrying values of the locations within each group
to compare against the group's estimated fair value. In the second quarter of the 2004 fiscal year, the initial purchaser of Group A declined to purchase some of the locations in Group A. In addition,
the bids received on Group B were significantly below the Company's expectations, and the Company determined that the locations would generate higher proceeds if sold in smaller groups or as
individual locations.

The
impairment review done in second quarter of the 2004 fiscal year looked at either individual locations or aggregated locations into different groups than used previously for the
impairment review.

28

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Expected
proceeds were estimated for each location or new groups of aggregated locations based on current purchase commitments, offers or comparable transactions. The aggregate expected proceeds for
all locations held for sale did not change significantly from that used in the previous impairment review. However, the impairment review of each location or new groups of aggregated locations
resulted in proceeds being higher or lower than the relevant carrying values.

As
a result, the Company was required to record a long-lived asset impairment provision of $11.5 million within discontinued operations for the 12 weeks ended
June 19, 2004. During the balance of the year, most of these assets were sold, resulting in a gain on sale of approximately $11.0 million. Overall, the Company has recorded an aggregate
$15.2 million long-lived asset impairment provision within discontinued operations for the 52 weeks ended January 1, 2005.

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

During
the 52 weeks ended January 1, 2005, the Company closed 27 funeral homes and sold 52 funeral homes, 67 cemeteries and one combination location for gross
proceeds of $32.4 million.

53 Weeks Ended January 3, 2004 Compared to 52 Weeks Ended December 28, 2002

|                                                       |                                   | 53 Weeks Ended January 3, 2004 |      | 52 Weeks Ended December 28, 2002 |       | 53 Weeks Ended January 3, 2004 |       | 52 Weeks Ended December 28, 2002 |     
|------------------------------------------------------ | --------------------------------- | ------------------------------ | ---- | -------------------------------- | ----- | ------------------------------ | ----- | -------------------------------- | ----
|
|Revenue                                                |                                   |                                |      |                                  |       |                                |       |                                  |     
|                                                       | Funeral                           |                                | $    | 491.6                            |       | $                              | 481.6 |                                  | 68.2
|                                                       | Cemetery                          |                                |      | 167.6                            |       |                                | 156.4 |                                  | 23.3
|                                                       | Insurance                         |                                |      | 61.1                             |       |                                | 54.0  |                                  | 8.5 
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|                                                       |                                   | Total                          |      | $                                | 720.3 |                                | $     | 692.0                            |     
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Gross margin                                           |                                   |                                |      |                                  |       |                                |       |                                  |     
|                                                       | Funeral                           |                                | $    | 113.4                            |       | $                              | 106.8 |                                  | 23.1
|                                                       | Cemetery                          |                                |      | 28.8                             |       |                                | 18.9  |                                  | 17.2
|                                                       | Insurance                         |                                |      | 1.7                              |       |                                | 0.6   |                                  | 2.9 
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|                                                       |                                   | Total                          |      |                                  | 143.9 |                                |       | 126.3                            |     
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Expenses                                               |                                   |                                |      |                                  |       |                                |       |                                  |     
|                                                       | General and administrative        |                                |      | 56.3                             |       |                                | 43.2  |                                  | 7.8 
|                                                       | Provision for goodwill impairment |                                |      |                                 |       |                                | 228.3 |                                  |    
|                                                       | Provision for asset impairment    |                                |      | 4.4                              |       |                                | 0.5   |                                  | 0.6 
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Income (loss) from operations                          |                                   |                                | 83.2 |                                  |       | (145.7                         | )     | 11.6                             |     
|Interest on long-term debt                             |                                   |                                | 76.5 |                                  |       | 85.0                           |       | 10.6                             |     
|Other expenses (income), net                           |                                   |                                | 4.0  |                                  |       | (6.7                           | )     | 0.6                              |     
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Income (loss) before income taxes                      |                                   |                                | 2.7  |                                  |       | (224.0                         | )     | 0.4                              |     
|Income taxes                                           |                                   |                                | (6.5 | )                                |       | (0.5                           | )     | (0.9                             | )   
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Net income (loss) from continuing operations           |                                   |                                | 9.2  |                                  |       | (223.5                         | )     | 1.3                              |     
|Income (loss) from discontinued operations, net of tax |                                   |                                | 1.6  |                                  |       | (10.2                          | )     | 0.2                              |     
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     
|Net income (loss)                                      |                                   | $                              | 10.8 |                                  | $     | (233.7                         | )     | 1.5                              | %   
|                                                       |                                   |                                |      |                                  |       |                                |       |                                  |     

29

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Other
information for the 53 weeks ended January 3, 2004, and 52 weeks ended December 28, 2002, is summarized in the following table. The
impact of the 53rd week was estimated by calculating the weekly average of the 13 weeks ended January 3, 2004. The Company believes the discussion below regarding the
impact of the 53rd week facilitates direct comparability of fiscal year results.

|Continuing Operations:                                                                     |  | January 3,
2004 |         | December 28,
2002 |   | Increase (decrease) | 
|------------------------------------------------------------------------------------------ |  | --------------- | ------- | ----------------- | - | ------------------- | 
|
|Funeral  Other Information                                                                |  |                 |         |                   |   |                     | 
|Number of funeral services performed                                                       |  |                 | 124,798 |                   |   | 125,012             | 
|Estimated impact of the 53rd week on the number of funeral services performed              |  |                 | (2,421  | )                 |   |                    | 
|Number of funeral services performed adjusted for the impact of the 53rd week              |  |                 | 122,377 |                   |   | 125,012             | 
|Average revenue per funeral service                                                        |  | $               | 3,939   |                   | $ | 3,853               | 
|Pre-need funeral contracts written (in millions)                                           |  | $               | 164.8   |                   | $ | 161.1               | 
|Estimated impact of the 53rd week on pre-need funeral contracts written (in millions)      |  | $               | (3.0    | )                 |   |                    | 
|Pre-need funeral contracts written adjusted for the impact of the 53rd week (in millions)  |  | $               | 161.8   |                   | $ | 161.1               | 
|Pre-need funeral conversion (percentages)                                                  |  |                 | 26      |                   |   | 24                  | 
|Cemetery  Other Information                                                               |  |                 |         |                   |   |                     | 
|Pre-need cemetery contracts written (in millions)                                          |  | $               | 82.9    |                   | $ | 77.7                | 
|Estimated impact of the 53rd week on pre-need cemetery contracts written (in millions)     |  | $               | (1.7    | )                 |   |                    | 
|Pre-need cemetery contracts written adjusted for the impact of the 53rd week (in millions) |  | $               | 81.2    |                   | $ | 77.7                | 
|Number of cemetery interments                                                              |  |                 | 47,693  |                   |   | 51,097              | 
|Estimated impact of the 53rd week on the number of cemetery interments                     |  |                 | (909    | )                 |   |                    | 
|Number of cemetery interments adjusted for the impact of the 53rd week                     |  |                 | 46,784  |                   |   | 51,097              | 

Continuing Operations

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

Consolidated
revenue of $720.3 million for the 53 weeks ended January 3, 2004, increased by $28.3 million, or 4.1%, compared to $692.0 million in 2002,
primarily as a result of an increase of $13.9 million in funeral, cemetery and insurance revenue and an estimated increase of $14.4 million due to the additional fifty-third week in
fiscal 2003 over fiscal 2002. Consolidated gross margin as a percentage of revenue increased to 20.0% for the 53 weeks ended January 3, 2004, from 18.3% in 2002. The percentage increase
in gross margin is attributed to the increases in the gross margins of all businesses.

Funeral
revenue of $491.6 million for the 53 weeks ended January 3, 2004, increased by $10.0 million, compared to $481.6 million in 2002, primarily as
a result of an estimated increase of $9.7 million due to the additional fifty-third week in 2003 over 2002. After adjusting for the effect of the fifty-third week, funeral revenue increased
slightly by $0.3 million, primarily as a result of the increase of $86, or 2.2%, in average revenue per funeral service performed, partially offset by a decrease of 2,635, or 2.1%, in the
number of funeral services performed. The increase in average revenue per funeral service performed was achieved through adjusting the Company's mix of merchandise and services. After adjusting for
the effect of the

30

---



fifty-third
week, the number of funeral services performed during the second half of 2003, increased by 396, or 0.6%, over the second half of 2002. The Company believes that the second half increase
in the number of funeral services performed was the result of the Company's overall efforts to improve the level of internal growth.

The
number of cremation services performed as a percentage of total services performed increased to 34% for the 53 weeks ended January 3, 2004, compared to 33% for 2002.
This increase reflects the increasing trend in consumer preferences for cremation services. 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 traditional funeral services.

Funeral
gross margin as a percentage of revenue increased to 23.1% for the 53 weeks ended January 3, 2004, compared to 22.2% in 2002. Decreases in regional management
costs, administration, operating costs, and advertising and promotion costs for the 53 weeks ended January 3, 2004, compared to 2002, were partially offset by increases in insurance,
benefits and wage costs. Due to the fixed nature of funeral costs over the short term, the Company believes that decreases in funeral revenue will not result in a corresponding decrease in funeral
costs and will negatively impact funeral gross margins.

Pre-need
funeral contracts written for the 53 weeks ended January 3, 2004, were $164.8 million. After adjusting for the effect of the fifty-third week,
pre-need funeral contracts written for the 53 weeks ended January 3, 2004, were $161.8 million, compared to $161.1 million in 2002. The increase in
pre-need funeral contracts written of $0.7 million was primarily due to the Company's continuing program to increase pre-need sales. For the 53 weeks ended
January 3, 2004, 26% of funeral volume was derived from backlog, compared to 24% in 2002. 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 $167.6 million for the 53 weeks ended January 3, 2004, was $11.2 million, or 7.1%, higher than cemetery revenue in 2002, primarily due to
the following:



31

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In
addition, pre-need space sales and recognition of pre-need merchandise were higher, but were partially offset by declines in trust and finance income. Cemetery
revenue for the 53 weeks ended January 3, 2004, from the Company's Rose Hills operations was $52.0 million, which was higher than in 2002, primarily due to higher sales of space
and merchandise at the higher end of the product range.

Cemetery
gross margin as a percentage of revenue increased to 17.2% for the 53 weeks ended January 3, 2004, compared to 12.1% for 2002, primarily as a result of the changes
in cemetery revenue discussed above. For the 53 weeks ended January 3, 2004, wages, benefit, regional management, operating and
other costs decreased, while facilities and selling costs increased compared to 2002. The Company's ongoing initiative to improve operational efficiencies contributed to the containment of cost
increases.

Pre-need
cemetery contracts written for the 53 weeks ended January 3, 2004, were $82.9 million. After adjusting for the effect of the fifty-third week,
pre-need cemetery contracts for the 53 weeks ended January 3, 2004, were $81.2 million, $3.5 million higher than in 2002. The increase in pre-need
cemetery contracts written was primarily due to the Company's continuing program to increase pre-need sales. For the 53 weeks ended January 3, 2004, 68% of interments
were at-need and 32% were pre-need fulfillments. Pre-need cemetery sales may initially decrease cash flows if the amount of cash initially collected is insufficient
to cover the amount required to be trusted, sales commissions and other direct costs paid out. However, this cash flow impact is not significant, as the Company sets minimum down payments, maximum
terms and sales commissions rates to maximize cash flow. 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 53 weeks ended January 3, 2004, increased $7.1 million, or 13.2%, compared to 2002. After adjusting for the estimated effect of the
fifty-third week in 2003, insurance revenue increased $6.0 million, or 11.1%, primarily due to increases in premiums of $5.2 million, and interest, dividend and other investment income
of $1.2 million, partially offset by a $0.4 million decrease in realized-investment gains. Insurance premiums are dependent on insurance production, as increases in insurance production
generate increased insurance premiums over time. Insurance production, which represents its participation in the Company's pre-need funeral contracts for the 53 weeks ended
January 3, 2004, was $69.5 million compared to $65.7 million for 2002. Insurance gross margin as a percentage of revenue increased to 2.9% for the 53 weeks ended
January 3, 2004, compared to 1.1% for 2002, primarily due to the revenue increase being at a rate higher than that of the cost increase. The Company expects the insurance gross margin
percentage to grow modestly over the near term.

Interest
expense and refinancing costs on long-term debt for the 53 weeks ended January 3, 2004, was $76.5 million, a decrease of $8.5 million
compared to 2002, primarily reflecting the effect of debt repayments made by the Company during the 52 weeks ended December 28, 2002, and during the 53 weeks ended
January 3, 2004, which were partially offset by costs associated primarily with the

32

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Company's
refinancing of long-term debt that occurred during the 53 weeks ended January 3, 2004, as detailed in the following table.

|                                                                                                               |  | 53 Weeks Ended
January 3, 2004 |      | 52 Weeks Ended
December 28, 2002
|-------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---- | --------------------------------
|
|Tender premium on the repurchase of the 9.5% Senior subordinated notes due in 2004                             |  |                                | 1.3  |                                 
|Unamortized discount expensed relating to the 9.5% Senior subordinated notes due in 2004 that was fully repaid |  |                                | 1.4  |                                 
|Fees and costs for early termination of the Company's previous credit facility entered into on January 2, 2002 |  |                                | 1.5  |                                 
|Interest on long-term debt                                                                                     |  |                                | 72.3 |                                 
|                                                                                                               |  |                                |      |                                 
|Total interest on long-term debt and refinancing costs                                                         |  | $                              | 76.5 |                                 
|                                                                                                               |  |                                |      |                                 

General
and administrative expenses for the Company for the 53 weeks ended January 3, 2004, were $56.3 million, or 7.8% of consolidated revenue, compared to
$43.2 million, or 6.2% of consolidated revenue in 2002. For the 53 weeks ended January 3, 2004, general and administrative expenses included the following items affecting the
comparison with 2003:



33

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During
the Company's reorganization proceedings, the Company and one of its primary insurers, "CNA," had a dispute pertaining to existing collateral supporting the Company's underlying
insurance claims activity. The Company believed that the insurance provider held excess collateral based on the level of claims processed. Accordingly, the Company estimated an expected recovery of
$2.9 million based on its available books and records. During 2002, after further analysis and negotiations, the Company reached a settlement for the return of $7.5 million of excess collateral.
Accordingly, the
Company recorded the additional receivable of $4.6 million balance with an offsetting credit recorded in general and administrative expenses for the 52 weeks ended December 28, 2002.

The
Company has a significant portion of its corporate and administrative functions in Canada. Expenses for these functions are paid principally in Canadian dollars. Due to the weakening
of the US dollar against the Canadian dollar during 2003, the Company estimates that foreign exchange rate movements resulted in an additional $5.0 million in general and administrative expense
for the 53 weeks ended January 3, 2004, compared to 2002.

Income
tax benefit for the 53 weeks ended January 3, 2004, was $6.5 million compared to $0.5 million in 2002. The Company's effective tax rate for the
53 weeks ended January 3, 2004, varied from the statutory tax rate, primarily because the Company favorably settled a federal income tax audit during 2003. The Company received and
recognized a $9.7 million tax benefit for the 53 weeks ended January 3, 2004, in connection with the audit of the Predecessor's 1993 through 1998 federal income tax returns.
Future income and losses may require the Company to record a change in the valuation allowance of tax assets that were taken into account in determining the net amount of liability for deferred income
taxes recorded on its balance sheet at January 3, 2004. If this occurs, any resulting increase in the valuation allowance would generally be treated as an additional income tax expense in the
period in which it arises, while any resulting decrease reflecting realization of the benefits of tax assets that had a corresponding valuation allowance established on January 2, 2002, would
be treated as a reduction of goodwill established on January 2, 2002, with any excess over the value assigned to such goodwill recognized as a capital transaction.

Previously,
the Company designated certain parcels of surplus real estate as probable for sale, as they do not meet the Company's future geographic and strategic objectives. During the
53 weeks ended January 3, 2004, the Company determined that the carrying amounts of certain of these parcels of the surplus real estate exceeded the fair market value, less estimated
costs to sell. Accordingly, the Company recorded a long-lived asset impairment provision of $4.4 million for the 53 weeks ended January 3, 2004. As of
January 3, 2004, the carrying value of real estate held as probable for sale was $20.0 million.

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

At
December 31, 2001, the Company had accrued $57.1 million of reorganization costs related to costs incurred during the Predecessor's reorganization, as well as costs
incurred in connection with the actual emergence and various related activities. Although the Company had expected to pay out the $57.1 million during 2002, delays experienced in the completion
of the reorganization process resulted in a remaining balance of $26.3 million at December 28, 2002. The Company has paid or adjusted accruals of $13.2 million for the
53 weeks ended January 3, 2004, leaving a total accrual of $13.1 million at January 3, 2004. Though emergence occurred on January 2, 2002, it is the Company's
continuing responsibility to resolve allowed amounts for unresolved claims. The unresolved claims relate to the allocation of payments approved by the United States Bankruptcy Court for the
District of Delaware and do not impact the

34

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Company's
obligations under the settlement process. The continuing expenditures continue to be paid and charged against the accrual to complete the remaining reorganization procedures.

Discontinued Operations

During the 53 weeks ended January 3, 2004, the Company identified 124 funeral, 45 cemetery and four combination locations for disposal. The funeral
locations included all 39 funeral locations in the United Kingdom, as they were not strategic to the Company's long-term objective to focus capital and management resources in North
America. The Company also identified for disposal Security Plan Life Insurance Company, its wholly-owned home service insurance company, which was not a strategic asset, as it did not support the
Company's pre-need funeral sales efforts. The Company's continuing insurance operations include Mayflower National Life Insurance Company and National Capital Life Insurance Company, its
wholly-owned pre-need life insurance companies.

As
of January 3, 2004, the Company had 64 funeral, 72 cemetery and four combination locations in North America for disposal. Security Plan Life Insurance Company also remained for
sale. The Company's 39 funeral locations in the United Kingdom were sold on October 20, 2003.

The
Company has classified all the locations identified for disposal as assets held for sale in the consolidated balance sheets and recorded any related operating results,
long-lived asset impairment provisions, and gains or losses recorded on disposition as income from discontinued operations. The Company has also reclassified the prior fiscal year to
reflect any comparative amounts on a similar basis, including locations sold in 2002. All discontinued operations financial information presented under the insurance segment relate to Security Plan
Life Insurance Company.

Pre-need Funeral and Cemetery Backlog for Continuing Operations

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

|                                |                                                                                    | 52 Weeks Ended January 1, 2005 |           | 53 Weeks Ended January 3, 2004 |  
|------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------ | --------- | ------------------------------ | -
|
|Funeral backlog:                |                                                                                    |                                |           |                                |  
|                                | Beginning balance                                                                  |                                | $         | 1,227,126                      |  
|                                | Sales, net of cancellations                                                        |                                |           | 156,466                        |  
|                                | Maturities                                                                         |                                |           | (130,129                       | )
|                                | Net increase in insurance benefits and earnings realized on funeral trust balances |                                |           | 25,214                         |  
|                                | Change in cancellation reserve                                                     |                                |           | (4,025                         | )
|                                | Other                                                                              |                                |           | 5,312                          |  
|                                |                                                                                    |                                |           |                                |  
|                                | Ending balance                                                                     |                                | $         | 1,279,964                      |  
|                                |                                                                                    |                                |           |                                |  
|Trust funded                    |                                                                                    |                                | 351,577   |                                |  
|Third party insurance companies |                                                                                    |                                | 656,981   |                                |  
|Subsidiary insurance companies  |                                                                                    |                                | 271,406   |                                |  
|                                |                                                                                    |                                |           |                                |  
|                                |                                                                                    | $                              | 1,279,964 |                                | $
|                                |                                                                                    |                                |           |                                |  

35

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

|                  |                                              | 52 Weeks Ended January 1, 2005 |   | 53 Weeks Ended January 3, 2004 |  
|----------------- | -------------------------------------------- | ------------------------------ | - | ------------------------------ | -
|
|Cemetery backlog: |                                              |                                |   |                                |  
|                  | Beginning balance                            |                                | $ | 259,496                        |  
|                  | Sales, net of cancellations                  |                                |   | 79,585                         |  
|                  | Maturities                                   |                                |   | (83,237                        | )
|                  | Earnings realized on cemetery trust balances |                                |   | 5,878                          |  
|                  | Change in cancellation reserve               |                                |   | (16                            | )
|                  | Other                                        |                                |   |                               |  
|                  |                                              |                                |   |                                |  
|                  | Ending balance                               |                                | $ | 261,706                        |  
|                  |                                              |                                |   |                                |  

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" and Notes 3, 4 and 5 to the Company's Consolidated
Financial Statements included in Item 8.

Net
cash from continuing operating activities was $103.7 million for the 52 weeks ended January 1, 2005, compared to $137.3 million for 2003. The decrease is
primarily due to increases in the net payment of taxes by $15.4 million and a decrease of $5.2 million in withdrawals of excess funds from funeral and cemetery trusts. In addition, for
2003, there was a $7.5 million cash receipt of a legal claim settlement.

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

Net
cash used in continuing investing activities was $67.8 million for the 52 weeks ended January 1, 2005, compared to $53.4 million for 2003. There was an
increase in the net purchase of insurance invested assets, which consist of fixed income investments. The change in insurance invested assets results from investment of policy premiums received, and
sales and maturities of securities. In addition, capital expenditures increased to $37.2 million for the 52 weeks ended January 1, 2005, and are expected to be between
$30.0 million and $35.0 million in 2005.

Net
cash used in continuing financing activities was $192.5 million for the 52 weeks ended January 1, 2005, compared to $128.4 million for 2003. The increase
was primarily due to higher net repayment of debt during 2004.

The
net increase in cash from discontinued operations was $124.4 million for the 52 weeks ended January 1, 2005, primarily due to the sale of Security Plan Life
Insurance Company for $85.0 million.

The
Company completed the sale of Security Plan Life Insurance Company on October 1, 2004, for gross proceeds of $85.0 million. The Company recorded a pre-tax
gain on the sale of $16.0 million, and after payment of applicable taxes and expenses, and the recapitalization of Mayflower National Life Insurance Company, realized net proceeds of
$65.0 million, which the Company utilized to reduce long-term debt.

36

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The
Company expects to complete the sale of its funeral homes, cemeteries and real estate held for sale in 2005, with the majority of expected proceeds of approximately
$25.0 million used to further reduce long-term debt. Actual amounts could significantly differ from these estimates, as the assets held for sale and proceeds may change as a result
of further negotiations with potential buyers.

As
of January 1, 2005, the Company's cash balance was $9.4 million and the amount available under the Credit Agreement's $75.0 million revolving credit facility (the
"Revolving Credit Facility") was $75.0 million, less $10.0 million in outstanding letters of credit. The Company's debt repayment obligation in 2005 is $9.1 million and aggregates
$262.0 million over the next five years. The Company believes that the Revolving Credit Facility, together with existing cash, cash flow from operations and expected cash proceeds from the sale
of discontinued operations, will be sufficient to meet the Company's anticipated capital expenditures, working capital requirements and debt repayment obligations in both the near and intermediate
terms.

Long-Term Indebtedness

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

|Issue                                                 |                  | Long-Term Indebtedness Carrying Value January 3, 2004 |       | Net increase
(decrease) |   | Long-Term Indebtedness Carrying Value January 1, 2005
|----------------------------------------------------- | ---------------- | ----------------------------------------------------- | ----- | ----------------------- | - | -----------------------------------------------------
|
|Revolving credit facility (a)                         |                  | $                                                     |      |                         | $ |                                                     
|Senior secured Term Loan B due in 2009 (a)            |                  |                                                       | 245.9 |                         |   | 0.9                                                  
|7.75% Senior unsecured notes due in 2012 (b)          |                  |                                                       |      |                         |   | 200.0                                                
|12.25% Senior unsecured notes due in 2009 (c)         |                  |                                                       | 330.0 |                         |   | (325.5                                               
|12.25% Convertible subordinated notes due in 2012 (d) |                  |                                                       | 31.9  |                         |   | (31.9                                                
|Promissory notes and capitalized obligations (e)      |                  |                                                       | 23.1  |                         |   | (10.8                                                
|                                                      |                  |                                                       |       |                         |   |                                                      
|                                                      | Carrying amounts |                                                       | $     | 630.9                   |   | $                                                    
|                                                      |                  |                                                       |       |                         |   |                                                      

---



37

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

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 January 1, 2005, the Company met all of the financial covenants required by the Credit Agreement.

Pursuant
to the indenture governing the Eight-Year Senior Unsecured Notes, the Company has entered into a registration rights agreement (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company is required, on or prior to May 16, 2005, to file an exchange offer registration statement in an appropriate form under the Securities
Act of 1933 with the U.S. Securities and Exchange Commission. Upon the effectiveness of the exchange offer registration statement, the Company will offer holders of the Eight-Year
Senior Unsecured Notes the opportunity to exchange their notes for notes with substantially identical terms covered by the exchange offer registration statement. In the event (i) the Company
fails to timely file an appropriate registration statement, (ii) the registration statement is not timely declared effective, (iii) the Company fails to timely consummate the exchange
offer, or (iv) the registration statement is declared effective, but thereafter ceases to be effective or usable during periods specified in the Registration Rights Agreement (each of
(i) through (iv), a "Registration Default"), then the Company will be subject to liquidated damages within the first 90-day period immediately following the Registration Default, of
0.25% per annum of the outstanding principal amount of the Eight-Year Senior Unsecured Notes. The amount of liquidated damages will increase by an additional 0.25% per annum with respect
to each subsequent 90-day period until the Registration Default has been cured, up to a maximum of 1.00% per annum.

38

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Contractual Obligations and Commercial Commitments

The following table details the Company's contractual obligations of continuing and discontinued operations as of January 1, 2005. Significant changes to
long-term debt are discussed above under "Long-Term Indebtedness."

|                                                     |  |   |         | Payments Due by Period
|---------------------------------------------------- |  | - | ------- | ----------------------
|
|
|Long-term debt (a)                                   |  | $ | 451,335 |                       
|Promissory notes and capitalized obligations (a) (b) |  |   | 12,429  |                       
|Operating leases (c)                                 |  |   | 44,299  |                       
|Purchase obligations (d)                             |  |   | 5,133   |                       
|                                                     |  |   |         |                       
|Total                                                |  | $ | 513,196 |                       
|                                                     |  |   |         |                       

---

In
addition to the operating leases noted in the table above, as of January 1, 2005, the Company leased approximately 1,270 vehicles under a master operating lease agreement,
which has a minimum lease term of 12 months. The Company's practice is to continue these leases on a month-to-month basis after the expiry of the minimum lease term.
Lease payments for these vehicles are projected to be $7.4 million in 2005.

The
Company issues purchase orders for the supply of goods and services for its operations. As of January 1, 2005, there were no significant or unusual purchase orders
outstanding. The Company entered into agreements with certain suppliers of funeral and cemetery merchandise, and office supplies to obtain volume discounts. However, none of these agreements have
committed purchase quantities or prices.

The
following table details the Company's commercial commitments as of January 1, 2005.

|                                   |  |   |        | Amount of Commitment Expiration Per Period
|---------------------------------- |  | - | ------ | ------------------------------------------
|
|
|Lines of credit (a)                |  | $ |       |                                           
|Standby letters of credit (b)      |  |   | 10,013 |                                           
|                                   |  |   |        |                                           
|Total contractual cash obligations |  | $ | 10,013 |                                           
|                                   |  |   |        |                                           

---

39

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The
Company's forward foreign currency exchange contract and foreign currency option commitments are described under Item 7A. " Quantitative and
Qualitative Disclosures About Market Risk."

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as of January 1, 2005, consist of operating leases noted above under "Contractual Obligations and Commercial Commitments."

Other Information

EBITDA from Continuing Operations

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



40

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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 our
indebtedness.

|                                                 |  | 52 Weeks Ended
January 1, 2005 |       | 53 Weeks Ended
January 3, 2004 |   | 52 Weeks Ended
December 28, 2002 |  
|------------------------------------------------ |  | ------------------------------ | ----- | ------------------------------ | - | -------------------------------- | -
|
|EBITDA from continuing operations:               |  |                                |       |                                |   |                                  |  
|Net income (loss) from continuing operations     |  | $                              | (3.8  | )                              | $ | 9.2                              |  
|Income taxes                                     |  |                                | (1.5  | )                              |   | (6.5                             | )
|Interest on long-term debt and refinancing costs |  |                                | 78.1  |                                |   | 76.5                             |  
|Depreciation                                     |  |                                | 42.1  |                                |   | 40.2                             |  
|Provision for goodwill impairment                |  |                                |      |                                |   |                                 |  
|Provision for asset impairment                   |  |                                | 1.9   |                                |   | 4.4                              |  
|                                                 |  |                                |       |                                |   |                                  |  
|EBITDA from continuing operations                |  | $                              | 116.8 |                                | $ | 123.8                            |  
|                                                 |  |                                |       |                                |   |                                  |  

Restrictions

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

Covenants
in the Credit Agreement and 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 subsidiaries are subject to certain state regulations that restrict distributions, loans and advances from such subsidiaries to the Company and its other
subsidiaries. The cash flow used in operations of the insurance subsidiaries for the 52 weeks ended January 1, 2005, was approximately $22.3 million.

41

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Continuing and Discontinued Locations

The Company's number of continuing and discontinued locations by country, state and province as of January 1, 2005, and the overall totals as of
January 1, 2005, and January 3, 2004, are summarized in the table below.

|                                     |                  | Number of Continuing Operations Locations |    | Number of Discontinued Operations Locations |    |    |   |    |    |   
|------------------------------------ | ---------------- | ----------------------------------------- | -- | ------------------------------------------- | -- | -- | - | -- | -- | --
|
|
|
|Canada                               |                  |                                           |    |                                             |    |    |   |    |    |   
|                                     | British Columbia |                                           | 17 |                                             |   |    | 1 |    | 1  |   
|                                     | Alberta          |                                           | 11 |                                             |   |    |  |    |   |   
|                                     | Saskatchewan     |                                           | 23 |                                             |   |    |  |    |   |   
|                                     | Manitoba         |                                           | 3  |                                             | 1  |    | 2 |    |   |   
|                                     | Ontario          |                                           | 22 |                                             |   |    |  |    |   |   
|                                     | Quebec           |                                           | 17 |                                             |   |    |  |    |   |   
|                                     | Nova Scotia      |                                           | 11 |                                             |   |    |  |    |   |   
|                                     |                  |                                           |    |                                             |    |    |   |    |    |   
|Total Canadian                       |                  | 104                                       |    | 1                                           |    | 3  |   | 1  |    | 2 
|United States                        |                  |                                           |    |                                             |    |    |   |    |    |   
|                                     | Alabama          |                                           | 8  |                                             |   |    | 1 |    |   |   
|                                     | Alaska           |                                           | 3  |                                             |   |    |  |    |   |   
|                                     | Arizona          |                                           | 5  |                                             |   |    | 1 |    |   |   
|                                     | Arkansas         |                                           | 3  |                                             |   |    |  |    |   |   
|                                     | California       |                                           | 46 |                                             | 1  |    | 7 |    |   |   
|                                     | Colorado         |                                           | 3  |                                             | 1  |    | 1 |    |   |   
|                                     | Connecticut      |                                           | 3  |                                             |   |    |  |    |   |   
|                                     | Florida          |                                           | 31 |                                             | 5  |    | 8 |    | 13 |   
|                                     | Georgia          |                                           | 25 |                                             | 6  |    | 5 |    |   |   
|                                     | Idaho            |                                           | 4  |                                             | 1  |    |  |    |   |   
|                                     | Illinois         |                                           | 6  |                                             | 16 |    | 3 |    |   |   
|                                     | Indiana          |                                           | 16 |                                             | 4  |    | 1 |    |   |   
|                                     | Kansas           |                                           | 7  |                                             |   |    |  |    |   |   
|                                     | Kentucky         |                                           | 1  |                                             |   |    |  |    |   |   
|                                     | Louisiana        |                                           | 22 |                                             | 2  |    |  |    |   |   
|                                     | Maryland         |                                           | 2  |                                             |   |    |  |    |   |   
|                                     | Massachusetts    |                                           | 13 |                                             |   |    |  |    |   |   
|                                     | Michigan         |                                           | 12 |                                             |   |    |  |    |   |   
|                                     | Minnesota        |                                           | 9  |                                             | 1  |    | 1 |    |   |   
|                                     | Mississippi      |                                           | 21 |                                             | 1  |    | 3 |    | 1  |   
|                                     | Montana          |                                           | 4  |                                             |   |    |  |    |   |   
|                                     | Nevada           |                                           | 2  |                                             |   |    | 1 |    |   |   
|                                     | New Hampshire    |                                           | 4  |                                             |   |    |  |    |   |   
|                                     | New Mexico       |                                           | 5  |                                             |   |    |  |    |   |   
|                                     | New York         |                                           | 38 |                                             | 1  |    |  |    |   |   
|                                     | North Carolina   |                                           | 26 |                                             | 8  |    | 3 |    |   |   
|                                     | Ohio             |                                           | 16 |                                             | 4  |    | 1 |    |   |   
|                                     | Oklahoma         |                                           | 18 |                                             | 1  |    | 1 |    |   |   
|                                     | Oregon           |                                           | 18 |                                             | 1  |    | 3 |    |   |   
|                                     | Pennsylvania     |                                           | 6  |                                             |   |    |  |    |   |   
|                                     | Rhode Island     |                                           | 3  |                                             |   |    |  |    |   |   
|                                     | South Carolina   |                                           | 6  |                                             | 5  |    | 2 |    |   |   
|                                     | Tennessee        |                                           | 31 |                                             | 2  |    | 5 |    |   |   
|                                     | Texas            |                                           | 60 |                                             | 4  |    | 4 |    | 3  |   
|                                     | Virginia         |                                           | 22 |                                             |   |    |  |    |   |   
|                                     | Washington       |                                           | 21 |                                             | 3  |    | 3 |    |   |   
|                                     | West Virginia    |                                           | 3  |                                             |   |    |  |    |   |   
|                                     | Wisconsin        |                                           |   |                                             |   |    |  |    |   |   
|                                     | Puerto Rico      |                                           | 3  |                                             | 5  |    | 2 |    |   |   
|                                     |                  |                                           |    |                                             |    |    |   |    |    |   
|Total United States                  |                  | 526                                       |    | 72                                          |    | 56 |   | 17 |    | 4 
|                                     |                  |                                           |    |                                             |    |    |   |    |    |   
|Overall total, January 1, 2005       |                  | 630                                       |    | 73                                          |    | 59 |   | 18 |    | 6 
|                                     |                  |                                           |    |                                             |    |    |   |    |    |   
|Overall total, as of January 3, 2004 |                  | 665                                       |    | 77                                          |    | 57 |   | 64 |    | 72
|                                     |                  |                                           |    |                                             |    |    |   |    |    |   

42

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FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K, including, but not limited to, information regarding the status and progress
of the Company's operating activities, the plans and objectives of the Company's management, assumptions regarding the Company's future performance and plans, and any financial guidance provided in
this Annual Report on Form 10-K, 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 Annual Report on Form 10-K and particularly below under "Risk Factors" and above under "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The
information appearing in this Annual Report on Form 10-K 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 Annual Report on Form 10-K.

Risk Factors

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

Risks Related to the Company's Debt

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

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



43

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Despite the Company's significant level of debt, the Company may still be able to incur more debt, which could intensify the risks described above.

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

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

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

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



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

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

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

44

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

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



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

Risks Related to the Company

The Company operates in a highly competitive industry.

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

45

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

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

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

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

The
Company recently made significant changes to its pre-need sales force organization. The Company cannot assure that the changes it has made will not result in a decline in
its pre-need sales or that the Company will continue to be successful in recruiting and retaining qualified sales people. In addition, depending on the terms of the contract,
pre-need sales have the potential to have an initial negative impact on cash flows because of the commission paid on the sale and the portion of sales proceeds required to be placed into
trust or escrow. The Company's commission structure emphasizes contracts with positive cash flows; however, the Company cannot assure that in the future it will not enter into pre-need
sales that have a negative impact on cash flows, which could impair its ability to service debt. A weakening economy that causes customer families to have less discretionary income could cause a
decline in pre-need sales. Declines in pre-need cemetery property sales would reduce current revenue, and declines in other pre-need sales would reduce the
Company's pre-need backlog and future revenue and could reduce future market share.

The Company's ability to dispose of certain identified properties and operations at prices consistent with its expectations depends on several factors, many of which are beyond
its control. Any changes in expected sales prices or basis of these properties and operations could result in impairment charges or could adversely affect the Company's ability to sell these
businesses at prices it is willing to accept.

The
Company is currently pursuing the closing of the sale of funeral homes and cemeteries designated as held for sale in North America, because these properties and operations were
either marginal or did not fit within its long-term strategic growth plans. The Company believes that the closing or sale of those businesses will enable its management to focus on its
most productive operations where its operating initiatives may bring about the greatest benefits. In addition, the Company will on a smaller scale, and over time, continue to assess its portfolio of
funeral and cemetery locations to ensure they continue to fit in the

46

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Company's
strategy. The Company cannot assure that it will be able to dispose of these properties and operations or that buyers will accept its terms, nor can the Company give any assurance that the
selling prices of these properties and operations will not be materially different from its expectations. Any variance between the anticipated and actual sale prices or changes in the basis of these
businesses could result in the Company taking an impairment charge or loss or gain on actual sale.

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

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

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

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

The Company's effective income tax rate may vary.

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

Volatility is possible.

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

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

The Company is not expecting to pay any dividends on its Common Stock in the foreseeable future. Certain institutional investors may only invest in
dividend-paying equity securities or may operate under

47

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other
restrictions that may prohibit or limit their ability to invest in the Company's Common Stock. In addition, covenants in the Credit Agreement and indenture governing the Eight-Year
Senior Unsecured Notes restrict, and under certain circumstances prohibit, the payment of dividends by the Company.

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

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

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

The
Company is in the process of completing its evaluation of the effectiveness of its internal control over financial reporting in order to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act, which requires management's assessment of the effectiveness of the Company's internal control over financial reporting as of the end of its most recent
fiscal year. As permitted by the SEC's exemptive order dated November 30, 2004 (Release No. 50754), the Company expects to complete its testing and evaluation of the effectiveness of its
internal control over financial reporting on or before May 2, 2005, and will include the results of such evaluation in an amendment to its Annual Report on Form 10-K, which
amendment will be filed with the SEC. Management has identified a material weakness in the Company's internal control over financial reporting as of January 1, 2005. This material weakness
identified relates to limitations in the capacity of the Company's accounting and tax resources to identify and react in a timely manner to new accounting pronouncements and non-routine
and complex business transactions, as discussed below under "Item 9A. Controls and Procedures." Accordingly, management will not be able to conclude that the Company's internal control over
financial reporting is effective as of the end of the Company's most recently completed fiscal year, and the Company expects that its independent registered public accounting firm will issue an
adverse opinion with respect to internal control over financial reporting. In addition, during the completion of the Company's testing and evaluation of its internal control over financial reporting,
additional deficiencies could be determined to be individually or in the aggregate a material weakness. These factors could have a material adverse effect on the Company's access to capital and the
market price of the Company's Common Stock.

Risks Related to the Company's Industry

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

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

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

There
is an increasing trend in North America toward cremation. According to the Cremation Association of North America, approximately 29% of all deaths in 2003 in the
United States were followed

48

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by
cremation. This figure has grown at approximately 1% annually since 1997 and is projected to continue to grow at a comparable rate over the next three to five years. Compared to traditional funeral
services, cremations have historically generated higher gross profit percentages but lower overall revenues. A substantial increase in the rate of cremations performed by the Company could have a
material adverse effect on its financial condition, results of operations and cash flows.

The funeral home and cemetery industry is highly regulated.

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

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

Funeral and cemetery businesses have high fixed costs.

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

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There
have been no material changes in market risks for the 52 weeks ended January 1, 2005, compared to the 53 weeks ended January 3, 2004.

The
Company's major market risk exposures are to changing interest rates, currency exchange rates and to equity prices. The market risk exposure discussion below provides information
about market-sensitive financial instruments and constitutes "forward-looking statements," which involve risks and uncertainties. Actual results could differ materially from those projected in the
forward-looking statements.

The
Company's exposure to interest rate fluctuations resides primarily in the United States, and the Company's exposure to currency exchange rate fluctuations resides primarily in
investments and operations in Canada, which is generally stable politically and economically and is not highly inflationary.

The
Company continually monitors and evaluates its mix of floating and fixed rate debt and may, from time to time, alter the mix of floating to fixed rate debt through the use of
derivatives, primarily in the form of interest rate swap transactions. No such instruments were in place as of January 1, 2005.

The
Company has a significant portion of its corporate and administrative functions in Canada. Expenses for these functions are paid principally in Canadian dollars and have predictable
future cash

49

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outflows.
The Company has a program to hedge the variability in the United States dollar equivalent of a portion of the Foreign Currency Expenditure due to the fluctuation in the exchange rate
between the United States dollar and Canadian dollar. The Company uses forward foreign exchange contracts and foreign exchange option contracts to partially mitigate foreign exchange
variability. Under the Foreign Currency Hedge Program, losses or gains in the Company's underlying foreign exchange exposure are partially offset by gains or losses on the forward foreign exchange
contracts and foreign exchange option contracts, so as to reduce the magnitude of foreign exchange transaction gains or losses.

A
1% change in exchange rates would cause approximately $0.1 million aggregate change in the fair value of the Company's forward foreign exchange contracts and foreign exchange
option contracts. The table below presents the notional amounts, weighted average foreign exchange rates, and fair values of the outstanding forward foreign exchange contracts and foreign exchange
option contracts, as of January 1, 2005.

|Forward Foreign Exchange Contracts |                 | Exchange United States Dollars for Foreign Currency |   | Notional Weighted
Average Exchange Rate |  | Asset
Fair Value
|---------------------------------- | --------------- | --------------------------------------------------- | - | --------------------------------------- |  | ----------------
|
|Functional currency:               |                 |                                                     |   |                                         |  |                 
|                                   | Canadian dollar |                                                     | $ | 18,000                                  |  | US$0.7612       

As
of January 1, 2005, forward foreign exchange contracts with fair values of $1.1 million and $0.2 million mature during 2005 and 2006, respectively.

|Foreign Exchange Option Contracts |                 | Exchange United States Dollars for Foreign Currency |   | Notional Weighted Average Exchange Rate on Cdn. Calls |  | Notional Weighted Average Exchange Rate on Cdn. Puts |  | Asset
Fair Value
|--------------------------------- | --------------- | --------------------------------------------------- | - | ----------------------------------------------------- |  | ---------------------------------------------------- |  | ----------------
|
|Functional Currency:              |                 |                                                     |   |                                                       |  |                                                      |  |                 
|                                  | Canadian dollar |                                                     | $ | 15,100                                                |  | US$0.8070                                            |  | US$0.7838       

As
of January 1, 2005, foreign exchange option contracts with fair values of $0.7 million and $0.1 million mature during 2005 and 2006, respectively.

Derivative
financial instruments involve credit and market risk. Credit risk arises from the potential for a counterparty to default on its contractual obligations and is limited to
those contracts where the Company would incur a loss in replacing the defaulted transaction. The Company minimizes this risk by diversifying through counterparties that are of strong credit quality.
The Company does not enter into derivative financial instruments for trading purposes.

The
Company's debt instrument sensitivity to floating interest rates is based on the Company's floating rate debt being based in the United States. Accordingly, changes in
U.S. interest rates can affect the interest paid on the Company's floating rate debt. As of January 1, 2005, the Company's total fixed rate debt is $216.9 million, representing
approximately 47% of total debt, and has a weighted average rate of 7.82%. The Company's floating rate exposure of $246.8 million, represents 53% of total debt and has a weighted average rate
of approximately 4.24%. A 1% change in the applicable floating rate indices would cause an approximately $2.5 million change in the Company's annual interest expense.

50

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The
principal cash flows and the related weighted average interest rates for the Company's long-term debt as of January 1, 2005, are presented below. The carrying values of the
Company's debt instruments are included in Note 7 to the Company's Consolidated Financial Statements.

|                       |              | Expected Maturity Date
|---------------------- | ------------ | ----------------------
|
|
|                       |              |                       
|Long-term Debt (1)     |              |                       
|Fixed rate US$ debt    |              | $                     
|                       | Average rate |                       
|Floating rate US$ debt |              | $                     
|                       | Average rate |                       

---

The
Company's exposure to both equity markets and interest rates resides primarily in the United States. The sale of pre-need funeral contracts, pre-need cemetery
merchandise and insurance products results in the Company having significant investment in, and supervising the management of trusts, that have significant investments in cash and cash equivalents,
fixed income and equity securities that are sensitive to current market prices. Fluctuations in interest rates and equity markets do not result in significant current income fluctuation, as the income
from investments held in pre-need funeral trusts and pre-need cemetery merchandise trusts does not impact revenue until services are performed. Investments held in
pre-need cemetery merchandise trusts and insurance invested assets are predominately in fixed income securities. The Company manages the mix of equities and fixed income securities in
accordance with policies set by an investment committee comprised of members of senior management. The investment committee sets and modifies the mix of investments with the assistance of independent
professional financial advisors. The policy emphasizes a conservative approach while maintaining acceptable levels of income and capital appreciation.

51

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

|                                                          |                                                                                                                                                             | Page
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                          |                                                                                                                                                             |     
|Alderwoods Group, Inc., Consolidated Financial Statements |                                                                                                                                                             |     
|                                                          | Report of Independent Registered Public Accounting Firm                                                                                                     |     
|                                                          | Consolidated Balance Sheets as of January 1, 2005 and January 3, 2004                                                                                       |     
|                                                          | Consolidated Statements of Operations for the 52 Weeks Ended January 1, 2005, 53 Weeks Ended January 3, 2004 and 52 Weeks Ended December 28, 2002           |     
|                                                          | Consolidated Statements of Stockholders' Equity for the 52 Weeks Ended January 1, 2005, 53 Weeks Ended January 3, 2004 and 52 Weeks Ended December 28, 2002 |     
|                                                          | Consolidated Statements of Cash Flows for the 52 Weeks Ended January 1, 2005, 53 Weeks Ended January 3, 2004 and 52 Weeks Ended December 28, 2002           |     
|                                                          | Notes to the Consolidated Financial Statements                                                                                                              |     

52

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders
Alderwoods Group, Inc.:

We
have audited the accompanying consolidated balance sheets of Alderwoods Group, Inc. as at January 1, 2005 and January 3, 2004, and the related consolidated
statements of operations, stockholders' equity and cash flows for the fifty-two weeks ended January 1, 2005, the fifty-three weeks ended January 3, 2004, and the fifty-two
weeks ended December 28, 2002. In connection with our audits of the consolidated financial statements, we also have audited the information with respect to the Company in financial statement
Schedule II included in Item 15 of the Company's annual report on Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alderwoods Group, Inc. as at
January 1, 2005 and January 3, 2004, and the results of its operations and its cash flows for the fifty-two weeks ended January 1, 2005, the fifty-three weeks ended
January 3, 2004, and the fifty-two weeks ended December 28, 2002, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for the recognition of interests in variable interest entities and
for insurance funded pre-need funeral contracts.

/s/
KPMG LLP
Chartered Accountants
Vancouver, Canada

March 24,
2005

53

---





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

|                                                        |                                                                                                                     | January 1,
2005 |           | January 3,
2004 |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | --------------- | --------- | --------------- | -
|                                                        |                                                                                                                     |                 |           |                 |  
|ASSETS                                                  |                                                                                                                     |                 |           |                 |  
|Current assets                                          |                                                                                                                     |                 |           |                 |  
|                                                        | Cash and cash equivalents                                                                                           |                 | $         | 9,379           |  
|                                                        | Receivables, net of allowances                                                                                      |                 |           | 66,460          |  
|                                                        | Inventories                                                                                                         |                 |           | 16,714          |  
|                                                        | Other                                                                                                               |                 |           | 27,621          |  
|                                                        | Assets held for sale                                                                                                |                 |           | 85,141          |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     |                 | 205,315   |                 |  
|Pre-need funeral receivables and trust investments      |                                                                                                                     |                 | 335,976   |                 |  
|Pre-need cemetery receivables and trust investments     |                                                                                                                     |                 | 309,591   |                 |  
|Cemetery property                                       |                                                                                                                     |                 | 118,619   |                 |  
|Property and equipment                                  |                                                                                                                     |                 | 539,879   |                 |  
|Insurance invested assets                               |                                                                                                                     |                 | 250,785   |                 |  
|Deferred income tax assets                              |                                                                                                                     |                 | 8,160     |                 |  
|Goodwill                                                |                                                                                                                     |                 | 321,134   |                 |  
|Cemetery perpetual care trust investments               |                                                                                                                     |                 | 245,225   |                 |  
|Other assets                                            |                                                                                                                     |                 | 37,744    |                 |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     | $               | 2,372,428 |                 | $
|                                                        |                                                                                                                     |                 |           |                 |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                    |                                                                                                                     |                 |           |                 |  
|Current liabilities                                     |                                                                                                                     |                 |           |                 |  
|                                                        | Accounts payable and accrued liabilities                                                                            |                 | $         | 140,607         |  
|                                                        | Current maturities of long-term debt                                                                                |                 |           | 9,083           |  
|                                                        | Liabilities associated with assets held for sale                                                                    |                 |           | 63,381          |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     |                 | 213,071   |                 |  
|Long-term debt                                          |                                                                                                                     |                 | 454,557   |                 |  
|Deferred pre-need funeral and cemetery contract revenue |                                                                                                                     |                 | 82,784    |                 |  
|Non-controlling interest in funeral and cemetery trusts |                                                                                                                     |                 | 551,957   |                 |  
|Insurance policy liabilities                            |                                                                                                                     |                 | 214,745   |                 |  
|Deferred income tax liabilities                         |                                                                                                                     |                 | 20,346    |                 |  
|Other liabilities                                       |                                                                                                                     |                 | 21,915    |                 |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     |                 | 1,559,375 |                 |  
|                                                        |                                                                                                                     |                 |           |                 |  
|Non-controlling interest in perpetual care trusts       |                                                                                                                     |                 | 257,141   |                 |  
|Stockholders' equity                                    |                                                                                                                     |                 |           |                 |  
|                                                        | Common stock, $0.01 par value, 100,000,000 shares authorized, 40,017,454 issued and outstanding (2003  39,984,979) |                 |           | 400             |  
|                                                        | Capital in excess of par value                                                                                      |                 |           | 740,210         |  
|                                                        | Accumulated deficit                                                                                                 |                 |           | (213,588        | )
|                                                        | Accumulated other comprehensive income                                                                              |                 |           | 28,890          |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     |                 | 555,912   |                 |  
|                                                        |                                                                                                                     |                 |           |                 |  
|                                                        |                                                                                                                     | $               | 2,372,428 |                 | $
|                                                        |                                                                                                                     |                 |           |                 |  

See accompanying notes to the consolidated financial statements

54

---



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

|                                                                  |                                              | 52 Weeks
Ended
January 1,
2005 |         | 53 Weeks
Ended
January 3,
2004 |   | 52 Weeks
Ended
December 28,
2002 |        
|----------------------------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ------------------------------ | - | -------------------------------- | -------
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Revenue                                                           |                                              |                                |         |                                |   |                                  |        
|                                                                  | Funeral                                      |                                | $       | 472,935                        |   | $                                | 491,612
|                                                                  | Cemetery                                     |                                |         | 163,731                        |   |                                  | 167,542
|                                                                  | Insurance                                    |                                |         | 80,124                         |   |                                  | 61,127 
|                                                                  |                                              |                                |         |                                |   |                                  |        
|                                                                  |                                              |                                | 716,790 |                                |   | 720,281                          |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Costs and expenses                                                |                                              |                                |         |                                |   |                                  |        
|                                                                  | Funeral                                      |                                |         | 376,646                        |   |                                  | 378,195
|                                                                  | Cemetery                                     |                                |         | 139,919                        |   |                                  | 138,767
|                                                                  | Insurance                                    |                                |         | 75,415                         |   |                                  | 59,375 
|                                                                  |                                              |                                |         |                                |   |                                  |        
|                                                                  |                                              |                                | 591,980 |                                |   | 576,337                          |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|                                                                  |                                              |                                | 124,810 |                                |   | 143,944                          |        
|General and administrative expenses                               |                                              |                                | 51,218  |                                |   | 56,281                           |        
|Provision for goodwill impairment                                 |                                              |                                |        |                                |   |                                 |        
|Provision for asset impairment                                    |                                              |                                | 1,922   |                                |   | 4,395                            |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Income (loss) from operations                                     |                                              |                                | 71,670  |                                |   | 83,268                           |        
|Interest on long-term debt and refinancing costs (Note 7)         |                                              |                                | 78,079  |                                |   | 76,453                           |        
|Other expense (income), net                                       |                                              |                                | (1,163  | )                              |   | 4,056                            |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Income (loss) before income taxes                                 |                                              |                                | (5,246  | )                              |   | 2,759                            |        
|Income taxes                                                      |                                              |                                | (1,453  | )                              |   | (6,485                           | )      
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Net income (loss) from continuing operations                      |                                              |                                | (3,793  | )                              |   | 9,244                            |        
|Discontinued operations (Note 19)                                 |                                              |                                |         |                                |   |                                  |        
|                                                                  | Income (loss) from discontinued operations   |                                |         | 19,630                         |   |                                  | 5,985  
|                                                                  | Income taxes                                 |                                |         | 6,488                          |   |                                  | 4,422  
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Income (loss) from discontinued operations                        |                                              |                                | 13,142  |                                |   | 1,563                            |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Net income (loss)                                                 |                                              | $                              | 9,349   |                                | $ | 10,807                           |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Basic and diluted earnings (loss) per Common share:               |                                              |                                |         |                                |   |                                  |        
|                                                                  | Net income (loss) from continuing operations |                                | $       | (0.09                          | ) | $                                | 0.23   
|                                                                  | Income (loss) from discontinued operations   |                                |         | 0.32                           |   |                                  | 0.04   
|                                                                  |                                              |                                |         |                                |   |                                  |        
|                                                                  | Net income (loss)                            |                                | $       | 0.23                           |   | $                                | 0.27   
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Basic weighted average number of shares outstanding (thousands)   |                                              |                                | 40,001  |                                |   | 39,971                           |        
|                                                                  |                                              |                                |         |                                |   |                                  |        
|Diluted weighted average number of shares outstanding (thousands) |                                              |                                | 41,132  |                                |   | 40,465                           |        
|                                                                  |                                              |                                |         |                                |   |                                  |        

See accompanying notes to the consolidated financial statements

55

---



ALDERWOODS GROUP, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        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, 2001 |                                                                                       | 39,878,870                                                                         |                                                                                                                                       | $                      | 399 |                                | $ | 738,953             |     | $                                      |         |          | $
|Comprehensive loss:          |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             | Net loss                                                                              |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          | (233,744 | )
|                             | Other comprehensive income:                                                           |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       | Foreign currency translation adjustment, net of income taxes of $nil               |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       | Unrealized gain on insurance invested assets, net of income taxes of $8,146        |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       |                                                                                    | Less: reclassification adjustments for realized gain on insurance invested assets included in net loss, net of income taxes of $952   |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Comprehensive loss           |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Common stock issued:         |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             | Stock issued in connection with the predecessor company's key employee retention plan |                                                                                    | 54,203                                                                                                                                |                        |     |                                |   |                     | 704 |                                        |          |          |  
|                             | Stock issued as compensation in lieu of cash                                          |                                                                                    | 8,198                                                                                                                                 |                        |     |                                |   |                     | 54  |                                        |          |          |  
|                             |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Balance at December 28, 2002 |                                                                                       | 39,941,271                                                                         |                                                                                                                                       |                        | 399 |                                |   | 739,711             |     |                                        | (233,744 | )        |  
|Comprehensive income:        |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             | Net income                                                                            |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          | 10,807   |  
|                             | Other comprehensive income (loss):                                                    |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       | Foreign currency translation adjustment, net of income taxes of $nil               |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       | Unrealized loss on insurance invested assets, net of income tax recovery of $2,925 |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       |                                                                                    | Less: reclassification adjustments for realized gain on insurance invested assets included in net income, net of income taxes of $345 |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       | Unrealized gain on derivatives, net of income taxes of $nil                        |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Comprehensive income         |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Common stock issued:         |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|                             | Stock issued in connection with the settlement of certain unsecured claims            |                                                                                    | 21,140                                                                                                                                |                        |     | 1                              |   |                     | 106 |                                        |          |          |  
|                             | Stock issued as compensation in lieu of cash                                          |                                                                                    | 18,818                                                                                                                                |                        |     |                                |   |                     | 105 |                                        |          |          |  
|                             | Stock issued under equity incentive plan                                              |                                                                                    | 3,750                                                                                                                                 |                        |     |                                |   |                     | 28  |                                        |          |          |  
|                             |                                                                                       |                                                                                    |                                                                                                                                       |                        |     |                                |   |                     |     |                                        |          |          |  
|Balance at January 3, 2004   |                                                                                       | 39,984,979                                                                         |                                                                                                                                       | $                      | 400 |                                | $ | 739,950             |     | $                                      | (222,937 | )        | $

56

---



|                           |                                                                            | Shares                                                                             |                                                                                                                                         | Common Stock Par Value |     | Capital in Excess of Par Value |   | Accumulated Deficit |     | Accumulated Other Comprehensive Income |          | Total |  
|-------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | --- | ------------------------------ | - | ------------------- | --- | -------------------------------------- | -------- | ----- | -
|Balance at January 3, 2004 |                                                                            | 39,984,979                                                                         |                                                                                                                                         | $                      | 400 |                                | $ | 739,950             |     | $                                      | (222,937 | )     | $
|Comprehensive income:      |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           | Net income                                                                 |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          | 9,349 |  
|                           | Other comprehensive income (loss):                                         |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            | Foreign currency translation adjustment, net of income taxes of $nil               |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            | Unrealized loss on insurance invested assets, net of income tax recovery of $2,770 |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            |                                                                                    | Less: reclassification adjustments for realized gain on insurance invested assets included in net income, net of income taxes of $1,214 |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            | Unrealized gain on derivatives, net of income taxes of $nil                        |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            |                                                                                    | Less: reclassification adjustments for realized gain on derivatives included in net income, net of income taxes of $nil                 |                        |     |                                |   |                     |     |                                        |          |       |  
|                           |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|Comprehensive income       |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|Common stock issued:       |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|                           | Stock issued in connection with the settlement of certain unsecured claims |                                                                                    | 5,977                                                                                                                                   |                        |     |                                |   |                     | 31  |                                        |          |       |  
|                           | Stock issued as compensation in lieu of cash                               |                                                                                    | 16,498                                                                                                                                  |                        |     |                                |   |                     | 173 |                                        |          |       |  
|                           | Stock issued under equity incentive plan                                   |                                                                                    | 10,000                                                                                                                                  |                        |     |                                |   |                     | 56  |                                        |          |       |  
|                           |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  
|Balance at January 1, 2005 |                                                                            | 40,017,454                                                                         |                                                                                                                                         | $                      | 400 |                                | $ | 740,210             |     | $                                      | (213,588 | )     | $
|                           |                                                                            |                                                                                    |                                                                                                                                         |                        |     |                                |   |                     |     |                                        |          |       |  

See accompanying notes to the consolidated financial statements

57

---



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

|                                                        |                                                                     | 52 Weeks
Ended
January 1,
2005    |          | 53 Weeks
Ended
January 3,
2004 |        | 52 Weeks
Ended
December 28,
2002 |         
|------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------- | -------- | ------------------------------ | ------ | -------------------------------- | --------
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|CASH PROVIDED BY (APPLIED TO)                           |                                                                     |                                   |          |                                |        |                                  |         
|Operations                                              |                                                                     |                                   |          |                                |        |                                  |         
|                                                        | Net income (loss)                                                   |                                   | $        | 9,349                          |        | $                                | 10,807  
|                                                        | (Income) loss from discontinued operations, net of tax              |                                   |          | (13,142                        | )      |                                  | (1,563  
|                                                        | Items not affecting cash                                            |                                   |          |                                |        |                                  |         
|                                                        |                                                                     | Depreciation                      |          |                                | 42,085 |                                  |         
|                                                        |                                                                     | Amortization of debt issue costs  |          |                                | 10,118 |                                  |         
|                                                        |                                                                     | Insurance policy benefit reserves |          |                                | 40,705 |                                  |         
|                                                        |                                                                     | Provision for goodwill impairment |          |                                |       |                                  |         
|                                                        |                                                                     | Provision for asset impairment    |          |                                | 1,922  |                                  |         
|                                                        |                                                                     | Loss (gain) on disposal of assets |          |                                | (3,530 | )                                |         
|                                                        |                                                                     | Deferred income taxes             |          |                                | (5,126 | )                                |         
|Premium on long-term debt repurchase                    |                                                                     |                                   | 32,450   |                                |        | 1,266                            |         
|Other, including net changes in other non-cash balances |                                                                     |                                   | (11,104  | )                              |        | 51,112                           |         
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|Net cash provided by continuing operations              |                                                                     |                                   | 103,727  |                                |        | 137,297                          |         
|Net cash provided by discontinued operations            |                                                                     |                                   | 15,862   |                                |        | 18,478                           |         
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|                                                        |                                                                     |                                   | 119,589  |                                |        | 155,775                          |         
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|Investing                                               |                                                                     |                                   |          |                                |        |                                  |         
|                                                        | Proceeds on disposition of business assets                          |                                   |          | 20,917                         |        |                                  | 11,409  
|                                                        | Purchase of property and equipment                                  |                                   |          | (37,183                        | )      |                                  | (25,186 
|                                                        | Purchase of insurance invested assets                               |                                   |          | (138,346                       | )      |                                  | (117,689
|                                                        | Proceeds on disposition and maturities of insurance invested assets |                                   |          | 86,763                         |        |                                  | 78,059  
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|                                                        | Net cash used by continuing operations                              |                                   |          | (67,849                        | )      |                                  | (53,407 
|                                                        | Net cash provided by discontinued operations                        |                                   |          | 108,975                        |        |                                  | 23,694  
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|                                                        |                                                                     |                                   | 41,126   |                                |        | (29,713                          | )       
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|Financing                                               |                                                                     |                                   |          |                                |        |                                  |         
|                                                        | Increase in long-term debt                                          |                                   |          | 390,044                        |        |                                  | 330,455 
|                                                        | Repayment of long-term debt                                         |                                   |          | (582,608                       | )      |                                  | (458,868
|                                                        | Issuance of Common stock                                            |                                   |          | 56                             |        |                                  | 28      
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|                                                        | Net cash used by continuing operations                              |                                   |          | (192,508                       | )      |                                  | (128,385
|                                                        | Net cash used by discontinued operations                            |                                   |          | (440                           | )      |                                  | (2,177  
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|                                                        |                                                                     |                                   | (192,948 | )                              |        | (130,562                         | )       
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|Decrease in cash and cash equivalents                   |                                                                     |                                   | (32,233  | )                              |        | (4,500                           | )       
|Cash and cash equivalents, beginning of year            |                                                                     |                                   | 41,612   |                                |        | 46,112                           |         
|                                                        |                                                                     |                                   |          |                                |        |                                  |         
|Cash and cash equivalents, end of year                  |                                                                     | $                                 | 9,379    |                                | $      | 41,612                           |         
|                                                        |                                                                     |                                   |          |                                |        |                                  |         

See accompanying notes to the consolidated financial statements

58

---





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

NOTE 1.    NATURE OF OPERATIONS

Alderwoods Group, Inc., a Delaware corporation, together with its subsidiaries (collectively, the "Company") is the second-largest operator of funeral
homes and cemeteries in North America based on total revenue and number of locations. As of January 1, 2005, the Company operated 648 funeral homes and 79 cemeteries and
63 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.    BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company, its subsidiaries and operations controlled by the Company through sales and management
agreements. At the beginning of the Company's 2004 fiscal year on January 4, 2004, the Company adopted the Financial Accounting Standard Board's ("FASB") Interpretation No. 46,
"Consolidation of Variable Interest Entities", which was revised in December 2003 ("FIN No. 46R"). As of that date, the Company consolidates approximately 600 trusts and several
pooled investment funds created for such trusts that hold investments for funds transferred by the Company to funeral, cemetery and perpetual care trusts, as the Company is the primary beneficiary
under these arrangements.

The
Company is the successor to The Loewen Group Inc. (the "Predecessor") and its subsidiaries, including Loewen Group International, Inc., a Delaware corporation ("Loewen
International"). The consolidated financial statements have been prepared using the U.S. dollar as the functional currency and are presented in accordance with accounting principles generally
accepted in the United States.

Emergence from reorganization proceedings

On June 1, 1999, the Predecessor filed a petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Delaware and voluntarily filed an application for creditor protection under the Companies' Creditors Arrangement Act with the Ontario Superior Court of
Justice, Toronto, Ontario, Canada (collectively, the "Bankruptcy Courts"). The Bankruptcy Courts confirmed the plan of reorganization (the "Plan") in December 2001 and on January 2, 2002
(the "Effective Date"), the Company emerged from reorganized proceedings. For accounting and reporting purposes, the emergence is reflected as of December 31, 2001, because United States
generally accepted accounting principles require that the financial statements reflect fresh start reporting as of the confirmation date or as of a later date, that is not subsequent to the Effective
Date, when all material conditions precedent to the Plan becoming binding are resolved.

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Though
emergence occurred on January 2, 2002, it is the Company's continuing responsibility to resolve allowed amounts for unresolved claims. The unresolved claims relate to the
allocation of payments approved by the United States Bankruptcy Court for the District of Delaware and do not impact the Company's obligations under the settlement process. The continuing
expenditures continue to be paid and charged against the accrual to complete the remaining reorganization procedures.

At
December 31, 2001, the Company adopted fresh start reporting in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code."

As
a result of the application of fresh start reporting, significant adjustments were made to the Company's historical assets and liabilities, as the fair values varied significantly
from recorded amounts of the Predecessor immediately prior to the date of Plan adoption at December 31, 2001.

NOTE 3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The 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. As a result of the adoption of FIN No. 46R at the beginning of the
Company's 2004 fiscal year on January 4, 2004, the Company also consolidates variable interest entities in which the Company is the primary beneficiary, which includes funeral, cemetery
merchandise and service, and perpetual care trusts, and several pooled investment funds created for such trusts.

All
significant inter-entity balances and transactions have been eliminated in the consolidated financial statements.

Use of estimates

The preparation of the consolidated financial statements in accordance with United States generally accepted accounting principles 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 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.

Funeral operations

Sales of at-need funeral services are recorded as revenue when the service is performed.

Pre-need
funeral services contracts provide for future funeral services, generally determined by prices prevailing at the time the contract is signed. The payments made under
the contract, in part, are either placed in trust or are used to pay the premiums of life insurance policies under which the Company is designated as beneficiary. Pre-need funeral services
contract amounts are deferred until the service is performed. The Company estimates that trust fund investment earnings and annual insurance benefits exceed the increase in cost over time of providing
the related services.

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The
Company records amounts in funeral trusts in which the Company is not the primary beneficiary as amounts receivable from funeral trusts. Earnings in these trusts are deferred until
the service is performed.

The
Company records the assets in the funeral trusts in which the Company is the primary beneficiary as trust investments at their fair value in accordance with the FASB's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS No. 115"). The liabilities of these trusts that are consolidated
consist principally of the trusted portion of the Company's obligation to the pre-need contract holders, which is reflected as non-controlling interest in the trusts.

Realized
earnings from funeral trust investments and related expenses of the trusts are recognized in other expense (income). Typically, an offsetting accretion for the
non-controlling interest in the trusts is included as interest expense in other expense (income). Unrealized gains and losses of funeral trust investments are recorded in both trust
investments and, net of tax, in non-controlling interest in funeral trusts in the Company's consolidated balance sheet.

Selling
costs related to the sale of pre-need funeral services are expensed in the period incurred.

Cemetery operations

Sales of cemetery merchandise and services and at-need cemetery interment rights are recorded as revenue when the merchandise is delivered or service
is performed.

Sales
of pre-need cemetery interment rights are recognized in accordance with the retail land sales provisions of Statement of Financial Accounting Standards No. 66,
"Accounting for Sales of Real Estate" ("FAS No. 66"). Accordingly, provided certain collectibility criteria are met, pre-need cemetery interment right sales of developed
cemetery property are deferred until a minimum of 10 percent of the sales price has been collected, while pre-need cemetery interment right sales of undeveloped cemetery property
are deferred and revenue is recognized on a percentage of completion basis as the cemetery property is developed.

Pursuant
to various state and provincial laws, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trusts. The
Company records the assets in the cemetery merchandise and service trusts in which the Company is the primary beneficiary as trust investments at their fair value in accordance with
FAS No. 115.

The
liabilities of the trust consist principally of the trusted portion of the Company's obligation to the pre-need contract holders, which is reflected as
non-controlling interest in the trusts.

Realized
earnings from cemetery merchandise and service trust investments and related expenses of the trusts are recognized in other expense (income). Typically, an offsetting accretion
expense for the non-controlling interest in the trusts is included as interest expense in other expense (income). The net amount of realized earnings on merchandise and service trust funds
are recorded as cemetery revenue when the merchandise is delivered and service performed. Unrealized gains and losses of cemetery merchandise and service trust investments are recorded in both trust
investments and, net of tax, in non-controlling interest in cemetery merchandise and service trusts in the Company's consolidated balance sheet.

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All
direct and indirect selling costs associated with the sale of cemetery products are expensed in the period incurred. The costs associated with fulfilling the
pre-need cemetery contract are expensed at the same time as the related revenue is recognized. All costs associated with cemetery interment rights are expensed at the time of sale, due to
the revenues being recognized pursuant to FAS No. 66. All costs associated with cemetery merchandise are expensed at the time the
pre-need contract is serviced. All costs associated with cemetery services are expensed as incurred. These costs are generally not incurred until the contract is serviced, due to these
costs primarily being labor costs.

Interest
is imputed at a market rate for financed pre-need cemetery contracts that do not bear a market rate of interest.

Perpetual care trusts

A portion of the proceeds from cemetery sales for interment rights is generally required by law to be paid into perpetual or endowment care trusts. The Company
records the assets in the perpetual care trusts as trust investments at their fair value in accordance with FAS No. 115.

The
principal in perpetual care trusts is required to be held in perpetuity and is not redeemable by the Company or the customer. Accordingly, the equity interest in the perpetual care
trusts is presented as a non-controlling interest in perpetual care trusts between liabilities and stockholders' equity in the Company's consolidated balance sheet.

Realized
earnings from cemetery perpetual care trust investments are recognized in other expense (income) in accordance with FAS No. 115. Typically, an offsetting accretion
expense for the non-controlling interest in perpetual care trusts is also recorded in other expense (income). Distributable earnings from the perpetual care trusts are recognized in
cemetery revenue to the extent of qualifying cemetery maintenance costs. Historically, qualifying cemetery maintenance costs have exceeded distributable earnings at individual cemeteries. Unrealized
gains and losses on perpetual care trust investments are recorded in both cemetery perpetual care trust investments and, net of tax, in non-controlling interest in perpetual care trusts in
the Company's consolidated balance sheet. Generally, net capital gains of cemetery perpetual care trust investments are not eligible for distribution to the Company.

Insurance operations

Insurance invested assets include fixed-maturity investments, cash and short-term investments held by the Company's wholly-owned insurance companies.
The Company classifies all of its fixed-maturity investments held by the Company's insurance companies as available-for-sale. Investments classified as
available-for-sale are carried at fair value with unrealized gains and losses, net of deferred taxes, reflected directly in accumulated other comprehensive income.
Short-term investments include fixed maturities which mature within one year from the date of purchase, money market mutual funds and repurchase agreements.

Insurance
invested liabilities include liabilities for future policy benefits, policy claims and other benefits payable, and premiums collected in advance. The Company establishes a
liability for future policy benefits related to its traditional whole life and limited-payment life insurance products using the net level premium method based on estimated investment yields and
discretionary policy growth rates, mortality, persistency and other assumptions which were considered appropriate at the time the policies were issued.

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Benefit
reserves for annuity contracts represent policy account balances before applicable surrender charges. Additionally, the Company establishes a liability for the impact of known policy benefits
payable and estimated claims that have been incurred but not yet reported to the Company. The estimate of unreported claims is based on prior experience.

For
traditional life and participating life products, premiums are recognized as revenue when due from policyholders. Benefits and expenses are matched with earned premiums to result in
recognition of profits over the life of the policy contracts. This association is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred
policy acquisition costs.

Revenues
from annuity contracts represent amounts assessed against contract holders. Such assessments are principally surrender charges. Policy account balances for annuities represent
the deposits received plus accumulated interest less applicable accumulated administrative fees.

Investment
income, net of investment expenses, and realized gains and losses related to insurance invested assets are included within revenues.

Insurance
costs and expenses include policy benefits and claims, changes in policy benefit reserves, amortization of deferred acquisition costs, commissions, salaries, employee benefits,
and other operating expenses. Policy benefits and expenses are recognized in income over the life of the policy contracts.

To
the extent recoverable, certain costs of acquiring new insurance business have been deferred. Such costs consist of first-year commissions in excess of renewal rates,
related fringe benefit costs, and direct underwriting and issuance costs.

The
deferred policy acquisition costs on traditional life products are amortized with interest over the anticipated premium-paying period of the related policies, in proportion to the
ratio of annual premium revenue to be received over the life of the policies. Expected premium revenue is estimated by using the same mortality and withdrawal assumptions used in computing liabilities
for future policy benefits. The amount of deferred policy acquisition costs is reduced by a provision for possible inflation on maintenance and settlement expenses.

Also,
the present value of future profits of acquired insurance business in force is amortized over the expected premium-paying period of the policies acquired.

Cash and cash equivalents

Cash and cash equivalents include cash and term deposits with a term to maturity at acquisition of less than or equal to 90 days.

Inventories

Inventories are carried at the lower of cost, determined primarily on a specific identification basis or a first-in first-out basis, and
net realizable value.

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Cemetery property

Cemetery property, including capitalized interest, consists of developed plots, lawn crypts, mausoleums or niches and undeveloped land, and is valued at average
cost. Amounts are expensed as revenue from sales of cemetery property is recognized.

Property and equipment

Property and equipment is recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets as follows:

|Buildings and improvements        |  | 10 to 20 years for buildings and the shorter of 10 years or the lease term for leasehold improvements
|--------------------------------- |  | -----------------------------------------------------------------------------------------------------
|Automobiles                       |  | 2 to 5 years                                                                                         
|Furniture, fixtures and equipment |  | 5 to 10 years                                                                                        
|Computer hardware and software    |  | 3 to 6 years                                                                                         

Goodwill and intangible assets

Goodwill, resulting from reorganization value in excess of identifiable net assets and purchase acquisitions, is not amortized, but tested annually for
impairment. The Company's reporting units for goodwill are its reportable funeral and cemetery operating segments, and its insurance reporting unit.

Identifiable
intangible assets consist of deferred insurance policy acquisition costs, present value of future insurance business profits and acquired key employee covenants not to
compete, which are amortized over their respective useful lives using a method reflecting the pattern in which such assets are consumed.

Financial instruments

Financial instruments that potentially subject the Company to concentrations of credit or collection risk principally consist of cash and cash equivalents,
customer receivables, receivables from trust, and trust investments.

The
Company maintains its cash and cash equivalents in bank deposit accounts with various major financial institutions which, at times may exceed federally insured limits. The Company
has not experienced any losses in such deposit accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Concentrations
of credit risk with respect to customer receivables are minimal, due to the low dollar amount of each receivable, the large number of customers and the large dispersion of
the receivables across many geographic areas.

Funeral
and cemetery merchandise and service trust investments represent customer payments on pre-need funeral contracts and pre-need cemetery contracts that are
placed into state regulated trusts, and generally do not subject the Company to significant collection risk. Funds placed into certain state regulated trusts are limited to federally insured deposits
and or U.S. Government bonds. The Company's

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policies
with respect to trust fund investments are specifically designed such that investments are diversified primarily in cash, fixed income and equity securities and are maintained with various
high quality and reputable counterparties, as well as to minimize concentrations of credit risk by not maintaining disproportionately large balances in any one financial counterparty. As of
January 1, 2005, the Company had a significant concentration of small restricted cash trust accounts in the aggregate amount of $63,175,000
(2003  $59,385,000) with one financial institution.

A
summary of the cost and fair values of financial instruments is as follows:

|                                                       |  | January 1, 2005 |           | January 3, 2004
|------------------------------------------------------ |  | --------------- | --------- | ---------------
|
|Funeral trust investments (see Note 4)                 |  | $               | 281,786   |                
|Cemetery trust investments (see Note 5)                |  |                 | 255,674   |                
|Cemetery perpetual care trust investments (see Note 6) |  |                 | 242,298   |                
|Amounts receivable from funeral trusts (see Note 4)    |  |                 | 27,243    |                
|Amounts receivable from cemetery trusts (see Note 5)   |  |                 |          |                
|Long-term debt (see Note 7)                            |  |                 | 463,640   |                
|Insurance invested assets (see Note 8)                 |  |                 | 250,785   |                
|Derivative instruments (see Note 21)                   |  |                 | 2,087     |                
|                                                       |  |                 |           |                
|                                                       |  | $               | 1,523,513 |                
|                                                       |  |                 |           |                

The
carrying amount of cash and cash equivalents, receivables, and accounts payable and accrued liabilities approximates fair value due to the short-term maturities of
these instruments.

Derivative Financial Instruments

The Company accounts for its derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended ("FAS No. 133"). The Company records derivative instruments in the consolidated balance sheet as either an asset or liability
measured at its fair value. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company formally documents, designates
and assesses the effectiveness of transactions that receive hedge accounting.

The
Company has a significant portion of its corporate and administrative functions in Canada. Expenses for these functions are paid principally in Canadian dollars and have predictable
future cash outflows ("Foreign Currency Expenditure"). The Company has a program to hedge the variability in the United States dollar equivalent of a portion of the Foreign Currency Expenditure
due to the fluctuation in the exchange rate between the United States dollar and Canadian dollar ("Foreign Currency Hedge Program"). The Company uses forward foreign exchange contracts and
foreign exchange option contracts to partially mitigate foreign exchange variability. In accordance with FAS No. 133, the Company has designated the Foreign Currency Hedge Program as
qualifying for hedge accounting.

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For
derivatives that qualify and are designated as hedges of future cash flows, the effective portion of changes in fair values (the "Effective Portion") are reported in stockholders'
equity under accumulated other comprehensive income. The Effective Portion is recognized in earnings and included in general and administrative expense when the related Foreign Currency Expenditure
affects earnings. In cases where the Company revises its Foreign Currency Expenditure estimates, the Effective Portion attributable to the extent of any downward change in the Foreign Currency
Expenditure estimates will be reclassified from accumulated other comprehensive income to current earnings and included in general and administrative expenses. The Company designates the change in
fair value of forward foreign exchange contracts due to the change in forward points and the change in fair value of foreign exchange option contracts due to the change in time value as the
"Ineffective Portion." The changes in fair values of derivatives that are not designated as hedges and the Ineffective Portion are recognized currently and included with foreign exchange gains/losses,
which are reported in general and administrative expense.

Stock option plan

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

The
Company applies the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
including FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25," to account for its fixed plan stock
options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Any compensation expense recorded
is charged against operations over the service period, which generally matches the option vesting period. No stock-based employee compensation cost was recorded for the 52 weeks ended
January 1, 2005, the 53 weeks ended January 3, 2004, or the 52 weeks ended December 28, 2002, as all options granted under the Company's stock option plan had an
exercise price equal to or greater than the market value of the underlying Common stock on the grant date. The following table illustrates the effect on net income (loss) and net income (loss) per

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share,
if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation.

|                                                                                                     |                                | 52 Weeks Ended January 1, 2005 |        | 53 Weeks Ended January 3, 2004 |   | 52 Weeks Ended December 28, 2002 |     
|---------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------ | ------ | ------------------------------ | - | -------------------------------- | ----
|Net income (loss), as reported                                                                       |                                | $                              | 9,349  |                                | $ | 10,807                           |     
|Total stock-based employee compensation expense determined under fair value-based method, net of tax |                                |                                | (2,584 | )                              |   | (2,479                           | )   
|                                                                                                     |                                |                                |        |                                |   |                                  |     
|Pro forma net income (loss)                                                                          |                                | $                              | 6,765  |                                | $ | 8,328                            |     
|                                                                                                     |                                |                                |        |                                |   |                                  |     
|Net income (loss) per common share:                                                                  |                                |                                |        |                                |   |                                  |     
|                                                                                                     | Basic and diluted, as reported |                                | $      | 0.23                           |   | $                                | 0.27
|                                                                                                     | Basic and diluted, pro forma   |                                |        | 0.16                           |   |                                  | 0.21

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against deferred
tax assets to the extent recoverability of the asset cannot be considered to be more likely than not.

In
accordance with the principles of fresh start reporting, any future reduction of valuation allowances established at the Effective Date as a result of the utilization of benefits will
reduce goodwill established at the Effective Date or, if such goodwill has been reduced to zero, increase capital in excess of par value.

Foreign currency translation

The assets and liabilities of the Company's foreign subsidiaries, which have a functional currency other than the U.S. dollar, are translated into
U.S. dollars at the rates of exchange as at the consolidated balance sheet date, and revenue and expenses are translated at the average rates of exchange for the periods of operation. The net
gains or losses arising from the translations are included in stockholders' equity as a component of accumulated other comprehensive income in the consolidated statement of stockholders' equity.

Fiscal year

The Company's fiscal year ends on the Saturday nearest to December 31 in each year (whether before or after such date).

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The
first and second fiscal quarters each consist of 12 weeks and the third fiscal quarter consists of 16 weeks. In order to cause the fourth fiscal quarter to end on the
same day as the fiscal year, the fourth fiscal quarter will consist of 13 weeks in certain years.

Comparibility

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

Accounting changes and recent accounting standards

Consolidation of trusts

In January 2003, the FASB issued FIN No. 46R. FIN No. 46R clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," to enterprises that have a variable interest in variable interest entities, and is effective no later than the end of the first reporting period
that ends after March 15, 2004.

The
Company elected to adopt FIN No. 46R at the beginning of its 2004 fiscal year on January 4, 2004. The adoption of FIN No. 46R resulted in the
prospective consolidation in the Company's balance sheet of approximately 600 funeral, cemetery merchandise and service, and perpetual care trusts, and several pooled investment funds created
for such trusts, but did not change the legal relationships among these trusts, pooled investment funds, the Company, and its holders of pre-need contracts. The Company does not
consolidate certain funeral trusts for which the Company does not absorb a majority of their expected losses, as it is not considered the primary beneficiary of these funeral trusts under
FIN No. 46R. The adoption of FIN No. 46R has not materially impacted the Company's stockholders' equity, net income or its consolidated statement of cash flows, nor was
there any adjustment required, due to the cumulative effect of this change in accounting policy; however, other impacts include:



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As
a result of the consolidation of the funeral, cemetery merchandise and service trusts, perpetual care trusts, and several pooled investment funds created for such trusts, the Company
recorded the following as at January 4, 2004:

|Trust assets and liabilities recorded: |                                                            |  |   |         
|-------------------------------------- | ---------------------------------------------------------- |  | - | --------
|                                       | Funeral trust investments                                  |  | $ | 306,888 
|                                       | Cemetery merchandise and service trust investments         |  |   | 272,527 
|                                       | Cemetery perpetual care trust investments                  |  |   | 231,075 
|                                       | Non-controlling interest in funeral and cemetery trusts    |  |   | (578,489
|                                       | Non-controlling interest in perpetual care trusts          |  |   | (261,847
|                                       | Deferred income tax assets                                 |  |   | 284     
|                                       | Deferred income tax liabilities                            |  |   | (1,299  
|                                       | Assets held for sale                                       |  |   | 127,647 
|                                       | Liabilities associated with assets held for sale           |  |   | (96,786 
|Amounts eliminated:                    |                                                            |  |   |         
|                                       | Amounts receivable from funeral trusts, net of allowances  |  |   | (301,395
|                                       | Amounts receivable from cemetery trusts, net of allowances |  |   | (264,452
|                                       | Deferred pre-need funeral contract revenue                 |  |   | 301,395 
|                                       | Deferred pre-need cemetery contract revenue                |  |   | 264,452 

Creditors
of the consolidated trusts have no recourse to the general credit of the Company, except as provided under contracts executed by the Company or its subsidiaries.

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Insurance funded pre-need funeral contracts

The Company has changed its accounting policy on accounting for insurance funded pre-need funeral contracts as of January 4, 2004, as the
Company has concluded that its insurance funded pre-need funeral contracts are not assets and liabilities as defined by Statement of Financial Accounting Concepts No. 6, "Elements
in Financial Statements." Accordingly, the Company has retroactively removed from its consolidated balance sheet amounts relating to insurance funded pre-need funeral contracts previously
included in pre-need funeral contracts with an equal and offsetting amount in deferred pre-need funeral contract revenue. The removal of insurance funded pre-need
funeral contracts did not have any impact on the Company's results of operations, consolidated stockholders' equity, or cash flows. Set forth below is the effect of this removal on total assets and
liabilities for the Company as of January 3, 2004, December 28, 2002, and December 31, 2001.

|                                                                       |  | January 3, 2004 |           | December 28, 2002 |   | December 31, 2001 |  
|---------------------------------------------------------------------- |  | --------------- | --------- | ----------------- | - | ----------------- | -
|Total assets, previously stated                                        |  | $               | 3,115,437 |                   | $ | 3,200,766         |  
|Removal of amounts receivable from third-party insurance companies     |  |                 | (662,434  | )                 |   | (647,116          | )
|                                                                       |  |                 |           |                   |   |                   |  
|Total assets, restated                                                 |  | $               | 2,453,003 |                   | $ | 2,553,650         |  
|                                                                       |  |                 |           |                   |   |                   |  
|Total liabilities, previously stated                                   |  | $               | 2,570,544 |                   | $ | 2,677,364         |  
|Removal of amounts from deferred pre-need funeral and cemetery revenue |  |                 | (662,434  | )                 |   | (647,116          | )
|                                                                       |  |                 |           |                   |   |                   |  
|Total liabilities, restated                                            |  | $               | 1,908,110 |                   | $ | 2,030,248         |  
|                                                                       |  |                 |           |                   |   |                   |  

Recent accounting standards

In March 2004, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 ("EITF 03-1"),
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The guidance is applicable to debt and equity securities that are within the scope
of the FASB Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." EITF 03-1 specifies that an impairment
would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the
recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs
evidence to the contrary. EITF 03-1 was scheduled to be effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to
debt and equity securities have been delayed until the FASB issues additional guidance. The adoption of the measurement and recognition provisions is not expected to have a material impact on the
consolidated financial position, results of operations or cash flows of the Company. The Company adopted the disclosure provisions of EITF 03-1 during the fiscal year
ended January 3, 2004.

In
December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("FAS No. 123R"). FAS No. 123R
requires companies to recognize compensation expense in an amount equal to the fair value of the share-based payment (including share options,

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restricted
share plans, performance-based awards, share appreciation rights, and employee share purchase plans) issued to employees. FAS No. 123R applies to all transactions involving
issuance of equity by a Company in exchange for goods and services, including employees. FAS No. 123R is effective in the first interim or annual reporting period that begins after
June 15, 2005. The Company will adopt FAS No. 123R in the third fiscal quarter of its 2005 fiscal year and expects to use the modified prospective application method, which
results in no restatement of the Company's previously issued annual consolidated financial statements. The adoption of FAS No. 123R using the modified prospective application method is
not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

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

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

71

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NOTE 4.    PRE-NEED FUNERAL RECEIVABLES AND TRUST INVESTMENTS

The balance in pre-need funeral receivables and trust investments represents customer receivables and funeral trust investments related to
unperformed, price-guaranteed, pre-need funeral contracts. The components of pre-need funeral receivables and trust investments in the consolidated balance sheets are
as follows:

January 1, 2005

January 3, 2004Customer receivables

$
37,093

$
35,811Allowance for contract cancellations and refunds


(17,263
)

(14,723
)Funeral trust investments


288,903


Amounts receivable from funeral trusts, net of allowances


27,243


313,642Pre-need funeral receivables and trust investments

$
335,976

$
334,730


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

Certain
of the funeral trusts have not been consolidated, because the Company is not the primary beneficiary. Accordingly, they are reported as amounts receivable from funeral trusts.
Amounts receivable from funeral trusts represent a portion of the proceeds from the sale of pre-need funeral services, deposited in accordance with state and provincial trusting laws with
various financial institutions, together with accrued earnings. The Company will recognize and generally receive these amounts when the merchandise is delivered or service is performed.

As
of January 1, 2005, the fair value of funeral trust investments classified as available-for-sale securities was based on quoted market prices. The
carrying values of restricted cash and equivalents, and other investments approximate their fair values, due to their short-term to maturity. Funeral trust investments are evaluated for
other-than-temporary impairment. Other-than-temporary impairment is required to be reflected in current earnings as a realized loss. It is possible that
changes in interest rates, equity prices and other economic conditions in the near term could result in other-than-temporary impairment that could be significant to the
Company.

It
is not practicable to estimate the fair value of customer receivables, because of the large number of individual contracts, which generally have terms of one to seven years and
contractual or imputed interest rates ranging from 8.00% to 9.75% per annum. It is not practical to estimate the fair value of amounts receivable from funeral trusts, because they are commingled with
other third party funds in various trusts.

72

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As
of January 4, 2004, the Company adopted FIN No. 46R. The transitional provisions do not require restatement of previously issued financial statements.
Accordingly, the table below shows funeral trust investments at their fair values.

January 1, 2005

January 4, 2004Available-for-saleFixed income securities:U.S. Treasury and other Government obligations

$
18,424

$
30,633U.S. Government agencies


11,683


12,367Corporate


10,325


9,146Total bonds


40,432


52,146Mortgaged-backed


17,287


19,435Asset-backed


1,500


1,129Total fixed income securities


59,219


72,710Equity securities


63,175


62,243Total available-for-sale


122,394


134,953Restricted cash and equivalents


131,100


138,192Other


35,409


33,743Funeral trust investments

$
288,903

$
306,888Unrealized gains

$
9,124

$
7,281Unrealized losses


(2,007
)

(1,788
)


Beginning
January 4, 2004, realized investment income from the funeral trust investments, including realized gains and losses are recorded in other expense (income).

During
the 52 weeks ended January 1, 2005, funeral trust available-for-sale securities with a cost of $153,883,000 were sold for proceeds of
$158,035,000, resulting in $7,259,000 and $3,107,000 of realized gains and losses, respectively. The average cost method was used to determine the cost of funeral trust
available-for-sale securities disposed of.

The
Company generally recommends to the trustee the mix of equities and fixed income securities in accordance with policies set by an investment committee comprised of members of senior
management. The investment committee sets the mix of investments within the investment parameters set by various state and provincial regulators and with the assistance of independent professional
financial advisors. The policy emphasizes a capital preservation approach while maintaining acceptable levels of income and capital appreciation.

The
Company has determined that unrealized losses in the funeral trust investments are not other-than-temporary, as the unrealized losses were due to temporary
fluctuations in interest rates and

73

---



equity
prices. The Company's funeral trust investment unrealized losses and their duration as of January 1, 2005, are shown in the following table.

|                                      |                         | Less than
12 Months |        | Greater than
12 Months |   | Total
|------------------------------------- | ----------------------- | ------------------- | ------ | ---------------------- | - | -----
|
|Available-for-sale                    |                         |                     |        |                        |   |      
|                                      | Fixed income securities |                     | $      | 14,887                 |   | $    
|                                      | Equity securities       |                     |        | 10,011                 |   |      
|                                      |                         |                     |        |                        |   |      
|Total temporarily impaired securities |                         | $                   | 24,898 |                        | $ | 1,375
|                                      |                         |                     |        |                        |   |      

Maturities
of fixed income securities are estimated as follows:

January 1, 2005Due in one year or less

$
3,435Due in one to five years


20,360Due in five to ten years


7,360Thereafter


28,064$
59,219


NOTE 5.    PRE-NEED CEMETERY RECEIVABLES AND TRUST INVESTMENTS

The components of pre-need cemetery receivables and trust investments in the consolidated balance sheets are as follows:

January 1, 2005

January 3, 2004Customer receivables

$
63,794

$
73,807Unearned finance income


(5,715
)

(6,891
)Allowance for contract cancellations and refunds


(17,273
)

(18,348
)Cemetery merchandise and service trust investments


268,785


Amounts receivable from cemetery trusts





264,452$
309,591

$
313,020


Amounts
receivable from cemetery trusts represent a portion of the proceeds from the sale of pre-need merchandise and services, deposited in accordance with state and
provincial trusting laws with various financial institutions, together with accrued earnings as of January 3, 2004. The Company will recognize and generally receive these amounts when the
merchandise is delivered or service is performed.

For
pre-need cemetery contract sales, other than sales of pre-need cemetery interment rights, which are recognized in accordance with the retail land sales
provisions of Statement of Financial Accounting

74

---



Standards
No. 66, "Accounting for Sales of Real Estate," an allowance for cancellations and refunds is provided at the time of sale based on management's best estimates and is offset by an
allowance against deferred pre-need funeral and cemetery revenue. For customer receivables, an allowance is provided at the time of the pre-need cemetery contract sale.

As
of January 1, 2005, the fair value of cemetery merchandise and service trust investments classified as available-for-sale securities was based on quoted
market prices. The carrying values of restricted cash and equivalents, and other investments approximate their fair values, due to their short-term to maturity. Cemetery trust investments
are evaluated for other-than-temporary impairment. Other-than-temporary impairment is required to be reflected in current earnings as a realized loss.
It is possible that changes in interest rates, equity prices and other economic conditions in the near term could result in other than temporary impairment that could be significant to the Company.

It
is not practicable to estimate the fair value of customer receivables, because of the large number of individual contracts, which generally have terms of one to seven years and
contractual or imputed interest rates ranging from 8.00% to 9.75% per annum.

As
of January 4, 2004, the Company adopted FIN No. 46R, the transitional provisions of which do not require restatement of previously issued financial statements.
Accordingly, the table below shows cemetery merchandise and service trust investments at their fair values.

January 1, 2005

January 4, 2004Available-for-saleFixed income securities:U.S. Treasury and other Government obligations

$
49,584

$
55,599U.S. Government agencies


24,635


20,199Corporate


19,914


26,068Total bonds


94,133


101,866Mortgaged-backed


34,660


45,831Asset-backed


3,134


4,176Total fixed income securities


131,927


151,873Equity securities


98,990


92,766Total available-for-sale


230,917


244,639Restricted cash and equivalents


37,115


25,853Other


753


2,035Cemetery trust investments

$
268,785

$
272,527Unrealized gains

$
16,194

$
11,650Unrealized losses


(3,083
)

(3,575
)


Beginning
January 4, 2004, realized investment earnings from the cemetery merchandise and service trust investments, including realized gains and losses are recorded in other
expense (income).

75

---



During
the 52 weeks ended January 1, 2005, cemetery merchandise and service trust available-for-sale securities with a cost of $203,825,000 were
sold for proceeds of $205,290,000, resulting in $5,020,000 and $3,555,000 of realized gains and losses, respectively. The average cost method was used to determine the cost of cemetery trust
available-for-sale securities disposed of.

The
Company recommends to the trustee the mix of equities and fixed income securities in accordance with policies set by an investment committee comprised of members of senior
management. The investment committee sets the mix of investments within the investment parameters set by various state and provincial regulators and with the assistance of independent professional
financial advisors. The policy set by the investment committee emphasizes, through an investment grade focus, a capital preservation approach while maintaining acceptable levels of income and capital
appreciation.

The
Company has determined that unrealized losses in the cemetery merchandise and service trust investments are not other-than-temporary, as the unrealized losses
were due to temporary fluctuations in interest rates and equity prices. The Company's cemetery merchandise and service trust investment unrealized losses and their duration as of January 1,
2005, are shown in the following table.

|                                      |                         | Less than
12 Months |        | Greater than
12 Months |   | Total
|------------------------------------- | ----------------------- | ------------------- | ------ | ---------------------- | - | -----
|
|Available-for-sale                    |                         |                     |        |                        |   |      
|                                      | Fixed income securities |                     | $      | 30,498                 |   | $    
|                                      | Equity securities       |                     |        | 14,399                 |   |      
|                                      |                         |                     |        |                        |   |      
|Total temporarily impaired securities |                         | $                   | 44,897 |                        | $ | 2,101
|                                      |                         |                     |        |                        |   |      

Maturities
of fixed income securities are estimated as follows:

January 1, 2005Due in one year or less

$
7,652Due in one to five years


45,357Due in five to ten years


16,396Thereafter


62,522$
131,927


76

---



The
customer receivables as of January 1, 2005, are expected to mature as follows:

End of Fiscal Year2005

$
35,2512006


15,1072007


6,8292008


3,4012009


1,333Thereafter


1,873$
63,794


NOTE 6.    CEMETERY PERPETUAL CARE TRUST INVESTMENTS

A portion of the proceeds from cemetery sales for interment rights is generally required by law to be paid into perpetual care trusts.

As
of January 4, 2004, the Company adopted FIN No. 46R, which requires the consolidation of perpetual care trusts. Previously, perpetual care trusts were not
consolidated, as the principal in these perpetual care trusts cannot be withdrawn by the Company.

As
of January 1, 2005, the fair value of perpetual care trust investments classified as available-for-sale securities were based on quoted market prices.
The carrying values of restricted cash and equivalents, and other investments approximate their fair values, due to their short-term to maturity. Perpetual care trust investments are
evaluated for other-than-temporary impairment. Other-than-temporary impairment is reflected as a reduction in perpetual care trust investments with an
offsetting reduction in non-controlling interest in perpetual care trust. It is possible that changes in interest rates, equity prices and other economic conditions in the near term could
result in other than temporary impairment that could be significant to the Company.

77

---



The
transitional provisions of FIN No. 46R do not require restatement of previously issued financial statements. Accordingly, the table below shows perpetual care trust
investments at their fair values.

January 1, 2005

January 4, 2004Available-for-saleFixed income securities:U.S. Treasury and other Government obligations

$
36,826

$
43,013U.S. Government agencies


34,622


17,196Corporate


38,386


49,902Total bonds


109,834


110,111Mortgaged-backed


74,616


76,103Asset-backed


11,305


13,161Total fixed income securities


195,755


199,375Equity securities


27,670


23,286Total available-for-sale


223,425


222,661Restricted cash and equivalents


21,451


8,072Other


349


342Cemetery perpetual care trust investments

$
245,225

$
231,075Unrealized gains

$
5,271

$
3,634Unrealized losses


(2,344
)

(2,956
)


During
the 52 weeks ended January 1, 2005, perpetual care trust available-for-sale securities with a cost of $171,540,000 were sold for proceeds of
$171,662,000, resulting in $3,469,000 and $3,347,000 of realized gains and losses, respectively. The average cost method was used to determine the cost of perpetual care trust
available-for-sale securities disposed of.

The
Company recommends to the trustee the mix of equities and fixed income securities in accordance with policies set by an investment committee comprised of members of senior
management. The investment committee sets the mix of investments within the investment parameters set by various state and provincial regulators and with the assistance of independent professional
financial advisors. The policy set by the investment committee emphasizes, through an investment grade focus, a capital preservation approach while maintaining acceptable levels of income and capital
appreciation.

The
Company has determined that unrealized losses in the perpetual care trust investments are not other-than-temporary, as the unrealized losses were due to
temporary fluctuations in interest rates and

78

---



equity
prices. The Company's perpetual care trust investment unrealized losses and their duration as of January 1, 2005, are shown in the following table.

|                                      |                         | Less than
12 Months |        | Greater than
12 Months |   | Total
|------------------------------------- | ----------------------- | ------------------- | ------ | ---------------------- | - | -----
|
|Available-for-sale                    |                         |                     |        |                        |   |      
|                                      | Fixed income securities |                     | $      | 70,874                 |   | $    
|                                      | Equity securities       |                     |        | 4,831                  |   |      
|                                      |                         |                     |        |                        |   |      
|Total temporarily impaired securities |                         | $                   | 75,705 |                        | $ | 1,529
|                                      |                         |                     |        |                        |   |      

Maturities
of fixed income securities are estimated as follows:

January 1, 2005Due in one year or less

$
11,354Due in one to five years


67,302Due in five to ten years


24,329Thereafter


92,770$
195,755


NOTE 7.    LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                                                             |  | January 1, 2005 |         | January 3, 2004
|------------------------------------------------------------------------------------------------------------ |  | --------------- | ------- | ---------------
|
|Revolving credit facility (a)                                                                                |  | $               |        |                
|Senior secured term loan B due in 2009 (a)(b)                                                                |  |                 | 246,826 |                
|7.75% Senior unsecured notes due in 2012 (c)                                                                 |  |                 | 200,000 |                
|12.25% Senior unsecured notes due in 2009 (d)                                                                |  |                 | 4,509   |                
|12.25% Convertible subordinated notes due in 2012 (e)                                                        |  |                 |        |                
|Promissory notes and capitalized obligations, certain of which are secured by assets of certain subsidiaries |  |                 | 12,305  |                
|                                                                                                             |  |                 |         |                
|                                                                                                             |  |                 | 463,640 |                
|Less, current maturities of long-term debt                                                                   |  |                 | 9,083   |                
|                                                                                                             |  |                 |         |                
|                                                                                                             |  | $               | 454,557 |                
|                                                                                                             |  |                 |         |                

---

79

---





80

---







81

---





Year

Percentage2008

103.8752009

101.9382010 and thereafter

100.000






82

---





End of Fiscal Year2005

$
9,0832006


4,3892007


4,7002008


3,6492009


240,063Thereafter


201,756$
463,640


83

---



NOTE 8.    INSURANCE ACTIVITIES

Revenue from insurance operations is comprised of the following:

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Premiums

$
67,833

$
52,251

$
46,084Interest, dividend and other investment income


10,560


8,753


7,432Realized investment gains


1,731


123


468$
80,124

$
61,127

$
53,984


As of January 1, 2005, and January 3, 2004, the fair value of insurance operation investments classified as available-for-sale were based on quoted market prices.
The carrying values of cash and short-term investments and other investments approximate their fair values, due to their short-term to maturity. Fixed maturity securities are classified as
available-for-sale and carried at fair value. Investments in debt securities are evaluated for other than temporary impairment. Other than temporary impairment is reflected in
current period income as a realized loss. It is possible that a significant change in economic conditions in the near term could result in losses that could be significant to the Company. Insurance
invested assets carrying and fair values consist of the following:

January 1, 2005

January 3, 2004Available-for-saleFixed income securities:U.S. Treasury and other Government obligations

$
36,405

$
31,027U.S. state and political subdivisions


1,201


1,149Corporate


107,981


86,232Total bonds


145,587


118,408Collaterized mortgages


47,490


29,235Mortgaged-backed


45,385


36,392Asset-backed


10,227


7,666Total available-for-sale


248,689


191,701Cash and short-term investments


2,004


3,951Other


92


788Insurance invested assets

$
250,785

$
196,440


During
the 52 weeks ended January 1, 2005, insurance investments classified as available-for-sale with a cost of $40,021,000
(2003  $32,331,000), were sold for proceeds of $41,752,000 (2003  $32,454,000), resulting in $1,976,000
(2003  $770,000) and $245,000 (2003  $647,000) of realized gains and losses, respectively. The specific cost method was
used to determine the cost of available-for-sale securities disposed of.

Included
in the fair value of insurance investments classified as available-for-sale are $7,666,000 (2003  $6,787,000) and $714,000
(2003  $1,167,000) of unrealized gains and losses, respectively.

84

---



Maturities
of fixed maturity securities, excluding mortgage-backed securities, collateralized mortgage obligations and asset-backed obligations are estimated as follows:

January 1, 2005

January 3, 2004Due in one year or less

$
1,904

$
1,755Due in one to five years


43,760


22,019Due in five to ten years


21,125


32,067Thereafter


78,798


62,567$
145,587

$
118,408


The
Company has determined that unrealized losses in insurance invested assets are not other-than-temporary, as the unrealized losses were due to temporary
fluctuations in interest rates. Insurance invested assets are currently predominantly in fixed income securities. The Company manages the mix of fixed income securities in accordance with policies set
by an investment committee comprised of members of senior management. The investment committee sets and modifies the mix of investments with the assistance of independent professional financial
advisors. The policy emphasizes a conservative approach while maintaining acceptable levels of income and capital appreciation. The unrealized losses and their duration in insurance invested assets as
at January 1, 2005, are shown in the following table.

|                                      |                          | Less than 12 Months                            |        | Greater than 12 Months |        | Total
|------------------------------------- | ------------------------ | ---------------------------------------------- | ------ | ---------------------- | ------ | -----
|
|Available-for-sale                    |                          |                                                |        |                        |        |      
|                                      | Fixed income securities: |                                                |        |                        |        |      
|                                      |                          | U.S. Treasury and other Government obligations |        | $                      | 2,084  |      
|                                      |                          | U.S. state and political subdivisions          |        |                        |       |      
|                                      |                          | Corporate                                      |        |                        | 12,125 |      
|                                      |                          |                                                |        |                        |        |      
|                                      |                          | Total bonds                                    |        |                        | 14,209 |      
|                                      |                          | Collaterized mortgages                         |        |                        | 12,875 |      
|                                      |                          | Mortgaged-backed                               |        |                        | 12,839 |      
|                                      |                          |                                                |        |                        |        |      
|Total temporarily impaired securities |                          | $                                              | 39,923 |                        | $      | 377  
|                                      |                          |                                                |        |                        |        |      

NOTE 9.    STOCKHOLDERS' EQUITY

Capital stock

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.01 per share, of which none have been issued.

The
Company is authorized to issue 100,000,000 shares of Common stock, with a par value of $0.01 per share. The Company has 173,451 shares of Common stock held in reserve, but
unissued, for possible future issuance in connection with certain class 11 claims under the Plan.

85

---



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, of which 43,514 shares have been issued as of January 1, 2005.

In
addition, warrants to purchase 2,992,000 shares of Common stock were issued on the Effective Date. The warrants entitle the holders to purchase, at any time up to January 2,
2007, shares of Common stock at an exercise price of $25.76 per share. The exercise price of the warrants exceeded the fair value of the Company's Common stock on the date of issuance and
throughout the 52 weeks ended January 1, 2005, 53 weeks ended January 3, 2004, and 52 weeks ended December 28, 2002. None of the warrants have been exercised.

Stock option plans

On January 2, 2002, the Company implemented the 2002 Equity Incentive Plan (the "Equity Incentive Plan"). The Company's Board of Directors (or a committee
thereof) may determine the awards to be granted under the Equity Incentive Plan. The Equity Incentive Plan provides for 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 available for issuance in satisfaction of awards under the Equity Incentive 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 3-year terms 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.

86

---



The
following is a summary of the total number of outstanding stock options:

|                             |  | Outstanding Options |   | Weighted Average Exercise Price
|---------------------------- |  | ------------------- | - | -------------------------------
|
|Balance at December 31, 2001 |  |                    |   |                                
|Granted                      |  | 3,730               |   | $                              
|Exercised                    |  |                    |   |                                
|Cancelled                    |  | (260                | ) |                                
|                             |  |                     |   |                                
|Balance at December 28, 2002 |  | 3,470               |   |                                
|Granted                      |  | 1,220               |   |                                
|Exercised                    |  | (4                  | ) |                                
|Cancelled                    |  | (501                | ) |                                
|                             |  |                     |   |                                
|Balance at January 3, 2004   |  | 4,185               |   |                                
|Granted                      |  | 70                  |   |                                
|Exercised                    |  | (10                 | ) |                                
|Cancelled                    |  |                    |   |                                
|                             |  |                     |   |                                
|Balance at January 1, 2005   |  | 4,245               |   | $                              
|                             |  |                     |   |                                

The
following table summarizes information about stock options outstanding at January 1, 2005:

|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            |  | 1,205              |  | 8.24                                        |  | $                               | 3.65  |                    | 298   |                                
|$5.97  $7.59            |  | 1,150              |  | 7.48                                        |  |                                 | 7.48  |                    | 572   |                                
|$7.60  $13.23           |  | 1,890              |  | 7.22                                        |  |                                 | 13.09 |                    | 1,405 |                                
|                         |  |                    |  |                                             |  |                                 |       |                    |       |                                
|                         |  | 4,245              |  | 7.58                                        |  |                                 | 8.89  |                    | 2,275 |                                
|                         |  |                    |  |                                             |  |                                 |       |                    |       |                                

FAS
No. 123 requires disclosure of pro forma amounts to reflect the impact as if the Company had elected to adopt the optional fair value expense recognition provisions of
FAS No. 123 for its stock option plans. The following table illustrates the effect on net income (loss) and net income (loss) per share, if the

87

---



Company
had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation using the Black-Scholes option pricing methodology.

52 Weeks Ended January 1,
2005

53 Weeks Ended January 3,
2004

52 Weeks Ended December 28,
2002Net income (loss):As reported

$
9,349

$
10,807

$(233,744
)Pro forma, net of tax


6,765


8,328

(237,315
)Basic and diluted earnings (loss) (dollars per Common share):As reported

$
0.23

$
0.27

$(5.86
)Pro forma


0.16


0.21

(5.95
)


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

Weighted-average assumptions

January 1, 2005

January 3, 2004

December 28,
2002Dividend yield

0.0%

0.0%

0.0%Expected volatility

41.5%

32.9%

32.9%Risk-free interest rate

1.93%

3.1%

3.1%Expected option life in years

3

3

3


The
weighted average fair value of the Company's stock options, calculated using the Black-Scholes option-pricing model, granted during the 52 weeks ended January 1, 2005,
was $2.84 (2003  $0.96, 2002  $2.93) per option.

The
Black-Scholes option-pricing model was developed for use in estimating the fair value of 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.

88

---



Accumulated other comprehensive income

The components of accumulated other comprehensive income are as follows:

|                           |                  | Foreign Currency Translation Adjustment |        | Unrealized Gain on Insurance Invested Assets |   | Unrealized Gain on Derivatives |        | Accumulated Other Comprehensive Income
|-------------------------- | ---------------- | --------------------------------------- | ------ | -------------------------------------------- | - | ------------------------------ | ------ | --------------------------------------
|Balance, December 31, 2001 |                  | $                                       |       |                                              | $ |                               |        | $                                     
|                           | Activity in 2002 |                                         |        | 1,942                                        |   |                                | 15,094 |                                       
|                           |                  |                                         |        |                                              |   |                                |        |                                       
|Balance, December 28, 2002 |                  |                                         | 1,942  |                                              |   | 15,094                         |        |                                       
|                           | Activity in 2003 |                                         |        | 15,187                                       |   |                                | (5,432 | )                                     
|                           |                  |                                         |        |                                              |   |                                |        |                                       
|Balance, January 3, 2004   |                  |                                         | 17,129 |                                              |   | 9,662                          |        |                                       
|                           | Activity in 2004 |                                         |        | 5,324                                        |   |                                | (5,144 | )                                     
|                           |                  |                                         |        |                                              |   |                                |        |                                       
|Balance, January 1, 2005   |                  | $                                       | 22,453 |                                              | $ | 4,518                          |        | $                                     
|                           |                  |                                         |        |                                              |   |                                |        |                                       

NOTE 10.    LEGAL CONTINGENCIES

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

NOTE 11.    COMMITMENTS AND CONTINGENCIES

Leases

The future annual payments for operating leases with terms greater than one year, primarily for premises, automobiles and office equipment, are as follows:

Premises

Automobiles

Other

Total2005

$
7,686

$
1,085

$
431

$
9,2022006


5,929


684


218


6,8312007


5,047


338


93


5,4782008


4,135


95


25


4,2552009


3,542





4


3,546Thereafter


14,987








14,987


In
addition to the automobile leases noted in the table above, as at January 1, 2005, the Company leased approximately 1,270 vehicles under a master operating lease agreement,
which has a minimum lease term of 12 months. The Company's practice is to continue these leases on a month-to-month basis after the expiry of the minimum lease term. Lease payments for these
vehicles are projected to be $7,417,000 in 2005.

89

---



Total
expense incurred under all operating leases for the 52 weeks ended January 1, 2005, was $21,739,000 (2003  $23,181,000,
2002  $22,731,000).

Environmental contingencies and liabilities

The Company's operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities in the jurisdictions
in which the Company operates. On a continuing basis, the Company's business practices are designed to assess and evaluate environmental risk and, when necessary, conduct appropriate corrective
measures. Liabilities are recorded when known or considered probable and reasonably estimable.

The
Company provides for environmental liabilities using its best estimates. Actual environmental liabilities could differ significantly from these estimates.

NOTE 12.    RETIREMENT PLANS

The Company has a 401(K) Retirement Savings Plan for United States employees who may defer between 1% and 75% of their eligible compensation. The Company will
match between 50% and 100% of employee contributions to a maximum of either 2% of employees' eligible compensation for certain employees or $2,000 for others. There are no required future
contributions under this plan in respect of past service.

The
Company has a Registered Retirement Savings Plan for Canadian employees who may contribute either 3% or 5% of their compensation which is matched by an equal contribution to the plan
by the Company on behalf of employees. There are no required future contributions under this plan in respect of past service.

The
Company's total expense for these retirement plans for the 52 weeks ended January 1, 2005, was approximately $2,675,000
(2003  $2,650,000, 2002  $2,686,000).

NOTE 13.    INCOME TAXES

The provision or benefit for income taxes included United States federal income taxes, determined on a consolidated return basis, foreign, state and local income
taxes.

Income
(loss) before income taxes was as follows:

52 Weeks Ended January 1,
2005

53 Weeks Ended January 3,
2004

52 Weeks Ended December 28,
2002United States

$
(12,954
)
$
(2,731
)
$
(232,383
)Foreign


7,708


5,490


8,343$
(5,246
)
$
2,759

$
(224,040
)


90

---



Income
tax provision (recovery) consisted of the following:

52 Weeks Ended January 1,
2005

53 Weeks Ended January 3,
2004

52 Weeks Ended December 28,
2002Current:United States

$
(3,243
)
$
(5,575
)
$
(2,506
)Foreign


319


386


(1,069
)State and local


6,597


654


4,3813,673


(4,535
)

806Deferred:United States


(1,380
)

(1,950
)

(1,350
)Foreign


(31
)




State and local


(3,715
)




(5,126
)

(1,950
)

(1,350
)Total provision

$
(1,453
)
$
(6,485
)
$
(544
)


The
Company made income tax payments of $8,160,000 (2003  $9,920,000, 2002  $10,910,000), excluding income
tax refunds of $1,323,000 (2003  $17,029,000, 2002  $8,251,000), during the 52 weeks ended
January 1, 2005.

The
difference between the U.S. federal statutory income tax rate and the effective tax rate was as follows:

52 Weeks Ended January 1,
2005

53 Weeks Ended January 3,
2004

52 Weeks Ended December 28,
2002U.S. Federal statutory tax rate

35.0%

35.0%

35.0%State and local taxes

(54.9)

23.7

(2.0)Non-deductible or non-taxable amounts, change in valuation allowance and other

(73.2)

(0.5)

2.4Non-deductible goodwill impairment





(37.9)Result of favourable outcome of tax audits

120.8

(293.2)

2.7Effective income tax rate

27.7%

(235.0)%

0.2%


91

---



The
tax effects of temporary differences that give rise to significant deferred tax assets and liabilities are as follows:

January 1, 2005

January 3, 2004Deferred tax liabilitiesReceivables

$


$
1,267Property and equipment


49,110


59,274Pre-need funeral receivables and trust investments


122,424


130,429Pre-need cemetery receivables and trust investments


85,952


63,922Cemetery perpetual care trust investments


730


Insurance invested assets


2,433


2,076Goodwill


17,600


13,725Total deferred tax liabilities


278,249


270,693Deferred tax assetsReceivables


2,314


Cemetery property


57,963


68,848Accounts payable and accrued liabilities


13,082


17,885Pre-need funeral and cemetery obligations


272,396


284,119Insurance policy liabilities


11,828


8,062Covenants not to compete


9,668


14,948Deferred agency costs


14,315


25,701Operating and capital loss carryforwards


340,589


273,712Other


10,883


13,868Total deferred tax assets before valuation allowance


733,038


707,143Valuation allowance


(466,975
)

(451,181
)Total deferred tax assets after valuation allowance


266,063


255,962Net deferred tax liabilities of continuing operations

$
12,186

$
14,731


Although
realization of the Company's net deferred tax assets is not assured, management believes that it is more likely than not that reversals of deferred tax liabilities and the
expected profitability of the Company's insurance operations over the next 15 years will provide sufficient taxable income to realize the deferred tax assets after consideration of the
valuation allowance. It is possible that the estimated valuation allowance could change in the near term due to matters such as the timing and manner of reversals of deferred tax liabilities, sales of
operations and future income or loss. If this occurs, any resulting increase in the valuation allowance would generally be treated as an additional income tax expense in the period in which it
arises, while any resulting decrease reflecting realization of the benefits of tax assets that had a corresponding valuation allowance established on the Effective Date would be treated as a reduction
of goodwill established on the Effective Date, with any excess over the value assigned to such goodwill recognized as a capital transaction.

92

---



As
a result of the Company's emergence from bankruptcy, all federal net operating loss carryforwards of the Company generated prior to emergence and during fiscal 2002, have been
eliminated. As a result, the Company's net operating loss carryforwards pertaining to federal, state, local, and foreign jurisdictions will expire as follows:

End of Fiscal Year2005

$
12,7262006


9,7512007


16,1832008


17,3952009


16,264Thereafter


647,807$
720,126


The
amount of loss carryforwards reflects the Company's best estimate of the effects that the confirmation and implementation of the Plan will have on the reduction and in some cases
elimination of certain net operating loss carryforwards for income tax purposes. These amounts are subject to final determination by taxation authorities. Further, the Company expects its ability to
utilize certain net operating losses to offset future Company taxable income in any particular year may be limited because distribution of the Company's Common stock to the Company's creditors
pursuant to the Plan has resulted in an ownership change as defined in Section 382 of the Internal Revenue Code. The Company believes that uncertainty exists with respect to future realization
of the loss carryforwards and a full valuation allowance has been established for the net operating loss carryforwards.

Deferred
tax liabilities are not recognized for basis differences related to investments in foreign subsidiaries that are essentially permanent in duration.

Goodwill
that is expected to be deductible for tax purposes at January 1, 2005 is $92,638,000
(2003  $112,177,000, 2002  $124,854,000).

93

---





NOTE 14.    SUPPLEMENTARY STATEMENTS OF CASH FLOWS DISCLOSURE

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

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Decrease (increase) in assets:Receivables, net of allowancesTrade

$
(2,387
)
$
(6,776
)

2,814Other


(5,824
)

18,352


4,004Inventories


836


1,516


4,381Prepaid expenses


(658
)

(2,283
)

1,147Cemetery property


(10,238
)

(3,281
)

(8,431
)Other assets


(18,932
)

(12,535
)

(11,142
)Increase (decrease) in liabilities:Accounts payable and accrued liabilities


(14,176
)

(7,330
)

(17,262
)Net effect of pre-need receivables and deferred revenue


35,150


52,552


10,650Other liabilities


6,464


(2,754
)

(2,743
)Insurance policy liabilities


1,831


5,811


5,842Other changes in non-cash balances


(3,170
)

7,840


9,825$
(11,104
)
$
51,112


(915
)Supplemental information:Interest paid

$
53,918

$
77,290

$
74,300Income taxes paid, net of refunds


6,837


(7,109
)

2,659Long-term debt issue costs paid


12,094


10,908


295Bad debt expense


3,722


3,661


5,978Non-cash investing and financing activities:Stock issued in connection with Predecessor's key employee retention plan








704Stock issued in connection with the settlement of certain unsecured claims


31


107


Stock issued as compensation in lieu of cash


173


105


54Capital leases entered into





160


839


94

---



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


356,254





Proceeds on disposition and maturities of funeral, and cemetery, and perpetual care trust investments


375,191





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


50,602





Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts


81,575








NOTE 15.    SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

January 1, 2005

January 3, 2004Receivables, net of allowances:Customer receivables

$
68,721

$
64,016Allowance for doubtful accounts


(12,029
)

(9,912
)Other


9,768


3,972$
66,460

$
58,076Cemetery property:Developed land and lawn crypts

$
37,311

$
34,828Undeveloped land


30,660


31,070Mausoleums


50,648


51,464$
118,619

$
117,362Property and equipment:Land

$
166,252

$
177,489Buildings and improvements


368,230


350,411Automobiles


13,003


13,819Furniture, fixtures and equipment


54,298


45,365Computer hardware and software


23,306


16,607Accumulated depreciation


(85,210
)

(55,173
)$
539,879

$
548,518


95

---



Other assets:Intangible assets

$
15,060

$
10,912Deferred finance costs

$
10,339

$
8,072Notes receivable


2,696


2,503Other


9,649


9,867$
37,744

$
31,354Accounts payable and accrued liabilities:Trade payables

$
19,847

$
22,008Interest


7,210


15,048Accrued liabilities


32,421


43,921Accrued insurance


18,057


15,183Accrued taxes


44,785


46,048Other


18,287


12,075$
140,607

$
154,283Deferred pre-need contract revenue:Funeral

$
69,215

$
341,168Cemetery


13,569


259,496$
82,784

$
600,664Other liabilities:Perpetual care liability


7,487

$
8,182Notes payable


12,667


9,763Other


1,761


(2,515
)$
21,915

$
15,430


96

---



52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Other expense (income), net:For funeral, cemetery and perpetual care trust investments:Realized gains

$
(15,748
)
$


$
Realized losses


10,009





Interest and dividend income


(24,915
)




Trust investment expenses and income taxes


5,169





Interest expense related to non-controlling interest in funeral and cemetery trusts


18,335





Non-controlling interest in perpetual care trusts


7,150





(Gain) loss on disposal of business and other assets


(3,529
)

1,056


(71
)Other


2,366


3,000


(6,624
)$
(1,163
)
$
4,056

$
(6,695
)


The
trust investment and non-controlling interest balances do not have comparable 2003 and 2002 balances due to the Company adopting FIN No. 46R at the
beginning of its 2004 fiscal year on January 4, 2004.

NOTE 16.    GOODWILL

FAS No. 142 requires that goodwill be reviewed for impairment annually, as well as upon the occurrence of certain events that would more likely than not
reduce the fair value of a reporting unit
below its carrying amount. Under FAS No. 142, goodwill impairment is deemed to exist, and must then be further assessed, if a reporting unit's carrying amount exceeds its estimated fair value.
The Company's reporting units are funeral, cemetery and insurance, which are consistent with the Company's operating segments. All of the Company's goodwill is recorded in the funeral reporting unit.
In accordance with FAS No. 142, the Company undertook its annual goodwill impairment review during the third fiscal quarters of 2004 and 2003, and, as a result, there was no indication of
goodwill impairment as at October 9, 2004, or October 4, 2003, as the estimated fair value of the funeral reporting unit exceeded its carrying amount. A goodwill impairment provision of
$228,281,000 for the funeral reporting unit was recorded for the 52 weeks ended December 28, 2002. The fair value of the funeral reporting unit was determined by using a discounted cash
flow valuation methodology consistent with that applied at the Effective Date, with a discount rate comparable with other enterprises in the death care industry, adjusted for risks associated with
differences in company size, certain characteristics specific to the Company and cash flow projection risk.

The
2002 funeral reporting unit goodwill impairment provision was primarily the result of a reduction of the projected financial results used in the valuation of the funeral reporting
unit compared to those used during the reorganization process and the determination of reorganization value as set forth in the Plan.

97

---



The
financial projections were reduced principally due to actual 2002 operating results. The lower valuation was also affected by the decline in the economy generally, as well as the decline in
funeral industry-specific market values.

The
changes in the carrying amount of goodwill for the funeral reporting unit are as follows:

52 Weeks
Ended
January 1,
2005

53 Weeks
Ended
January 3,
2004Balance, beginning of year

$
320,640

$
320,563Adjustments


494


77Balance, end of year

$
321,134

$
320,640


98

---



NOTE 17.    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 (see Note 1).

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

|                                    |                                  | Funeral |   | Cemetery  |   | Insurance |         | Other |   | Consolidated | 
|----------------------------------- | -------------------------------- | ------- | - | --------- | - | --------- | ------- | ----- | - | ------------ | 
|                                    |                                  |         |   |           |   |           |         |       |   |              | 
|Revenue earned from external sales: |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | 52 weeks ended January 1, 2005   |         | $ | 472,935   |   | $         | 163,731 |       | $ | 80,124       | 
|                                    | 53 weeks ended January 3, 2004   |         | $ | 491,612   |   | $         | 167,542 |       | $ | 61,127       | 
|                                    | 52 weeks ended December 28, 2002 |         | $ | 481,632   |   | $         | 156,381 |       | $ | 53,984       | 
|Income (loss) from operations:      |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | 52 weeks ended January 1, 2005   |         | $ | 94,640    |   | $         | 23,539  |       | $ | 4,709        | 
|                                    | 53 weeks ended January 3, 2004   |         | $ | 110,529   |   | $         | 27,268  |       | $ | 1,752        | 
|                                    | 52 weeks ended December 28, 2002 |         | $ | (121,631  | ) | $         | 18,525  |       | $ | 609          | 
|Depreciation:                       |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | 52 weeks ended January 1, 2005   |         | $ | 24,283    |   | $         | 14,054  |       | $ | 166          | 
|                                    | 53 weeks ended January 3, 2004   |         | $ | 24,194    |   | $         | 13,324  |       | $ | 139          | 
|                                    | 52 weeks ended December 28, 2002 |         | $ | 23,277    |   | $         | 12,348  |       | $ | 109          | 
|Total assets:                       |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | January 1, 2005                  |         | $ | 1,154,019 |   | $         | 878,350 |       | $ | 272,823      | 
|                                    | January 3, 2004                  |         | $ | 1,218,974 |   | $         | 668,357 |       | $ | 481,622      | 
|                                    | December 28, 2002                |         | $ | 1,261,220 |   | $         | 769,350 |       | $ | 442,617      | 
|Goodwill:                           |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | January 1, 2005                  |         | $ | 321,134   |   | $         |        |       | $ |             | 
|                                    | January 3, 2004                  |         | $ | 320,640   |   | $         |        |       | $ |             | 
|Purchase of property and equipment: |                                  |         |   |           |   |           |         |       |   |              | 
|                                    | 52 weeks ended January 1, 2005   |         | $ | 23,273    |   | $         | 3,362   |       | $ | 74           | 
|                                    | 53 weeks ended January 3, 2004   |         | $ | 18,640    |   | $         | 2,276   |       | $ | 183          | 
|                                    | 52 weeks ended December 28, 2002 |         | $ | 18,924    |   | $         | 574     |       | $ | 202          | 

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

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Earnings (loss) from operations of funeral, cemetery and insurance segments

$
122,888

$
139,549

$
(102,497
)Other expenses of operations:General and administrative expenses


(51,218
)

(56,281
)

(43,188
)Income (loss) from operations

$
71,760

$
83,268

$
(145,685
)


99

---



The
following table reconciles total assets of reportable segments and details the components of "Other" segment assets, which is mainly comprised of corporate assets:

January 1, 2005

January 3, 2004

December 28, 2002Total assets of funeral, cemetery and insurance segments

$
2,305,192

$
2,368,953

$
2,473,187"Other" assets includes:Cash


2,038


30,911


37,158Receivables


5,294


5,116


8,331Prepaid expenses


24,572


23,736


21,040Property and equipment


16,494


9,186


6,895Other


18,838


15,101


7,039$
2,372,428

$
2,453,003

$
2,553,650


The
Company operates principally in the United States and also has operations in Canada. The Company's United Kingdom operations are classified as discontinued operations and were
disposed of on October 20, 2003. The following tables depict the revenue earned and the long-lived assets held in the reportable geographic segments.

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Revenue:United States

$
660,149

$
665,007

$
645,914Canada


56,641


55,274


46,083716,790

$
720,281

$
691,997


January 1, 2005

January 3, 2004

December 28, 2002Property and equipment and cemetery property:United States

$
572,481

$
591,256

$
614,933Canada


86,017


74,624


63,403$
658,498

$
665,880

$
678,336


NOTE 18.    PROVISION FOR ASSET IMPAIRMENT

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

100

---



Previously,
the Company designated certain parcels of surplus real estate as held for sale, as they do not meet the Company's future geographic and strategic objectives. During the
52 weeks ended January 1, 2005, the Company determined that the carrying amounts of certain parcels of the surplus real estate now exceeded the fair market value, less estimated cost to
sell. Accordingly, the Company has recorded a long-lived asset impairment provision of $1,922,000 for the 52 weeks ended January 1, 2005
(2003  $4,395,000, 2002  $563,000).

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

NOTE 19.    DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE

Over the previous three fiscal years, the Company engaged in a strategic market rationalization assessment to dispose of cemetery and funeral operating locations
that did not fit into the Company's market or business strategies, as well as under-performing locations and excess cemetery land. The Company will on a smaller scale and over time,
continue to assess the Company's portfolio of funeral and cemetery locations to ensure they continue to fit in the Company's strategy. Once a property is added to the disposal list, the Company
expects to complete the sale within one year. As of January 1, 2005, the Company had 18 funeral, six cemetery and four combination locations which have not been sold within one
year of being added to the disposal list. The Company has entered into sale agreements for all of these locations, but is awaiting regulatory approval or purchaser financing arrangements, which have
been unexpectedly delayed. The Company continues to include these locations in discontinued operations of assets held for sale.

During
2003, the Company identified Security Plan Life Insurance Company, its wholly-owned home service insurance company, as a non-strategic asset, because it was not part
of the Company's pre-need funeral sales efforts. The Company's continuing insurance operations include Mayflower National Life Insurance Company and National Capital Life Insurance
Company, its wholly-owned pre-need life insurance companies. On June 17, 2004, the Company announced the signing of an agreement by its subsidiary, Mayflower National Life Insurance
Company, to sell all the outstanding shares of Security Plan Life Insurance Company for $85,000,000. The sale concluded on October 1, 2004. After payment of applicable taxes and expenses, and
the recapitalization of Mayflower National Life Insurance Company, the Company utilized $65,000,000 of the proceeds to reduce long-term debt. The Company recorded a pre-tax
gain on the sale of $16,011,000.

The
Company has classified all the locations identified for disposal as assets held for sale in the consolidated balance sheets and recorded any related operating results,
long-lived asset impairment provisions, and gains or losses recorded on disposition as income from discontinued operations. The Company has also reclassified the prior fiscal years to
reflect any comparative amounts on a similar basis. All discontinued operations financial information presented under the insurance segment relate to Security Plan Life Insurance Company.

Discontinued
operations consists of long-lived asset impairment provisions, gains and losses recorded on disposition, and operating results of the locations.
FAS No. 144 requires that long-lived assets to be disposed of are to be recorded at the lower of carrying amount or fair market value, less estimated costs to sell.
Depreciation and amortization is not recorded once an asset has been identified as held for sale. The fair market value was determined by specific offer or bid, or an estimate based on comparable
recent sales transactions. Impairment provisions on assets previously identified as held for sale resulted from changes

101

---



in
previously estimated proceeds, net asset values and closing costs. The long-lived asset impairment provisions are based on management estimates. As a result, actual results could differ
significantly from these estimates.

The
Company's debt agreements require sale proceeds (above specified limits) from assets held for sale to be applied towards the repayment of debt. During 2004 and 2003, the Company used
such proceeds to pay down the Term Loan B. Accordingly, interest expense for discontinued operations was calculated by applying the applicable interest rates during the periods in which the repayment
conditions were in effect to both the amounts of principal repaid and to the expected proceeds of assets remaining to be sold as of January 1, 2005. Certain comparative amounts have been
reclassified to conform to the presentation adopted in the current year.

The
carrying amount, the fair market value, less estimated costs to sell, revenues and costs and impairment provisions for the locations identified as held for sale are presented in the
following tables.

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002RevenueFuneral

$
19,829

$
43,917

$
48,869Cemetery


14,624


27,061


26,519Insurance


41,720


54,956


57,254$
76,173


125,934


132,642Gross marginFuneral

$
874

$
4,512

$
4,373Cemetery


767


1,765


(4,404
)Insurance


9,382


12,207


13,45111,023


18,484


13,420Provision for goodwill impairment








13,923Long-lived asset impairment on assets identified as held for sale


15,227


21,013


2,720Other expense (income), net


(27,506
)

(10,049
)

1,196Income (loss) from discontinued operations


23,302


7,520


(4,419
)Interest on long-term debt


3,672


1,535


325Income (loss) from discontinued operations, before tax


19,630


5,985


(4,744
)Income tax provision for discontinued operations:Current


4,731


1,322


2,519Deferred


1,757


3,100


2,9856,488


4,422


5,504Income (loss) from discontinued operations

$
13,142

$
1,563

$
(10,248
)Depreciation included in gross margin of discontinued operations

$
1,228

$
3,950

$
5,808


102

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

|                                                  |                                                         | Funeral |        | Cemetery |   | Total 
|------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | -------- | - | ------
|Assets held for sale                              |                                                         |         |        |          |   |       
|                                                  | Current assets                                          |         | $      | 2,140    |   | $     
|                                                  | Pre-need receivables and investments                    |         |        | 21,818   |   |       
|                                                  | Cemetery property                                       |         |        |         |   |       
|                                                  | Property and equipment                                  |         |        | 11,110   |   |       
|                                                  | Other assets                                            |         |        | 209      |   |       
|                                                  |                                                         |         |        |          |   |       
|                                                  |                                                         | $       | 35,277 |          | $ | 49,864
|                                                  |                                                         |         |        |          |   |       
|Liabilities associated with assets held for sale  |                                                         |         |        |          |   |       
|                                                  | Current liabilities                                     |         | $      | 66       |   | $     
|                                                  | Non-controlling interest in funeral and cemetery trusts |         |        | 20,033   |   |       
|                                                  | Other liabilities                                       |         |        | 2,384    |   |       
|                                                  |                                                         |         |        |          |   |       
|                                                  |                                                         | $       | 22,483 |          | $ | 40,898
|                                                  |                                                         |         |        |          |   |       
|Non-controlling interest in perpetual care trusts |                                                         | $       |       |          | $ | 12,647
|                                                  |                                                         |         |        |          |   |       

Details
of assets held for sale at January 3, 2004, are as follows:

|                                                 |                                    | Funeral |        | Cemetery |   | Insurance |        | Total
|------------------------------------------------ | ---------------------------------- | ------- | ------ | -------- | - | --------- | ------ | -----
|Assets held for sale                             |                                    |         |        |          |   |           |        |      
|                                                 | Current assets                     |         | $      | 4,249    |   | $         | 2,456  |      
|                                                 | Pre-need contracts                 |         |        | 41,210   |   |           | 64,109 |      
|                                                 | Cemetery property                  |         |        |         |   |           | 16,675 |      
|                                                 | Property and equipment             |         |        | 38,732   |   |           | 3,549  |      
|                                                 | Insurance invested assets          |         |        |         |   |           |       |      
|                                                 | Other assets                       |         |        | 24       |   |           | 327    |      
|                                                 |                                    |         |        |          |   |           |        |      
|                                                 |                                    | $       | 84,215 |          | $ | 87,116    |        | $    
|                                                 |                                    |         |        |          |   |           |        |      
|Liabilities associated with assets held for sale |                                    |         |        |          |   |           |        |      
|                                                 | Current liabilities                |         | $      | 749      |   | $         | 904    |      
|                                                 | Deferred pre-need contract revenue |         |        | 34,780   |   |           | 65,796 |      
|                                                 | Insurance policy liabilities       |         |        |         |   |           |       |      
|                                                 | Other liabilities                  |         |        | 319      |   |           | 4,435  |      
|                                                 |                                    |         |        |          |   |           |        |      
|                                                 |                                    | $       | 35,848 |          | $ | 71,135    |        | $    
|                                                 |                                    |         |        |          |   |           |        |      

103

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NOTE 20.    INCOME (LOSS) PER SHARE

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

52 Weeks Ended January 1, 2005

53 Weeks Ended January 3, 2004

52 Weeks Ended December 28, 2002Income (loss) (numerator):Net income (loss) attributable to Common stockholders

$
9,349

$
10,807

$
(233,744
)Shares (denominator):Basic weighted average number of shares of Common stock outstanding (thousands)


40,001


39,971


39,916Effect of stock options assumed exercised


1,131


494


Diluted weighted average number of shares of Common stock outstanding (thousands)


41,132


40,465


39,916


For
the 52 weeks ended January 1, 2005, 1,130,221 employee and director stock options were dilutive to earnings and are included in the calculation of diluted income
(loss) per share. Employee and director stock options to purchase 1,830,000 shares of Common stock were not included in the computation of diluted loss per share, because they were anti-dilutive

NOTE 21.    DERIVATIVE FINANCIAL INSTRUMENTS

As of January 1, 2005, the fair value of all of the Company's derivatives under the Foreign Currency Hedge Program was an unrealized gain of $2,087,000
(2003  $737,000), which is included in other current assets in the Company's consolidated balance sheet. The Effective Portion is $1,919,000
(2003  $689,000) and is included in accumulated other comprehensive income in the Company's consolidated balance sheet. The Ineffective Portion is $168,000 and
is included in general and administrative expenses for the 52 weeks ended January 1, 2005 (2003  $48,000,
2002  $nil). Included in general and administrative expenses for the 52 weeks ended January 1, 2005, was a net gain of $639,000 (2003 and
2002  $nil) of which $341,000 (2003 and 2002  $nil) was the effective portion and $298,000 (2003 and
2002  $nil) was the ineffective portion. As of January 1, 2005, a portion of the Company's Foreign Currency Expenditure from the period January 2,
2005, to May 2006, was hedged. As of January 1, 2005, the Company estimates that based on current exchange rates and maturity dates of the Company's derivatives, $1,741,000 would be
expected to be reclassified from accumulated other comprehensive income to current earnings and included in general and administrative expenses over the next 12 months.

104

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NOTE 22.    QUARTERLY FINANCIAL DATA (UNAUDITED)

Certain of the Company's quarterly financial data in the table below have been restated from the Company's 2004 and 2003 quarterly reports on
Form 10-Q, due to the reclassification of assets held for sale as discontinued operations.

|                                |                                                                       | First Quarter |   | Second Quarter |   | Third Quarter |         | Fourth Quarter |  
|------------------------------- | --------------------------------------------------------------------- | ------------- | - | -------------- | - | ------------- | ------- | -------------- | -
|52 Weeks Ended January 1, 2005: |                                                                       |               |   |                |   |               |         |                |  
|                                | Revenue, previously stated                                            |               | $ | 179,167        |   | $             | 164,080 |                | $
|                                | Adjustment to reclass assets held for sale as discontinued operations |               |   | (2,333         | ) |               | (1,892  | )              |  
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Revenue, restated                                                     |               | $ | 176,834        |   | $             | 162,188 |                | $
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Gross profit, previously stated                                       |               | $ | 34,817         |   | $             | 28,749  |                | $
|                                | Adjustment to reclass assets held for sale as discontinued operations |               |   | (9             | ) |               | 21      |                |  
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Gross profit, restated                                                |               | $ | 34,808         |   | $             | 28,770  |                | $
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Net income (loss)                                                     |               | $ | 4,837          |   | $             | (6,476  | )              | $
|                                | Basic and diluted income (loss) per Common share (in dollars)         |               | $ | 0.12           |   | $             | (0.16   | )              | $
|53 Weeks Ended January 3, 2004: |                                                                       |               |   |                |   |               |         |                |  
|                                | Revenue, previously stated                                            |               | $ | 167,498        |   | $             | 166,500 |                | $
|                                | Adjustment to reclass assets held for sale as discontinued operations |               |   | (2,554         | ) |               | (2,437  | )              |  
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Revenue, restated                                                     |               | $ | 164,944        |   | $             | 164,063 |                | $
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Gross profit, previously stated                                       |               | $ | 31,861         |   | $             | 33,002  |                | $
|                                | Adjustment to reclass assets held for sale as discontinued operations |               |   | (150           | ) |               | (288    | )              |  
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Gross profit, restated                                                |               | $ | 31,711         |   | $             | 32,714  |                | $
|                                |                                                                       |               |   |                |   |               |         |                |  
|                                | Net income (loss)                                                     |               | $ | 6,700          |   | $             | 6,873   |                | $
|                                | Basic and diluted income (loss) per Common share (in dollars)         |               | $ | 0.17           |   | $             | 0.17    |                | $

NOTE 23.    SUBSEQUENT EVENTS

On January 3, 2005, the Company repurchased the remaining principal amount of $4,509,000 of the Seven-Year Unsecured Notes at a premium of $282,000, plus
accrued interest.

On
March 18, 2005, the Company entered into an amendment to the Credit Agreement, among the Company, Bank of America, N.A., as Administrative Agent, and the other banks, financial
institutions and other institutional lenders party thereto. The amendment modifies the Credit Agreement to provide the Company additional flexibility to introduce an employee stock purchase plan and
other long term incentive plans, and increase the letter of credit sublimit under the Revolving Credit Facility to $35,000,000 from $25,000,000, as well as making certain other agreed upon changes.

105

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As of January 1, 2005, an
evaluation was carried out, under the supervision and with the participation of the Company's management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer
("CFO"), of the effectiveness of the Company's disclosure controls and procedures as of January 1, 2005. The Company has not completed its evaluation of the effectiveness of its internal
control over financial reporting as of the end of its most recent fiscal year. As permitted by the SEC's exemptive order dated November 30, 2004 (Release No. 50754), the Company expects
to complete its evaluation of the effectiveness of its internal control over financial reporting on or before May 2, 2005, and will include the results of such evaluation in management's annual
report on internal control over financial reporting to be included in an amendment to its Annual Report on Form 10-K, which amendment will be filed with the SEC. In addition, the
Company anticipates that its independent registered public accounting firm will complete and provide to the Company such firm's attestation report on management's assessment of the Company's internal
control over financial reporting on or before May 2, 2005, and the Company will also include such attestation report in the amendment to its Annual Report on Form 10-K. As a
result of the material weakness identified below, the Company expects that its independent registered public accounting firm will issue an adverse opinion with respect to the Company's internal
control over financial reporting.

Because
of the material weakness described below, as well as other deficiencies the Company has identified, the CEO and CFO have concluded that the Company's disclosure controls and
procedures were not effective as of January 1, 2005. The Company has already instituted, and will continue to implement, corrective actions with respect to the material weakness, as described
below in further detail. In addition, the Company has implemented various procedures to correct and/or mitigate the other deficiencies the Company has identified. The Company believes that the actions
it has taken to date in this regard, when taken as a whole, have mitigated the material weakness and other deficiencies
with respect to the preparation of this Annual Report on Form 10-K such that the information required to be disclosed in this Form 10-K has been recorded, processed, summarized and
reported correctly.

Internal Control over Financial Reporting

The Company's management, including the CEO and CFO, is in the process of conducting its evaluation of the effectiveness of its internal control over financial
reporting based on the framework inInternal Control  Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on preliminary results to date, management has identified a material weakness in internal control over financial reporting as of January 1, 2005.

The
material weakness identified relates to limitations in the capacity of the Company's accounting and tax resources to identify and react in a timely manner to new accounting
pronouncements and non-routine and complex business transactions. In 2004, a lack of experienced personnel and turnover in the Company's accounting and corporate tax functions resulted in
untimely identification and resolution of (i) accounting matters related to the adoption of FIN No. 46R; (ii) the accounting for the Company's debt refinancing, and
(iii) issues in implementing the Company's new tax accounting system. All of these resulted in significant adjustments to the financial statements before issuance.

106

---



In
order to remediate these internal control deficiencies, the Company is making the following changes:



As
the Company has not completed the testing and evaluation of its internal control over financial reporting, it is possible that additional deficiencies could be determined to be
individually or in aggregate a material weakness.

Changes in Internal Controls

In 2004 the company adopted FIN No. 46R. During the last fiscal quarter of 2004, the Company developed further internal controls for accounting and
disclosure requirements for the consolidation of the funeral and cemetery merchandise and service, and perpetual care trusts and several pooled investment funds created for such trusts in the
Company's Consolidated Financial Statements.

During
the last fiscal quarter of 2004, the Company commenced implementing a new tax accounting system. The new tax accounting system is designed to improve the accuracy and timing of
the state and entity level calculations required for financial statement disclosure and detailed analysis of the valuation allowance.

During
the last fiscal quarter of 2004, the Company commenced implementing a new pre-need funeral trust accounting software system. The implementation has involved changes to
our processes, and accordingly, has required changes to our system of internal controls.

Other
than the changes discussed above, there have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter of 2004 that have
materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

Not
applicable

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information regarding executive officers required by this Item is incorporated herein by reference to the information contained in Part I of this
report under the caption "Executive Officers of Alderwoods Group." In accordance with General Instruction G(3), the information regarding directors, committees of the Board, and procedures by
which stockholders may recommend nominees to the Board required by this Item, as well as additional information regarding executive officers and specified information regarding beneficial owners of
more than 10% of any class of the Company's registered equity securities required by this Item, is incorporated herein by reference to the information provided under the

107

---



captions
"Proposal No. 1  Election of Directors  Information Regarding Director Nominees", "The Board, Committees
of the Board and Director Compensation  Corporate Governance," "The Board, Committees of the Board and Director
Compensation  Determinations Regarding Director Independence and Audit Committee Financial Expert," "The Board, Committees of the Board and Director
Compensation  Board and Committee Meetings and Committees of the Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" of Alderwoods
Group's Proxy Statement to be filed with the SEC and delivered to stockholders in connection with Alderwoods Group's annual meeting of stockholders to be held on April 28, 2005
(the "Proxy Statement").

The
Company has adopted a code of ethics that applies to all employees, including its Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal
financial officer and principal accounting officer). The Company's Code of Busines Conduct and Ethics is posted on, and is available, free of charge through, the Company's web site
(http://www.alderwoods.com) in the Corporate Governance section of the Investor Relations page. Copies of the code are also available free of charge upon written request to the Company's Secretary at
311 Elm Street, Suite 1000, Cincinnati, Ohio 45202-2706.

ITEM 11.    EXECUTIVE COMPENSATION

In accordance with General Instruction G(3), the information required by this Item is incorporated herein by reference to the information provided under the
captions "Executive Compensation," "Agreements with Named Executive Officers," "The Board, Committees of the Board and Director Compensation  Director
Compensation" and "Compensation Committee Interlocks and Insider Participation" of Alderwoods Group, Inc.'s Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In accordance with General Instruction G(3), the information required by this Item is incorporated herein by reference to the information provided under the
captions "Beneficial Ownership of Principal Shareholders, Directors and Management" and "Equity Compensation Plan Information" of Alderwoods Group, Inc.'s Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In accordance with General Instruction G(3), the information required by this Item is incorporated herein by reference to the information provided under the
caption "Certain Relationships and Related Transactions" of Alderwoods Group, Inc.'s Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

In accordance with General Instruction G(3), the information required by this Item is incorporated herein by reference to the information provided under
the caption "Independent Auditor Fees" of Alderwoods Group, Inc.'s Proxy Statement.

108

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)   Documents filed as part of this report:

Financial Statements



Financial Statement Schedule



109

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Exhibits

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

110

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|4.5  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of
Alderwoods Group, Inc., SEC file No. 000-33277, filed July 24, 2002)                                                                                                                                                                                 
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                        
|4.7  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                        
|4.8  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                      
|4.9  |  | Indenture governing the 73/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277,
 filed November 18, 2004)                                                                                                                                                                                                                                
|4.10 |  | Indenture governing the 121/4% Senior Notes due 2009 (incorporated by reference to Exhibit 10.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed
March 28, 2002)                                                                                                                                                                                                                                            
|4.11 |  | First Supplemental Indenture dated as of August 4, 2004, to the Indenture governing the 121/4% Senior Notes due 2009 (incorporated by reference to Exhibit 4.11 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                                                                                                         
|10.1 |  | Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party
hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16,
2004)
|10.2 |  | Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by
reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)                                                                                                    
|10.3 |  | Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto
(incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)                                                                                       
|10.4 |  | Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                     
|10.5 |  | Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)                                                                                      
|10.6 |  | Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      

111

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|*10.7  |  | Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.6 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                          
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.8  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                             
|*10.9  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Cameron R.W. Duff (incorporated by reference to Exhibit 10.8 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                        
|*10.10 |  | Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.9 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                         
|*10.11 |  | 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)                                                          
|*10.12 |  | Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.36 to Form 10-Q of Alderwoods Group,
 Inc., SEC File No. 000-33277, filed July 24, 2003)                                           
|*10.13 |  | Amendment No. 1 dated March 16, 2004, to the Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to
Exhibit 10.12 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 10, 2004)
|*10.14 |  | Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.37 to Form 10-Q of Alderwoods Group,
 Inc., SEC File No. 000-33277, filed July 24, 2003)                                         
|*10.15 |  | Employment Agreement dated September 13, 2004, by and between Alderwoods Group, Inc. and Aaron Shipper**                                                                                                                                                                                         
|*10.16 |  | Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                                                          
|*10.17 |  | 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)                                                                                                                                 
|*10.18 |  | 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)                                                                                       
|*10.19 |  | Alderwoods Support Function Annual Incentive Plan**                                                                                                                                                                                                                                              
|21.1   |  | Subsidiaries of Alderwoods Group, Inc.**                                                                                                                                                                                                                                                         
|23.1   |  | Consent of KPMG LLP**                                                                                                                                                                                                                                                                            
|24.1   |  | Powers of Attorney for Messrs. Houston, Sloan, Campbell, Eames, Elson, Hilty, Lacey, Riedl and Snow and Ms. Kirtley (included on the signature page hereto)                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                  

112

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|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.

113

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS    ALDERWOODS GROUP, INC.    January 1, 2005    (in thousands of dollars)

|Description                                                        |  | Balance at beginning of period |        | Charged to costs and expenses |   | Charged to
other accounts |     | Deductions(2) |          | Balance at end of period
|------------------------------------------------------------------ |  | ------------------------------ | ------ | ----------------------------- | - | ------------------------- | --- | ------------- | -------- | ------------------------
|                                                                   |  |                                |        |                               |   |                           |     |               |          |                         
|Allowance for doubtful trade accounts                              |  |                                |        |                               |   |                           |     |               |          |                         
|52 weeks ended
January 1, 2005                                     |  | $                              | 9,912  |                               | $ | 5,308                     |     | $             | (1,402)  | (1)                     
|53 weeks ended
January 3, 2004                                     |  | $                              | 9,038  |                               | $ | 6,533                     |     | $             | (2,098)  | (1)                     
|52 weeks ended
December 28, 2002(3)                                |  | $                              | 24,096 |                               | $ | 5,136                     |     | $             | (1,355)  | (1)                     
|Allowance for pre-need funeral contract cancellations and refunds  |  |                                |        |                               |   |                           |     |               |          |                         
|52 weeks ended
January 1, 2005                                     |  | $                              | 28,709 |                               | $ | 1,587                     | (4) | $             | (8,623)  | (5)                     
|53 weeks ended
January 3, 2004                                     |  | $                              | 35,626 |                               | $ | 1,088                     | (4) | $             | (4,001)  | (4)                     
|52 weeks ended
December 28, 2002(3)                                |  | $                              | 40,090 |                               | $ | 1,211                     | (4) | $             | (2,642)  | (4)                     
|Allowance for pre-need cemetery contract cancellations and refunds |  |                                |        |                               |   |                           |     |               |          |                         
|52 weeks ended
January 1, 2005                                     |  | $                              | 18,348 |                               | $ | 5,200                     | (4) | $             | (329)    | (1)                     
|53 weeks ended
January 3, 2004                                     |  | $                              | 22,838 |                               | $ | 7,480                     | (4) | $             | (6,047)  | (1)                     
|52 weeks ended
December 28, 2002(3)                                |  | $                              | 22,937 |                               | $ | 10,860                    | (4) | $             | (10,995) | (4)                     
|Allowance for doubtful non-trade receivables                       |  |                                |        |                               |   |                           |     |               |          |                         
|52 weeks ended
January 1, 2005                                     |  | $                              | 38,277 |                               | $ | 1,978                     |     | $             | (2,607)  | (6)                     
|53 weeks ended
January 3, 2004                                     |  | $                              | 55,600 |                               | $ | 1,521                     |     | $             | (15,304) | (6)                     
|52 weeks ended
December 28, 2002(3)                                |  | $                              | 55,270 |                               | $ | 2,326                     |     | $             |         |                         

---

114

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 2005 |  | By:                   

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Paul A. Houston and Kenneth A. Sloan, and each of them severally, acting alone and without the other,
his true and lawful attorney-in-fact with authority to execute in the name of each such person, and to file with the Securities and Exchange Commission, together with any
exhibits thereto and other documents therewith, any and all amendments to this report necessary or advisable to enable the registrant to comply with the Securities Exchange Act of 1934, and any rules,
regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in this report as the aforesaid
attorney-in-fact deems appropriate.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|/s/PAUL A. HOUSTONPaul A. Houston     |  | President, Chief Executive Officer and Director
(Principal Executive Officer)                                    |  | Dated: March 28, 2005
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ---------------------
|/s/KENNETH A. SLOANKenneth A. Sloan   |  | Executive Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |  | Dated: March 28, 2005
|/s/LLOYD E. CAMPBELLLloyd E. Campbell |  | Director                                                                                                         |  | Dated: March 28, 2005
|/s/ANTHONY G. EAMESAnthony G. Eames   |  | Director                                                                                                         |  | Dated: March 28, 2005
|/s/CHARLES M. ELSONCharles M. Elson   |  | Director                                                                                                         |  | Dated: March 28, 2005
|                                      |  |                                                                                                                  |  |                      

115

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|/s/DAVID R. HILTYDavid R. Hilty                 |  | Director              |  | Dated: March 28, 2005
|----------------------------------------------- |  | --------------------- |  | ---------------------
|/s/OLIVIA KIRTLEYOlivia Kirtley                 |  | Director              |  | Dated: March 28, 2005
|/s/JOHN S. LACEYJohn S. Lacey                   |  | Chairman of the Board |  | Dated: March 28, 2005
|/s/WILLIAM R. RIEDLWilliam R. Riedl             |  | Director              |  | Dated: March 28, 2005
|/s/W. MACDONALD SNOW, JR.W. MacDonald Snow, Jr. |  | Director              |  | Dated: March 28, 2005

116

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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)                                                                                         
|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)                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                   

117

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|4.5  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc., and Angelo Gordon & Co. (incorporated by reference to Exhibit 4.6 to the Form 10-Q of
Alderwoods Group, Inc., SEC file No. 000-33277, filed July 24, 2002)                                                                                                                                                                                 
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Franklin Mutual Advisors, LLC (incorporated by reference to Exhibit 4.7 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                                        
|4.7  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and GSCP Recovery, Inc. and GSC Recovery II, L.P. (incorporated by reference to Exhibit 4.8 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002)                                                                                                                                                        
|4.8  |  | Waiver of Registration Rights dated June 27, 2002, by and between Alderwoods Group, Inc. and Oaktree Capital Management, LLC (incorporated by reference to Exhibit 4.9 to the Form 10-Q of
Alderwoods Group, Inc., SEC File No. 000-33277, filed July 24, 2002))                                                                                                                                                                     
|4.9  |  | Indenture governing the 73/4% Senior Unsecured Notes due 2012 (incorporated by reference to Exhibit 4.9 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277,
 filed November 18, 2004)                                                                                                                                                                                                                                
|4.10 |  | Indenture governing the 121/4% Senior Notes due 2009 (incorporated by reference to Exhibit 10.3 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed
March 28, 2002)                                                                                                                                                                                                                                            
|4.11 |  | First Supplemental Indenture dated as of August 4, 2004, to the Indenture governing the 121/4% Senior Notes due 2009 (incorporated by reference to Exhibit 4.11 to the
Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                                                                                                         
|10.1 |  | Subordinated Bridge Loan Agreement dated January 23, 2004, among Alderwoods Group, Inc., Banc of America Bridge LLC, as administrative agent and initial bridge lender and the other bridge lenders party
hereto and Bank of America Securities LLC, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16,
2004)
|10.2 |  | Credit Agreement dated September 17, 2003, among Alderwoods Group, Inc., Bank of America, N.A., as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto (incorporated by
reference to Exhibit 10.1 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 12, 2003)                                                                                                    
|10.3 |  | Amendment No. 1 dated January 23, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, swing line lender, L/C Issuer and the other lenders party hereto
(incorporated by reference to Exhibit 10.3 to Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 16, 2004)                                                                                       
|10.4 |  | Amendment No. 2 dated August 19, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.4 to the Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed November 18, 2004)                                                                                     
|10.5 |  | Amendment No. 3 dated December 3, 2004, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed December 8, 2004)                                                                                      
|10.6 |  | Amendment No. 4 dated March 18, 2005, to the Credit Agreement among Alderwoods Group, Inc., Bank of America, N.A. as administrative agent, owing line lender, L/C Issuer and other lenders party hereto
(incorporated by reference to Exhibit 10.1 to the Form 8-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 24, 2005)                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      

118

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|10.7  |  | Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Kenneth A. Sloan (incorporated by reference to Exhibit 10.6 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                          
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Ellen Neeman (incorporated by reference to Exhibit 10.7 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                             
|10.9  |  | Employment Agreement dated January 23, 2003, by and between Alderwoods Group, Inc. and Cameron R.W. Duff (incorporated by reference to Exhibit 10.8 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                        
|10.10 |  | Employment Agreement dated January 2, 2004, by and between Alderwoods Group, Inc. and Ross S. Caradonna (incorporated by reference to Exhibit 10.9 to Form 10-K of Alderwoods Group, Inc., SEC File
No. 000-33277, filed March 16, 2004)                                                         
|10.11 |  | 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)                                                          
|10.12 |  | Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to Exhibit 10.36 to Form 10-Q of Alderwoods Group,
 Inc., SEC File No. 000-33277, filed July 24, 2003)                                           
|10.13 |  | Amendment No. 1 dated March 16, 2004, to the Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and John S. Lacey (incorporated by reference to
Exhibit 10.12 to Form 10-Q of Alderwoods Group, Inc., SEC File No. 000-33277, filed May 10, 2004)
|10.14 |  | Amended and Restated Employment Agreement dated May 1, 2003, by and between Alderwoods Group, Inc. and Paul A. Houston (incorporated by reference to Exhibit 10.37 to Form 10-Q of Alderwoods Group,
 Inc., SEC File No. 000-33277, filed July 24, 2003)                                         
|10.15 |  | Employment Agreement dated September 13, 2004, by and between Alderwoods Group, Inc. and Aaron Shipper                                                                                                                                                                                           
|10.16 |  | Alderwoods Group, Inc. 2002 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to the Form 10-K of Alderwoods Group, Inc., SEC File No. 000-33277, filed March 28,
2002)                                                                                                          
|10.17 |  | 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)                                                                                                                                 
|10.18 |  | 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)                                                                                       
|10.19 |  | Alderwoods Support Function Annual Incentive Plan                                                                                                                                                                                                                                                
|21.1  |  | Subsidiaries of Alderwoods Group, Inc.                                                                                                                                                                                                                                                           
|23.1  |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                              
|24.1  |  | Powers of Attorney for Messrs. Houston, Sloan, Campbell, Eames, Elson, Hilty, Lacey, Riedl and Snow and Ms. Kirtley (included on the signature page hereto)                                                                                                                                      
|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                                                                                                                                                                  

119

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