STEWART ENTERPRISES INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the quarterly period ended April 30, 2003

		OR

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from to

Commission File Number: 1-15449

STEWART ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


LOUISIANA (State or other jurisdiction of incorporation or organization)		72-0693290 (I.R.S. Employer Identification No.)

110 Veterans Memorial Boulevard Metairie, Louisiana (Address of principal executive offices)		70005 (Zip Code)

Registrant’s telephone number, including area code: (504) 837-5880

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 o

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

The number of shares of the Registrant’s Class A common stock, no par value per share, and Class B common stock, no par value per share, outstanding as of June 4, 2003, was 104,797,103 and 3,555,020, respectively.

TABLE OF CONTENTS


	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Certifications
EXHIBIT INDEX
EX-3.1 Amended/Restated Articles of Incorporation
EX-12 Calculation of Ratio of Earnings
EX-99.1 Certifications Pusuant to Section 906

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

INDEX


		Page

Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Earnings - Three Months Ended April 30, 2003 and 2002	3
	Consolidated Statements of Earnings - Six Months Ended April 30, 2003 and 2002	4
	Consolidated Balance Sheets - April 30, 2003 and October 31, 2002	5
	Consolidated Statement of Shareholders’ Equity - Six Months Ended April 30, 2003	7
	Consolidated Statements of Cash Flows - Six Months Ended April 30, 2003 and 2002	8
	Notes to Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
	Item 4. Controls and Procedures	48
Part II.	Other Information
	Item 1. Legal Proceedings	49
	Item 4. Submission of Matters to a Vote of Security Holders	49
	Item 5. Other Information	49
	Item 6. Exhibits and Reports on Form 8-K	57
	Signatures	59
	Certifications	60

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)


		Three Months Ended April 30,

		2003			2002

Revenues:
	Funeral	$	75,795		$	90,848
	Cemetery		57,569			60,141

			133,364			150,989

Costs and expenses:
	Funeral		57,257			65,573
	Cemetery		43,211			45,277

			100,468			110,850

	Gross profit		32,896			40,139
Corporate general and administrative expenses			4,182			4,115

	Operating earnings		28,714			36,024
Interest expense			(13,579	)		(15,859	)
Investment income			84			98
Other income, net			90			510

	Earnings before income taxes		15,309			20,773
Income taxes			5,818			7,894

	Net earnings	$	9,491		$	12,879

Net earnings per common share:
	Basic	$	.09		$	.12

	Diluted	$	.09		$	.12

Weighted average common shares outstanding (in thousands):
	Basic		108,299			107,822

	Diluted		108,302			108,337

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)


		Six Months Ended April 30,

		2003			2002

Revenues:
	Funeral	$	152,531		$	185,931
	Cemetery		112,050			118,627

			264,581			304,558

Costs and expenses:
	Funeral		114,883			134,198
	Cemetery		85,419			89,245

			200,302			223,443

	Gross profit		64,279			81,115
Corporate general and administrative expenses			8,482			7,885

	Operating earnings		55,797			73,230
Interest expense			(27,156	)		(32,829	)
Investment income			171			222
Other income, net			1,775			590

	Earnings before income taxes		30,587			41,213
Income taxes			11,623			15,661

	Net earnings	$	18,964		$	25,552

Net earnings per common share:
	Basic	$	.18		$	.24

	Diluted	$	.18		$	.24

Weighted average common shares outstanding (in thousands):
	Basic		108,169			107,729

	Diluted		108,196			108,289

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)


			April 30,		October 31,
ASSETS			2003		2002

Current assets:
	Cash and cash equivalent investments (Note 12)		$	84,239	$	28,190
	Marketable securities			2,192		2,588
	Receivables, net of allowances			85,665		86,827
	Inventories			42,993		41,666
	Prepaid expenses			3,119		2,815
	Deferred income taxes, net			1,696		1,348
	Assets held for sale			5,475		8,966

		Total current assets		225,379		172,400
Receivables due beyond one year, net of allowances				76,000		76,653
Prearranged receivables, net				1,207,590		1,200,914
Goodwill				491,323		491,323
Deferred charges				252,848		253,083
Cemetery property, at cost				388,294		388,065
Property and equipment, at cost:
	Land			44,670		44,402
	Buildings			305,772		304,125
	Equipment and other			156,645		154,389

				507,087		502,916
	Less accumulated depreciation			178,312		168,600

	Net property and equipment			328,775		334,316
Deferred income taxes, net				86,142		95,794
Other assets				1,214		3,036

		Total assets	$	3,057,565	$	3,015,584

(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)


					April 30,			October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY					2003			2002

Current liabilities:
	Current maturities of long-term debt (Note 12)				$	64,079		$	6,689
	Accounts payable					8,070			11,113
	Accrued payroll					8,790			13,903
	Accrued insurance					16,856			14,764
	Accrued interest					14,372			14,642
	Accrued other					8,817			10,978
	Liabilities associated with assets held for sale					2,146			2,911

			Total current liabilities			123,130			75,000
Long-term debt, less current maturities						530,394			545,255
Prearranged deferred revenue, net						1,549,043			1,561,533
Other long-term liabilities						22,022			21,533

			Total liabilities			2,224,589			2,203,321

Commitments and contingencies (Note 3)
Shareholders’ equity:
	Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued					—			—
	Common stock, $1.00 stated value:
			Class A authorized 150,000,000 shares; issued and outstanding 104,797,103 and 104,469,572 shares at April 30, 2003 and October 31, 2002, respectively			104,797			104,470
			Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at April 30, 2003 and October 31, 2002; 10 votes per share; convertible into an equal number of Class A shares			3,555			3,555
	Additional paid-in capital					678,353			677,087
	Retained earnings					49,568			30,604
	Accumulated other comprehensive loss:
		Unrealized depreciation of investments				(877	)		(965	)
		Derivative financial instrument losses				(2,420	)		(2,488	)

		Total accumulated other comprehensive loss				(3,297	)		(3,453	)

				Total shareholders’ equity		832,976			812,263

		Total liabilities and shareholders’ equity			$	3,057,565		$	3,015,584

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)
(Dollars in thousands, except per share amounts)


									Unrealized
									Appreciation			Derivative
					Additional				(Depreciation)			Financial			Total
			Common		Paid-In		Retained		of			Instrument			Shareholders'
			Stock⁽¹⁾		Capital		Earnings		Investments			Gains (Losses)			Equity

Balance October 31, 2002			$	108,025	$	677,087	$	30,604	$	(965	)	$	(2,488	)	$	812,263
Comprehensive income:
	Net earnings							18,964								18,964
	Other comprehensive income:
		Unrealized appreciation of investments								144						144
		Net deferred income tax expense on unrealized appreciation of investments								(56	)					(56	)
		Unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											109			109
		Deferred income tax expense on unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											(41	)		(41	)

		Total other comprehensive income		—		—		—		88			68			156

	Total comprehensive income			—		—		18,964		88			68			19,120
Issuance of common stock				327		1,266										1,593

Balance April 30, 2003			$	108,352	$	678,353	$	49,568	$	(877	)	$	(2,420	)	$	832,976

⁽¹⁾

Amount includes 104,797 and 104,470 shares (in thousands) of Class A common stock with a stated value of $1 per share as of April 30, 2003 and October 31, 2002, respectively, and includes 3,555 shares (in thousands) of Class B common stock

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)


					Six Months Ended April 30,

					2003			2002

Cash flows from operating activities:
	Net earnings				$	18,964		$	25,552
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization				27,112			27,979
		Provision for doubtful accounts				3,515			5,180
		Net loss realized on marketable securities				—			485
		Net gains on sale of assets				(887	)		(273	)
		Provision for deferred income taxes				7,842			14,741
		Changes in assets and liabilities:
				Increase in other receivables		(2,448	)		(5,213	)
				Decrease in deferred charges		2,472			2,358
				Increase in inventories and cemetery property		(525	)		(2,250	)
				Decrease in accounts payable and accrued expenses		(4,871	)		(5,677	)
				Change in prearranged activity		(17,746	)		(13,844	)
				Prearranged acquisition costs		(17,437	)		(15,262	)
				Increase (decrease) in other		2,119			(1,657	)

				Net cash provided by operating activities		18,110			32,119

Cash flows from investing activities:
	Proceeds from sales of marketable securities and long-term investments					550			169
	Purchases of marketable securities and long-term investments					(9	)		(19	)
	Proceeds from sale of assets, net					1,714			15,676
	Additions to property and equipment					(7,473	)		(7,651	)
	Other					182			549

			Net cash provided by (used in) investing activities			(5,036	)		8,724

(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)


			Six Months Ended April 30,

			2003			2002

Cash flows from financing activities:
	Proceeds from long-term debt			50,000			—
	Repayments of long-term debt			(7,338	)		(29,077	)
	Issuance of common stock			313			400

		Net cash provided by (used in) financing activities		42,975			(28,677	)

Effect of exchange rates on cash and cash equivalents				—			(470	)

Net increase in cash				56,049			11,696
Cash and cash equivalents, beginning of period				28,190			23,123

Cash and cash equivalents, end of period			$	84,239		$	34,819

Supplemental cash flow information:
	Cash paid during the period for:
		Income taxes	$	3,800		$	400
		Interest	$	24,500		$	30,600
	Noncash investing and financing activities:
		Issuance of common stock to fund employee benefit plan	$	1,280		$	1,318

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation

(a) The Company

Stewart Enterprises, Inc. (the “Company”) is a provider of funeral and cemetery products and services in the death care industry in the United States. Through its subsidiaries, the Company offers a complete line of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a preneed basis.

As of April 30, 2003, the Company owned and operated 301 funeral homes and 149 cemeteries in 29 states within the United States and Puerto Rico. In fiscal year 2002, the Company sold its foreign operations in Spain, Portugal, France, Canada and Argentina, which consisted of 196 funeral homes and 8 cemeteries.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. See Note 7 for a discussion of assets held for sale and liabilities associated with assets held for sale.

The information as of April 30, 2003, and for the three and six months ended April 30, 2003 and 2002, is unaudited but, in the opinion of management, reflects all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position and results of operations for the interim periods. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

The results of operations for the three and six months ended April 30, 2003 are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2003.

(d) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation—(Continued)

(e) Fair Value of Financial Instruments

Estimated fair value amounts have been determined using available market information and the valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts the Company could realize in a current market. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

The carrying amounts of cash and cash equivalents and current receivables approximate fair value due to the short-term nature of these instruments. The carrying amount of receivables due beyond one year approximates fair value because they bear interest at rates currently offered by the Company for receivables with similar terms and maturities. The carrying amounts of marketable securities are stated at fair value as they are classified as available for sale under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The fair value of the Company’s long-term variable- and fixed-rate debt is estimated using quoted market prices.

(f) Prearranged Trust Receivable and Prearranged Deferred Revenue

The Company evaluates the collectibility of the prearranged trust receivable for impairment when the fair market value of the trust assets are below the recorded prearranged receivable balance. A prearranged trust receivable is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts from the trust at the time the receivables are due. In those instances that a receivable is deemed to be impaired, the trust receivable is reduced to the currently estimated recoverable amount with a corresponding reduction to the associated deferred revenue balance. There is no income statement impact as long as the deferred revenue is not below the estimated costs to deliver the underlying products or services. If the deferred revenue were below the estimated costs to deliver the underlying products or services, the Company would record a charge to earnings. During the fourth quarter of fiscal year 2002, the Company recorded a valuation allowance of $20,000 related to its prearranged receivables from its trust funds, which resulted in a reduction in prearranged receivables and prearranged deferred revenue. During the first quarter of fiscal year 2003, the Company recorded a $2,000 increase in its valuation allowance related to its prearranged receivables from its trust funds, which resulted in a reduction in prearranged receivables and prearranged deferred revenue. In the second quarter of fiscal year 2003, the Company recorded a $7,000 decrease in its valuation allowance related to its prearranged receivables, which resulted in an increase to prearranged receivables and prearranged deferred revenue. Accordingly, the valuation allowance as of April 30, 2003 was $15,000. There were no charges to earnings during these periods as a result of these valuation allowances.

(g) Inventories

Inventories are stated at the lower of cost (specific identification and first-in, first-out methods) or net realizable value. The portion of developed cemetery property that management estimates will be used in the next twelve months, based on historical data, is included in inventories.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation—(Continued)

(h) Depreciation

Buildings and equipment are recorded at cost and are depreciated over their estimated useful lives, ranging from 19 to 45 years and from 3 to 10 years, respectively, primarily using the straight-line method.

(i) Foreign Currency Translation

In accordance with SFAS No. 52, “Foreign Currency Translation,” revenues and expenses of the Company’s foreign subsidiaries were translated at average exchange rates prevailing during the periods until they were sold. The resulting translation adjustments were reflected in a separate component of shareholders’ equity.

(j) Stock-Based Compensation

At April 30, 2003, the Company had five stock-based employee compensation plans, which are described in more detail in Note 15 to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure — an Amendment of FASB Statement No. 123.” No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans 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 pro forma effect on net earnings and net earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation using the Black-Scholes option pricing methodology.


		Three Months Ended						Six Months Ended
		April 30,						April 30,

		2003			2002			2003			2002

Net earnings		$	9,491		$	12,879		$	18,964		$	25,552
Total stock-based employee compensation expense determined under fair value-based method, net of tax			(718	)		(1,038	)		(1,445	)		(2,254	)

Pro forma net earnings		$	8,773		$	11,841		$	17,519		$	23,298

Net earnings per common share:
	Basic — as reported	$	.09		$	.12		$	.18		$	.24

	Basic — pro forma	$	.08		$	.11		$	.16		$	.22

	Diluted — as reported	$	.09		$	.12		$	.18		$	.24

	Diluted — pro forma	$	.08		$	.11		$	.16		$	.22

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation—(Continued)

(k) Funeral Revenue

The Company sells prearranged funeral services and merchandise under contracts that provide for delivery of the services and merchandise at the time of death. Prearranged funeral services are recorded as funeral revenue in the period the funeral is performed. Prearranged funeral merchandise is recognized as revenue upon delivery. Prior to performing the funeral or delivery of the merchandise, such sales are deferred and reported as prearranged deferred revenue on the balance sheet.

Commissions and other direct costs that vary with and are primarily related to the acquisition of new prearranged funeral service sales and prearranged funeral merchandise sales are deferred and amortized as the contracts are delivered in accordance with SFAS No. 60, “Accounting and Reporting for Insurance Companies.” Indirect costs of marketing prearranged funeral services are expensed in the period in which incurred.

Prearranged funeral services and merchandise generally are funded either through trust funds or escrow accounts established by the Company or through third-party insurance companies. Principal amounts deposited in the trust funds or escrow accounts are available to the Company as funeral services and merchandise are delivered and are refundable to the customer in those situations where state law provides for the return of those amounts under the purchaser’s option to cancel the contract. Certain jurisdictions provide for non-refundable trust funds or escrow accounts where the Company receives such amounts upon cancellation by the customer. The Company defers all dividends and interest earned and net capital gains and losses realized by preneed funeral service trust funds or escrow accounts as prearranged deferred revenue on the balance sheet until the underlying service is delivered.

Earnings are withdrawn only as funeral services and merchandise are delivered or contracts are cancelled, except in jurisdictions that permit earnings to be withdrawn currently and in unregulated jurisdictions where escrow accounts are used. When prearranged funeral services and merchandise are funded through insurance policies purchased by customers from third-party insurance companies, the Company earns a commission if it acts as agent on the sale of the policies. Insurance commissions, net of related expenses, are recognized at the point at which the commission is no longer subject to refund. Policy proceeds including the buildup in the face value of the insurance contracts are available to the Company as funeral services and merchandise are delivered.

Funeral services sold at the time of need are recorded as funeral revenue in the period the funeral is performed.

(l) Cemetery Revenue

In certain jurisdictions in which the Company operates, local law or contracts with customers generally require that a portion of the sale price of preneed cemetery merchandise and services be placed in trust funds or escrow accounts. The Company defers all dividends and interest earned and net capital gains and losses realized by preneed cemetery merchandise and service trust funds or escrow accounts as prearranged deferred revenue on the balance

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation—(Continued)

sheet until the underlying merchandise or service is delivered. Principal and earnings are withdrawn only as the merchandise and services are delivered or contracts are cancelled.

Pursuant to perpetual care contracts and laws, a portion, generally 10 percent, of the proceeds from cemetery property sales is deposited into perpetual care trust funds. The income from these funds, which has been established in most jurisdictions in which the Company operates cemeteries, is used for maintenance of those cemeteries, but principal, including in some jurisdictions net realized capital gains, must generally be held in perpetuity. Accordingly, the trust fund corpus is not reflected in the consolidated financial statements. The Company currently recognizes and withdraws all dividend and interest income earned and, where permitted, capital gains realized by perpetual care funds.

Some of the Company’s sales of cemetery property and merchandise are made under installment contracts bearing interest at prevailing rates. Finance charges are recognized as cemetery revenue under the effective interest method over the terms of the related installment receivables.

(m) Allowance for Doubtful Accounts

The Company establishes a reserve based on a range of percentages applied to accounts receivable aging categories. These percentages are based on historical collection and write-off experience.

(n) Income Taxes

Income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Management would provide a valuation allowance against the deferred tax asset for amounts which are not considered more likely than not to be realized.

(o) Earnings Per Common Share

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential common shares (in this case, exercise of the Company’s time-vest stock options) had been issued during each period as discussed in Note 4.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(1) Basis of Presentation—(Continued)

(p) Derivatives

The Company accounts for its derivative financial instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The notional amounts of derivative financial instruments do not represent amounts exchanged between parties and, therefore, are not a measure of the Company’s exposure resulting from its use of derivatives. The amounts exchanged are calculated based upon the notional amounts as well as other terms of the instruments, such as interest rates, exchange rates or other indices. In accordance with SFAS No. 133, the Company accounts for its interest rate swaps as cash flow hedges whereby the fair value of the interest rate swaps are reflected as a liability in the accompanying consolidated balance sheet with the offset recorded to other comprehensive income.

(q) Reclassifications

Certain reclassifications have been made to the 2002 consolidated balance sheet and consolidated statement of cash flows. These reclassifications had no effect on net earnings or shareholders’ equity.

(2) Change in Accounting Principles

(a) Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” Although not required to implement SFAS No. 142 until the first quarter of fiscal year 2003, the Company implemented it in the first quarter of fiscal year 2002.

SFAS No. 142 addresses financial accounting and reporting for goodwill and other intangible assets. SFAS No. 142 provides that goodwill is no longer amortized, but must be tested for impairment using a fair value approach rather than an undiscounted cash flow approach. Goodwill must be tested for impairment at a level referred to as a reporting unit, generally a level lower than that of the total entity. The Company’s evaluation of goodwill is performed at the funeral and cemetery segments, which constitute the Company’s reporting units. SFAS No. 142 requires entities to perform the first goodwill impairment test by comparing the fair value with the book value of a reporting unit on all reporting units within six months of adopting the statement. Any impairment loss recognized in connection with adoption of SFAS No. 142 is recorded as a change in accounting principle. The Company did not record any impairment loss upon implementation of SFAS No. 142.

Impairment losses recognized as a result of an impairment test occurring subsequent to the first six months after adoption will be included in operating income. Goodwill of a reporting unit must be tested for impairment after the

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(2) Change in Accounting Principles—(Continued)

initial adoption of the statement on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Prior to the adoption of SFAS No. 142, the Company allocated goodwill amortization between its funeral and cemetery segments thereby impacting funeral and cemetery gross profit. As a result of the adoption of SFAS No. 142, the Company no longer amortizes goodwill, effective November 1, 2001. The carrying amount of goodwill at April 30, 2003 and October 31, 2002 amounted to $491,323.

(b) Other Changes

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses the diversity in practice for recognizing asset retirement obligations (“ARO’s”). SFAS No. 143 requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for ARO’s, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for financial statements for fiscal years beginning after June 15, 2002. The implementation of SFAS No. 143 in fiscal year 2003 had no impact on the Company’s financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. The provisions of the statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this statement generally are to be applied prospectively. The adoption of SFAS No. 144 had no impact on the Company’s financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” With the rescission of FASB Statements No. 4 and 64, only gains and losses from extinguishments of debt meeting the criteria in APB Opinion No. 30 would be classified as extraordinary items. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The adoption of SFAS No. 145 had no impact on the Company’s financial condition or results of operations.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(2) Change in Accounting Principles—(Continued)

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 had no impact on the Company’s financial condition or results of operations.

In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions-An Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9.” The provision of this statement related to the application of the purchase method of accounting is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. The adoption of SFAS No. 147 had no impact on the Company’s financial condition or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34.” FIN 45 clarifies the requirements of SFAS No. 5, “Accounting for Contingencies,” relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure provisions of FIN 45 are effective for the Company’s first quarter of fiscal year 2003. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company has determined that it is subject to the disclosure provisions of FIN 45 and has included the required disclosures in Note 10.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123,” to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement also requires that those effects be disclosed more prominently by specifying the form, content and location of those disclosures. SFAS No. 148 improves the prominence and clarity of the pro forma disclosures required by SFAS No. 123 by prescribing a specific tabular format and by requiring disclosure in the “Summary of Significant Accounting Policies” or its equivalent. In addition, this statement improves the timeliness of those disclosures by requiring their inclusion in financial reports for interim

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(2) Change in Accounting Principles—(Continued)

periods. This statement is effective for financial statements for fiscal years ending after December 15, 2002 and is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002 with earlier application permitted. The Company adopted the disclosure provisions of SFAS No. 148 and presented the pro forma effects of SFAS No. 123 for fiscal years 2002, 2001 and 2000 in its Annual Report on Form 10-K for the fiscal year ended October 31, 2002. The pro forma effects on the three and six months ended April 30, 2003 and 2002 are presented in Note 1(j) above.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Therefore, FIN 46 would be applicable to the Company beginning in the fourth quarter of fiscal year 2003. The Company is in the process of determining what impact, if any, the adoption of the provisions of FIN 46 will have on its accounting for its trust funds and escrow accounts.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. In addition, all provisions of this statement should be applied prospectively. The provisions of this statement that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The Company is in the process of determining what impact, if any, the adoption of this statement will have upon its financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is in the process of determining what impact, if any, the adoption of this statement will have upon its financial condition or results of operations.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(3) Contingencies

The Company and certain of its subsidiaries are parties to a number of legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

The Company carries insurance with coverages and coverage limits that it believes to be adequate. Although there can be no assurance that such insurance is sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company’s operations.

(4) Reconciliation of Basic and Diluted Per Share Data


			Earnings		Shares		Per Share
			(Numerator)		(Denominator)		Data

Three Months Ended April 30, 2003
Net earnings			$	9,491

Basic earnings per common share:
		Earnings available to common shareholders	$	9,491		108,299	$	.09

Effect of dilutive securities:
		Time-vest stock options assumed exercised		—		3

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised		$	9,491		108,302	$	.09


			Earnings		Shares		Per Share
			(Numerator)		(Denominator)		Data

Three Months Ended April 30, 2002
Net earnings			$	12,879

Basic earnings per common share:
		Earnings available to common shareholders	$	12,879		107,822	$	.12

Effect of dilutive securities:
		Time-vest stock options assumed exercised		—		515

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised		$	12,879		108,337	$	.12

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(4) Reconciliation of Basic and Diluted Per Share Data—(Continued)


			Earnings		Shares		Per Share
			(Numerator)		(Denominator)		Data

Six Months Ended April 30, 2003
Net earnings			$	18,964

Basic earnings per common share:
		Earnings available to common shareholders	$	18,964		108,169	$	.18

Effect of dilutive securities:
		Time-vest stock options assumed exercised		—		27

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised		$	18,964		108,196	$	.18


			Earnings		Shares		Per Share
			(Numerator)		(Denominator)		Data

Six Months Ended April 30, 2002
Net earnings			$	25,552

Basic earnings per common share:
		Earnings available to common shareholders	$	25,552		107,729	$	.24

Effect of dilutive securities:
		Time-vest stock options assumed exercised		—		560

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised		$	25,552		108,289	$	.24

Options to purchase 6,869,117 and 4,948,670 shares of common stock at prices ranging from $3.78 to $27.25 per share and $4.41 to $27.25 per share were outstanding during the three and six months ended April 30, 2003, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares. The options expire between July 31, 2004 and April 12, 2005.

Options to purchase 1,290,433 and 1,211,032 shares of common stock at prices ranging from $5.90 to $27.25 per share and $5.97 to $27.25 per share were outstanding during the three and six months ended April 30, 2002, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(5) Segment Data

The Company’s reportable segment information is as follows:


							Consolidated
			Funeral		Cemetery		Totals

Revenues from external customers:
	Three months ended April 30,
		2003	$	75,795		57,569	$	133,364
		2002	$	90,848		60,141	$	150,989
	Six months ended April 30,
		2003	$	152,531		112,050	$	264,581
		2002	$	185,931		118,627	$	304,558
Gross profit:
	Three months ended April 30,
		2003	$	18,538		14,358	$	32,896
		2002	$	25,275		14,864	$	40,139
	Six months ended April 30,
		2003	$	37,648		26,631	$	64,279
		2002	$	51,733		29,382	$	81,115
Goodwill:
	April 30, 2003		$	332,508		158,815	$	491,323
	October 31, 2002		$	332,508		158,815	$	491,323

A reconciliation of total segment gross profit to total earnings before income taxes for the three and six months ended April 30, 2003 and 2002 is as follows:


		Three Months Ended						Six Months Ended
		April 30,						April 30,

		2003			2002			2003			2002

Gross profit for reportable segments		$	32,896		$	40,139		$	64,279		$	81,115
Corporate general and administrative expenses			(4,182	)		(4,115	)		(8,482	)		(7,885	)
Interest expense			(13,579	)		(15,859	)		(27,156	)		(32,829	)
Investment income			84			98			171			222
Other income, net			90			510			1,775			590

	Earnings before income taxes	$	15,309		$	20,773		$	30,587		$	41,213

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes

The following tables present the condensed consolidating historical financial statements as of April 30, 2003 and October 31, 2002 and for the three and six months ended April 30, 2003 and 2002, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the senior subordinated notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Puerto Rican subsidiaries, all other non-domestic subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are either intended to be used for foreign tax planning purposes or are prohibited by law from guaranteeing the senior subordinated notes.

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Three Months Ended April 30, 2003

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	70,559		$	5,236		$	—		$	75,795
	Cemetery		—			50,234			7,335			—			57,569

			—			120,793			12,571			—			133,364

Costs and expenses:
	Funeral		—			53,595			3,662			—			57,257
	Cemetery		—			37,728			5,483			—			43,211

			—			91,323			9,145			—			100,468

	Gross profit		—			29,470			3,426			—			32,896
Corporate general and administrative expenses			4,328			(146	)		—			—			4,182

	Operating earnings (loss)		(4,328	)		29,616			3,426			—			28,714
Interest income (expense)			6,645			(17,525	)		(2,699	)		—			(13,579	)
Investment income			84			—			—			—			84
Other income (expense), net			131			(131	)		90			—			90

	Earnings before income taxes		2,532			11,960			817			—			15,309
Income taxes			411			4,544			863			—			5,818

	Net earnings (loss) before equity in subsidiaries		2,121			7,416			(46	)		—			9,491

Equity in subsidiaries			7,370			—			—			(7,370	)		—

	Net earnings (loss)		9,491			7,416			(46	)		(7,370	)		9,491
	Other comprehensive income, net		67			—			—			—			67

	Comprehensive income (loss)	$	9,558		$	7,416		$	(46	)	$	(7,370	)	$	9,558

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Three Months Ended April 30, 2002

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	75,257		$	15,591		$	—		$	90,848
	Cemetery		—			54,108			6,033			—			60,141

			—			129,365			21,624			—			150,989

Costs and expenses:
	Funeral		—			53,718			11,855			—			65,573
	Cemetery		—			39,225			6,052			—			45,277

			—			92,943			17,907			—			110,850

	Gross profit		—			36,422			3,717			—			40,139
Corporate general and administrative expenses			4,254			(139	)		—			—			4,115

	Operating earnings (loss)		(4,254	)		36,561			3,717			—			36,024
Interest income (expense)			13,614			(22,063	)		(7,410	)		—			(15,859	)
Investment income			98			—			—			—			98
Other income (expense), net			98			491			(79	)		—			510

	Earnings (loss) before income taxes		9,556			14,989			(3,772	)		—			20,773
Income taxes			783			5,996			1,115			—			7,894

	Net earnings (loss) before equity in subsidiaries		8,773			8,993			(4,887	)		—			12,879

Equity in subsidiaries			4,106			—			—			(4,106	)		—

	Net earnings (loss)		12,879			8,993			(4,887	)		(4,106	)		12,879
	Other comprehensive income, net		7,967			—			7,587			(7,587	)		7,967

	Comprehensive income	$	20,846		$	8,993		$	2,700		$	(11,693	)	$	20,846

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Six Months Ended April 30, 2003

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	142,115		$	10,416		$	—		$	152,531
	Cemetery		—			98,604			13,446			—			112,050

			—			240,719			23,862			—			264,581

Costs and expenses:
	Funeral		—			107,633			7,250			—			114,883
	Cemetery		—			75,119			10,300			—			85,419

			—			182,752			17,550			—			200,302

	Gross profit		—			57,967			6,312			—			64,279
Corporate general and administrative expenses			8,800			(318	)		—			—			8,482

	Operating earnings (loss)		(8,800	)		58,285			6,312			—			55,797
Interest income (expense)			13,916			(35,879	)		(5,193	)		—			(27,156	)
Investment income			171			—			—			—			171
Other income, net			463			1,148			164			—			1,775

	Earnings before income taxes		5,750			23,554			1,283			—			30,587
Income taxes			1,031			8,950			1,642			—			11,623

	Net earnings (loss) before equity in subsidiaries		4,719			14,604			(359	)		—			18,964

Equity in subsidiaries			14,245			—			—			(14,245	)		—

	Net earnings (loss)		18,964			14,604			(359	)		(14,245	)		18,964
	Other comprehensive income, net		156			—			—			—			156

	Comprehensive income (loss)	$	19,120		$	14,604		$	(359	)	$	(14,245	)	$	19,120

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Six Months Ended April 30, 2002

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	148,568		$	37,363		$	—		$	185,931
	Cemetery		—			105,816			12,811			—			118,627

			—			254,384			50,174			—			304,558

Costs and expenses:
	Funeral		—			105,553			28,645			—			134,198
	Cemetery		—			76,706			12,539			—			89,245

			—			182,259			41,184			—			223,443

	Gross profit		—			72,125			8,990			—			81,115
Corporate general and administrative expenses			8,103			(218	)		—			—			7,885

	Operating earnings (loss)		(8,103	)		72,343			8,990			—			73,230
Interest income (expense)			28,564			(45,296	)		(16,097	)		—			(32,829	)
Investment income			203			—			19			—			222
Other income (expense), net			(236	)		692			134			—			590

	Earnings (loss) before income taxes		20,428			27,739			(6,954	)		—			41,213
Income taxes			2,144			11,096			2,421			—			15,661

	Net earnings (loss) before equity in subsidiaries		18,284			16,643			(9,375	)		—			25,552

Equity in subsidiaries			7,268			—			—			(7,268	)		—

	Net earnings (loss)		25,552			16,643			(9,375	)		(7,268	)		25,552
	Other comprehensive income (loss), net		(187	)		1,310			(1,464	)		154			(187	)

	Comprehensive income (loss)	$	25,365		$	17,953		$	(10,839	)	$	(7,114	)	$	25,365

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Balance Sheets


			April 30, 2003

						Guarantor		Non-Guarantor
			Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated

ASSETS
Current assets:
	Cash and cash equivalent investments		$	81,652		$	1,636	$	951	$	—		$	84,239
	Marketable securities			899			26		1,267		—			2,192
	Receivables, net of allowances			28,739			35,725		21,201		—			85,665
	Inventories			396			34,704		7,893		—			42,993
	Prepaid expenses			730			2,292		97		—			3,119
	Deferred income taxes, net			537			1,159		—		—			1,696
	Assets held for sale			—			4,933		542		—			5,475

		Total current assets		112,953			80,475		31,951		—			225,379
Receivables due beyond one year, net of allowances				200			50,076		25,724		—			76,000
Prearranged receivables, net				—			1,189,270		18,320		—			1,207,590
Goodwill				—			451,656		39,667		—			491,323
Deferred charges				8,622			224,523		19,703		—			252,848
Cemetery property, at cost				—			365,057		23,237		—			388,294
Property and equipment, at cost				30,039			435,430		41,618		—			507,087
	Less accumulated depreciation			15,128			151,250		11,934		—			178,312

	Net property and equipment			14,911			284,180		29,684		—			328,775
Deferred income taxes, net				29,857			56,285		—		—			86,142
Investment in subsidiaries				146,619			—		—		(146,619	)		—
Other assets				103			1,111		—		—			1,214

	Total assets		$	313,265		$	2,702,633	$	188,286	$	(146,619	)	$	3,057,565

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current maturities of long-term debt		$	64,079		$	—	$	—	$	—		$	64,079
	Accounts payable			373			7,301		396		—			8,070
	Accrued expenses			17,736			25,169		5,930		—			48,835
	Liabilities associated with assets held for sale			—			2,130		16		—			2,146

		Total current liabilities		82,188			34,600		6,342		—			123,130
Long-term debt, less current maturities				500,394			—		30,000		—			530,394
Intercompany payables, net				(1,117,892	)		1,062,930		54,962		—			—
Prearranged deferred revenue, net				—			1,454,985		94,058		—			1,549,043
Other long-term liabilities				15,599			6,423		—		—			22,022

	Total liabilities			(519,711	)		2,558,938		185,362		—			2,224,589

Common stock				108,352			426		53		(479	)		108,352
Other				727,921			143,269		2,871		(146,140	)		727,921
Accumulated other comprehensive loss				(3,297	)		—		—		—			(3,297	)

	Total shareholders’ equity			832,976			143,695		2,924		(146,619	)		832,976

Total liabilities and shareholders’ equity			$	313,265		$	2,702,633	$	188,286	$	(146,619	)	$	3,057,565

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Balance Sheets


			October 31, 2002

						Guarantor		Non-Guarantor
			Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated

ASSETS
Current assets:
	Cash and cash equivalent investments		$	24,752		$	3,209	$	229	$	—		$	28,190
	Marketable securities			755			26		1,807		—			2,588
	Receivables, net of allowances			24,340			41,131		21,356		—			86,827
	Inventories			407			32,987		8,272		—			41,666
	Prepaid expenses			706			2,032		77		—			2,815
	Deferred income taxes, net			591			757		—		—			1,348
	Assets held for sale			—			8,424		542		—			8,966

		Total current assets		51,551			88,566		32,283		—			172,400
Receivables due beyond one year, net of allowances				—			52,020		24,633		—			76,653
Prearranged receivables, net				—			1,181,775		19,139		—			1,200,914
Goodwill				—			451,656		39,667		—			491,323
Deferred charges				8,716			224,959		19,408		—			253,083
Cemetery property, at cost				—			364,830		23,235		—			388,065
Property and equipment, at cost				29,028			432,492		41,396		—			502,916
	Less accumulated depreciation			13,385			144,059		11,156		—			168,600

	Net property and equipment			15,643			288,433		30,240		—			334,316
Deferred income taxes, net				30,794			63,980		1,020		—			95,794
Investment in subsidiaries				150,555			—		—		(150,555	)		—
Other assets				1,981			1,055		—		—			3,036

	Total assets		$	259,240		$	2,717,274	$	189,625	$	(150,555	)	$	3,015,584

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current maturities of long-term debt		$	6,689		$	—	$	—	$	—		$	6,689
	Accounts payable			880			9,836		397		—			11,113
	Accrued expenses			21,247			27,744		5,296		—			54,287
	Liabilities associated with assets held for sale			—			2,896		15		—			2,911

		Total current liabilities		28,816			40,476		5,708		—			75,000
Long-term debt, less current maturities				515,255			—		30,000		—			545,255
Intercompany payables, net				(1,112,077	)		1,071,567		40,510		—			—
Prearranged deferred revenue, net				—			1,469,680		91,853		—			1,561,533
Other long-term liabilities				14,983			6,550		—		—			21,533

	Total liabilities			(553,023	)		2,588,273		168,071		—			2,203,321

Common stock				108,025			336		53		(389	)		108,025
Other				707,691			128,665		21,501		(150,166	)		707,691
Accumulated other comprehensive loss				(3,453	)		—		—		—			(3,453	)

	Total shareholders’ equity			812,263			129,001		21,554		(150,555	)		812,263

Total liabilities and shareholders’ equity			$	259,240		$	2,717,274	$	189,625	$	(150,555	)	$	3,015,584

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Statements of Cash Flows


			Six Months Ended April 30, 2003

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net cash provided by operating activities			$	6,738		$	7,107		$	4,265		$	—	$	18,110

Cash flows from investing activities:
	Proceeds from sales of marketable securities			—			—			550			—		550
	Purchases of marketable securities			—			—			(9	)		—		(9	)
	Proceeds from sale of assets, net			(821	)		2,535			—			—		1,714
	Additions to property and equipment			(1,085	)		(6,123	)		(265	)		—		(7,473	)
	Other			—			182			—			—		182

		Net cash provided by (used in) investing activities		(1,906	)		(3,406	)		276			—		(5,036	)

Cash flows from financing activities:
	Proceeds from long-term debt			50,000			—			—			—		50,000
	Repayments of long-term debt			(7,338	)		—			—			—		(7,338	)
	Intercompany receivables (payables)			9,093			(5,274	)		(3,819	)		—		—
	Issuance of common stock			313			—			—			—		313

		Net cash provided by (used in) financing activities		52,068			(5,274	)		(3,819	)		—		42,975

Net increase (decrease) in cash				56,900			(1,573	)		722			—		56,049
Cash and cash equivalents, beginning of period				24,752			3,209			229			—		28,190

Cash and cash equivalents, end of period			$	81,652		$	1,636		$	951		$	—	$	84,239

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(6) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes—(Continued)

Condensed Consolidating Statements of Cash Flows


			Six Months Ended April 30, 2002

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net cash provided by operating activities			$	29,943		$	1,689		$	487		$	—	$	32,119

Cash flows from investing activities:
	Proceeds from sales of marketable securities and long-term investments			—			—			169			—		169
	Purchases of marketable securities and long-term investments			—			—			(19	)		—		(19	)
	Proceeds from sale of assets, net			10,535			5,141			—			—		15,676
	Additions to property and equipment			—			(7,279	)		(372	)		—		(7,651	)
	Other			126			397			26			—		549

		Net cash provided by (used in) investing activities		10,661			(1,741	)		(196	)		—		8,724

Cash flows from financing activities:
	Repayments of long-term debt			(29,077	)		—			—			—		(29,077	)
	Intercompany receivables (payables)			(9,118	)		7,935			1,183			—		—
	Issuance of common stock			400			—			—			—		400

		Net cash provided by (used in) financing activities		(37,795	)		7,935			1,183			—		(28,677	)

Effect of exchange rates on cash and cash equivalents				—			—			(470	)		—		(470	)

Net increase in cash				2,809			7,883			1,004			—		11,696
Cash and cash equivalents, beginning of period				22,537			(5,636	)		6,222			—		23,123

Cash and cash equivalents, end of period			$	25,346		$	2,247		$	7,226		$	—	$	34,819

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(7) Loss on Assets Held for Sale and Other Charges

During the third quarter of fiscal year 2001, the Company adopted a formal plan to sell its foreign operations and certain domestic assets, primarily funeral home real estate and excess cemetery property. In addition, it reviewed non-competition agreements that it had entered into with sellers, key employees and others in connection with previous acquisitions, and it decided to relieve some of these individuals from the obligations not to compete, although it will continue to make the payments in accordance with the contract terms.

In the third quarter of 2001 the Company wrote down the aggregate value of these assets to their estimated fair value, which was based upon current offers at that time from interested parties, or market prices of comparable properties, less cost to sell. As a result, the Company incurred an aggregate pretax noncash charge to earnings of $269,158 ($205,089 after-tax, of which $187,329 related to foreign operations) in the third quarter of 2001. Primarily as a result of the significant devaluation of the Argentine peso and the depressed economic conditions in Argentina, the Company re-evaluated the expected loss on the disposition of the assets held for sale and recorded an aggregate pretax noncash charge to earnings of $18,500 ($11,200 after-tax) in the third quarter of 2002.

The impairment charges related to these writedowns and the writedowns of the non-competition agreements are reflected in the “loss on assets held for sale and other charges” line item of the consolidated statement of earnings in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002. The related assets and liabilities associated with assets held for sale are shown in separate line items in the consolidated balance sheet titled “assets held for sale” and “liabilities associated with assets held for sale.” At April 30, 2003 and October 31, 2002, the assets held for sale (excluding $2 of cash and cash equivalent investments of the operations held for sale as of April 30, 2003 and October 31, 2002) and the liabilities associated with assets held for sale line items in the balance sheet represent the assets and liabilities, respectively, of certain assets, primarily funeral homes.

A summary of the assets and liabilities included in these line items at April 30, 2003 and October 31, 2002 is as follows:


				April 30, 2003		October 31, 2002

			Assets
Receivables, net of allowances				$	407	$	590
Inventories and other current assets					794		876
Net property and equipment					996		2,384
Prearranged receivables, net					1,438		2,460
Deferred charges and other assets					1,015		1,831
Cemetery property					825		825

	Assets held for sale			$	5,475	$	8,966

		Liabilities
Current liabilities				$	111	$	561
Deferred income taxes, net					2		299
Prearranged deferred revenue, net					2,033		2,051

	Liabilities associated with assets held for sale			$	2,146	$	2,911

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(7) Loss on Assets Held for Sale and Other Charges—(Continued)

The operating results of assets sold and held for sale included in the consolidated statements of earnings for the three and six months ended April 30, 2003 and 2002 were as follows:


	Three Months Ended					Six Months Ended
	April 30,					April 30,

	2003			2002		2003			2002

Revenues	$	578		$	12,743	$	1,586		$	31,505

Operating earnings (loss)	$	(48	)	$	1,850	$	(152	)	$	4,176

(8) Funeral and Cemetery Trust Funds and Escrow Accounts

Amounts due from preneed funeral and preneed cemetery merchandise trust and escrow accounts are included in the prearranged receivables line in the Company’s consolidated balance sheet. As discussed in Note 1(f), the Company recorded a valuation allowance of $20,000 as of October 31, 2002 and increased its valuation allowance by $2,000 as of January 31, 2003 related to the prearranged receivable from its trust funds, which resulted in a reduction in prearranged receivables and prearranged deferred revenue. As of April 30, 2003, the Company reduced its valuation allowance by $7,000, which resulted in an increase to prearranged receivables and prearranged deferred revenue. Accordingly, as of April 30, 2003, the valuation allowance was $15,000. For further information regarding prearranged receivables, see Note 4 to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002. The Company’s perpetual care trust fund accounts are not reflected in the accompanying financial statements. For further information regarding the perpetual care trust funds, see Note 5 to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

The following reflects the Company’s preneed funeral, preneed cemetery merchandise and perpetual care trust fund and escrow account balances as of April 30, 2003 and October 31, 2002.


	Funeral						Cemetery Merchandise						Perpetual Care

	April 30,			October 31,			April 30,			October 31,			April 30,			October 31,
	2003			2002			2003			2002			2003			2002

Total value at cost	$	537,816		$	538,180		$	229,614		$	227,588		$	221,329		$	217,174
Net unrealized depreciation		(104,801	)		(116,760	)		(53,617	)		(60,010	)		(32,545	)		(38,007	)

Total value at market	$	433,015		$	421,420		$	175,997		$	167,578		$	188,784		$	179,167

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(9) Consolidated Comprehensive Income

Consolidated comprehensive income for the six months ended April 30, 2003 and 2002 is as follows:


		Six Months Ended April 30,

		2003			2002

Net earnings		$	18,964		$	25,552
Other comprehensive income (loss):
	Foreign translation adjustment related to operations sold		—			8,900
	Foreign translation adjustment		—			(10,364	)
	Unrealized appreciation of investments		144			587
	Net deferred income tax expense on unrealized appreciation of investments		(56	)		(196	)
	Expiration of derivative instrument designated and qualifying as a cash flow hedging instrument		—			2,128
	Unrealized appreciation (depreciation) on derivative instrument designated and qualifying as a cash flow hedging instrument		109			(742	)
	Deferred income tax expense on unrealized appreciation (depreciation) on derivative instrument designated and qualifying as a cash flow hedging instrument		(41	)		(500	)

	Total other comprehensive income (loss)		156			(187	)

Total comprehensive income		$	19,120		$	25,365

(10) Guarantees

The Company’s obligations under its senior secured credit facility are guaranteed by all of its existing and future direct and indirect subsidiaries formed under the laws of the United States, any state thereof or the District of Columbia, except for specified excluded subsidiaries. The senior subordinated notes are guaranteed by all of the domestic subsidiaries of the Company, other than certain specified subsidiaries including the Puerto Rican subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries. For additional information regarding the senior secured credit facility and senior subordinated notes, see Note 12 to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

All obligations under the senior secured credit facility, including the guarantees and any interest rate protection and other hedging agreements with any lender or its affiliates, are secured equally and ratably with the 6.70 percent Notes by a first priority perfected security interest in (1) all capital stock and other equity interests of the Company’s existing and future direct and indirect domestic subsidiaries, other than certain domestic subsidiaries acceptable to the agents, (2) 65 percent of the voting equity interests and 100 percent of all other equity interests (other than qualifying

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(10) Guarantees—(Continued)

shares of directors) of all direct existing and future foreign subsidiaries, and (3) all other existing and future assets and properties of the Company and the guarantors, except for real property, vehicles and other specified exclusions.

Louisiana law gives Louisiana corporations broad powers to indemnify their present and former directors and officers and those of affiliated corporations against expenses incurred in the defense of any lawsuit to which they are made parties by reason of their positions. The Company’s By-laws make mandatory the indemnification of directors and officers permitted by Louisiana law. The Company has in effect a directors’ and officers’ liability insurance policy that provides for indemnification of its officers and directors against losses arising from claims asserted against them in their capacities as officers and directors, subject to limitations and conditions set forth in such policy. The Company has also entered into indemnity agreements with each director and executive officer, pursuant to which the Company has agreed, subject to certain exceptions, to purchase and maintain directors’ and officers’ liability insurance. The agreements also provide that the Company will indemnify each director and executive officer against any costs and expenses, judgments, settlements and fines incurred in connection with any claim involving him or her by reason of his or her position as director or officer, provided that the director or executive officer meets certain standards of conduct.

As of April 30, 2003, the Company has guaranteed long-term debt of its subsidiaries of approximately $5,468 that represents notes the subsidiaries issued as part of the purchase price of acquired businesses or debt the subsidiaries assumed in connection with acquisitions.

(11) Related Party Transactions

During the fiscal year ended October 31, 1992, Mr. Frank B. Stewart, Jr., Chairman of the Board, and two trusts established by Mr. Stewart and his wife for the benefit of their children, entered into an agreement with the Company whereby the Company, with the approval of all of the disinterested members of the Board of Directors, agreed to advance the premiums on a split dollar “second-to-die” life insurance policy purchased by the trusts and insuring the lives of Mr. and Mrs. Stewart. The premiums were payable over a 12-year period, and the trusts were required to reimburse the Company currently for that portion of the premiums the Company paid that, if not reimbursed, would be treated as compensation to Mr. Stewart for federal income tax purposes. Interest accrued on the remaining premium advanced at 8 percent per annum from the date each premium payment was made by the Company. The advances were collateralized by an assignment of other insurance policies owned by the trusts and shares of the Company’s Class A common stock that are held by the trusts. The trusts originally agreed that, upon the death of Mr. or Mrs. Stewart, the proceeds of such other insurance policies would be used to reduce the outstanding balance due to the Company. In addition, the Company was entitled to reimbursement of the unpaid balance of all amounts advanced, together with accrued interest, upon the first to occur of (1) the surrender of the policy, (2) the deaths of Mr. and Mrs. Stewart or (3) the expiration of 120 days following the payment in full of all premiums on the policy. The outstanding amount advanced to the trusts by the Company, including accrued interest, was approximately $1,879 at October 31, 2002. On April 29, 2003, the outstanding amount advanced to the trusts, including accrued interest, under the split dollar insurance policy was repaid by the trusts in the amount of $1,935.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

(11) Related Party Transactions—(Continued)

In January 1998, the Company discontinued an insurance policy on the life of Mr. Stewart unrelated to the policy described in the preceding paragraph. In order to purchase a replacement policy, The Stewart Family Special Trust borrowed $685 from the Company pursuant to a promissory note due 180 days after the death of Mr. Stewart. Interest on the note accrues annually at a rate equal to the Company’s cost of borrowing under its revolving credit facility and is payable when the principal becomes due. The amount of the loan was equal to the cash value received by the Company upon the discontinuance of the prior insurance policy. The loan proceeds were used by the trust to purchase a single premium policy on the life of Mr. Stewart. Certain of the beneficiaries of The Stewart Family Special Trust are members of Mr. Stewart’s family. The loan was approved by all of the disinterested members of the Board of Directors. The outstanding balance of the loan at April 30, 2003, including accrued interest, was approximately $953.

(12) Subsequent Events

On May 1, 2003, the Company redeemed its $99,897 outstanding Remarketable Or Redeemable Securities (“ROARS”). When the remarketing dealer elected to remarket the ROARS, the Company exercised its right to redeem the ROARS rather than allow them to be remarketed. The Company paid the remarketing dealer $12,691, the contractually specified value of the remarketing right, which was based on the 10-year Treasury rate of 3.894 percent. Net of the $1,532 unamortized ROARS option premium and $130 in costs, the Company will record a charge of $11,289 ($7,338 after-tax, or $.07 per share) in the third quarter of fiscal year 2003. In order to redeem the ROARS, the Company used $50,000 of additional Term Loan B financing along with $50,000 from its revolving credit facility. On the Company's April 30, 2003 balance sheet, the portion of the ROARS that was redeemed using the $50,000 of additional Term Loan B financing is classified as a short-term obligation because the Company secured this financing prior to April 30, 2003 for the purpose of redeeming the ROARS. As of April 30, 2003, the Company had sufficient availability under its revolving credit facility to redeem the remainder of the $99,897 outstanding ROARS. Accordingly, the Company classified this amount as long-term debt. In connection with the redemption of the ROARS, the Company amended the loan covenants that govern its revolving credit and Term Loan B credit. The amendment to the credit agreement provides greater financial flexibility.

Subsequent to May 1, 2003, the Company received $23,334 in tax proceeds related to loss carrybacks generated from the sale of its foreign operations. The Company used these proceeds and cash on hand to reduce its debt balance to $517,325 as of June 4, 2003.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are the third largest provider of funeral and cemetery products and services in the death care industry in the United States. As of June 4, 2003, we owned and operated 301 funeral homes and 149 cemeteries in 29 states within the United States and Puerto Rico.

We sell cemetery property and funeral and cemetery products and services both at the time of need and on a preneed basis. Our revenues in each period are derived primarily from at-need sales, preneed sales delivered out of our backlog during the period (including the accumulated trust fund earnings or build-up in the face value of insurance contracts related to these preneed deliveries), preneed cemetery property sales and other items such as perpetual care trust earnings and finance charges. For a discussion of our accounting for preneed sales, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2002 and Note 1 to the consolidated financial statements included herein.

Our funeral and cemetery businesses include prearranged sales funded through trust and escrow arrangements. The cemetery business includes maintenance of cemetery grounds funded through perpetual care trust funds. We defer all of the earnings realized by our preneed funeral and preneed cemetery merchandise trust funds and escrow accounts until the underlying merchandise or services are delivered. We recognize the earnings from our perpetual care trust funds as they are realized in the trust.

From 1991 through 1999, we achieved an overall annual realized return of 8.0 percent to 9.0 percent in our trust funds. However, the average realized return on our domestic trust funds was 5.8 percent, 6.3 percent, 4.3 percent and 2.6 percent, for fiscal years 2000, 2001, 2002 and the six months ended April 30, 2003, respectively. These returns represent interest, dividends and realized capital gains or losses but not unrealized capital gains or losses. We defer recognition of all earnings and losses realized by preneed funeral and cemetery merchandise trust funds until the underlying products and services are delivered. Consequently, the lower investment returns realized during the last few years are expected to reduce the trust earnings to be recognized as revenue in 2003. We recognize all earnings and losses realized by our perpetual care trust funds currently. As a result, depressed stock prices and returns on fixed-income investments in the current market are expected to continue to put pressure on perpetual care trust earnings recognized during the current year. Because approximately 45 percent of our portfolio is currently invested in a diversified group of equity securities, we would generally expect our portfolio performance to follow the overall stock market performance. The yield on our total trust portfolio, including unrealized gains and losses, through May of calendar year 2003 was up nearly 7.0 percent, driven by strong performance in April and May.

As disclosed in Note 8 to the consolidated financial statements, our preneed funeral and preneed cemetery merchandise trust funds and escrow accounts had net unrealized depreciation of $104.8 million and $53.6 million, respectively, as of April 30, 2003. Unrealized gains and losses in the funeral trust funds and cemetery merchandise trust funds have no immediate impact on our revenues, margins, earnings or cash flow, unless the fair market value of the funds were to decline below the estimated costs to deliver the underlying products and services. If that were to occur, we would record a charge to earnings to reduce the investment value to the

expected cost to deliver. Over time, gains and losses realized in the funds are allocated to underlying preneed contracts and affect the amount of trust fund earnings we record when we deliver the underlying product or service. Accordingly, if current market conditions do not improve, the funds may eventually realize losses, and our revenues, margins, earnings and cash flow would be negatively affected by the reduced revenue we would realize when we deliver the underlying products and services. We project that with approximately 3.0 percent to 5.0 percent annualized returns in the funds over the estimated lives of the associated preneed contracts, we would recover the net unrealized depreciation currently in the funds by the time the underlying products and services are delivered. As discussed in Note 8 to the consolidated financial statements, our perpetual care trust fund accounts had net unrealized depreciation of $32.5 million as of April 30, 2003. Unrealized gains and losses in the perpetual care trust funds do not affect earnings but could limit the capital gains available to us and could result in lower returns and current revenues than we have historically achieved. For a more detailed discussion of our accounting for our preneed trust and escrow account earnings, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

We discuss additional trends in our business, such as reduced preneed property sales, rising insurance costs, fewer deaths in the short-term, reduced interest costs and the elimination of the earnings contribution from foreign operations, in our “Forward-Looking Statements” included in Part II, Item 5.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions (see Note 1(d) to the consolidated financial statements). We believe that our critical accounting policies (as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002) are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgment. There have been no changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

Results of Operations

Because we held our foreign operations and several small domestic operations for sale, in the third quarter of 2001 we began segregating the operating results of these businesses from the operations we will retain. The following discussion segregates the financial results into two main categories in order to present our ongoing operating results and to provide more useful information for investors. “Operations to be Retained” consist of those businesses we have owned and operated for the entire current fiscal year and last and that we plan to retain (“Existing Operations”) and those businesses that have been opened during this fiscal year or last and that we plan to retain (“Opened Operations”). “Closed and Held for Sale Operations” consist of those that have been sold or closed during this fiscal year or last and the businesses that are currently being offered for sale.

================================================================================

Three Months Ended April 30, 2003 Compared to Three Months Ended April 30, 2002

Funeral Segment


	Three Months Ended
	April 30,
						Increase
	2003			2002		(Decrease)

				(In millions)
FUNERAL — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	75.2		$	79.5	$	(4.3	)
Opened operations		.2			.1		.1

	$	75.4		$	79.6	$	(4.2	)

Costs
Existing operations	$	56.7		$	56.1	$	.6
Opened operations		.1			.1		—

	$	56.8		$	56.2	$	.6

Gross Profit
Existing operations	$	18.5		$	23.4	$	(4.9	)
Opened operations		.1			—		.1

	$	18.6		$	23.4	$	(4.8	)

FUNERAL — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	.4		$	11.3	$	(10.9	)
Costs		.5			9.4		(8.9	)

Gross Profit	$	(.1	)	$	1.9	$	(2.0	)

Total Funeral Revenue	$	75.8		$	90.9	$	(15.1	)
Total Funeral Costs		57.3			65.6		(8.3	)

Total Funeral Gross Profit	$	18.5		$	25.3	$	(6.8	)

Total funeral revenue declined $15.1 million in the second quarter of 2003 compared to the corresponding period in 2002 primarily due to a decrease in revenue from Closed and Held for Sale Operations. The decrease in revenue from Closed and Held for Sale Operations resulted primarily from the sale of our foreign operations during fiscal year 2002. The decline in total funeral revenue is also due to a decrease in the number of funeral services performed coupled with a reduction in trust earnings recognized upon the delivery of preneed funerals. The reduction in trust earnings in fiscal year 2003 compared to fiscal year 2002 resulted from lower investment returns realized in our preneed funeral trust funds during the last few years.

Funeral revenue from Operations to be Retained decreased $4.2 million, or 5.3 percent, for the three months ended April 30, 2003, compared to the corresponding period in 2002. There was a 6.5 percent decrease (1,260 events) in the number of funeral services performed, partially offset by a 1.3 percent increase in the average revenue per funeral service performed by these businesses. We experienced a $4.3 million, or 5.4 percent, decrease in funeral revenue from Existing Operations, primarily due to a 6.6 percent decrease (1,278 events) in the number of funeral services performed by these businesses, partially offset by a 1.3 percent increase in the average revenue per funeral service performed.

Funeral gross profit margin from Existing Operations decreased from 29.4 percent in the second quarter of fiscal year 2002 to 24.6 percent in the second quarter of fiscal year 2003. The decline is due to an increase in insurance costs combined with the decrease in funeral revenue as discussed above. The cremation rate for Existing Operations was 39.3 percent for the quarter ended April 30, 2003 compared to 38.7 percent for the quarter ended April 30, 2002.

Cemetery Segment


	Three Months Ended
	April 30,
						Increase
	2003		2002			(Decrease)

			(In millions)
CEMETERY — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	57.4	$	58.7		$	(1.3	)
Opened operations		—		—			—

	$	57.4	$	58.7		$	(1.3	)

Costs
Existing operations	$	43.0	$	43.8		$	(.8	)
Opened operations		—		—			—

	$	43.0	$	43.8		$	(.8	)

Gross Profit
Existing operations	$	14.4	$	14.9		$	(.5	)
Opened operations		—		—			—

	$	14.4	$	14.9		$	(.5	)

CEMETERY — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	.2	$	1.4		$	(1.2	)
Costs		.2		1.5			(1.3	)

Gross Profit	$	—	$	(.1	)	$	.1

Total Cemetery Revenue	$	57.6	$	60.1		$	(2.5	)
Total Cemetery Costs		43.2		45.3			(2.1	)

Total Cemetery Gross Profit	$	14.4	$	14.8		$	(.4	)

Total cemetery revenue decreased $2.5 million, or 4.2 percent, for the three months ended April 30, 2003, compared to the corresponding period in 2002. We experienced a $1.3 million, or 2.2 percent, decrease in revenue from Operations to be Retained, primarily due to the decline in the number of families served in our cemeteries, which we believe resulted primarily from a decline in the number of deaths. We also experienced a $1.2 million decline in revenue from Closed and Held for Sale Operations due primarily to the disposition of our foreign operations in fiscal year 2002. During the quarter ended April 30, 2003, our perpetual care trust earnings were consistent with the comparable quarter of last year. We experienced an annualized average return, excluding unrealized gains and losses, of 4.6 percent in our perpetual care trust funds for the quarter ended April 30, 2003 resulting in revenue of $2.1 million, compared to 4.2 percent for the corresponding period in 2002 resulting in revenue of $2.0 million.

Cemetery gross profit margin from Existing Operations decreased from 25.4 percent in the second quarter of 2002 to 25.1 percent in the second quarter of 2003. The decline was principally due to increased insurance costs coupled with the reduction in cemetery revenue as discussed above.

Other

Depreciation and amortization was $13.7 million for the second quarter of fiscal year 2003 compared to $14.5 million for the same period in 2002. The decrease is primarily due to the sale of our foreign operations during 2002.

Interest expense decreased $2.3 million to $13.6 million for the second quarter of fiscal year 2003 compared to $15.9 million for the same period in 2002. The decrease is primarily due to a $125.9 million decrease in the average debt outstanding, partially offset by an approximate 40 basis point increase in the average interest rate during the quarter ended April 30, 2003 compared to the quarter ended April 30, 2002.

Other income, net, decreased approximately $.4 million during the second quarter of fiscal year 2003 compared to the same period in 2002. The decrease is primarily due to the net gain on the sale of a domestic funeral home during the second quarter of 2002.

As of April 30, 2003 and June 4, 2003, our outstanding debt totaled $594.5 million and $517.3 million, respectively. On May 1, 2003, we exercised our right to redeem our outstanding $99.9 million Remarketable Or Redeemable Securities (“ROARS”) rather than allowing them to be remarketed. In order to redeem the ROARS, we used $50.0 million of additional Term Loan B financing and $50.0 million from our revolving credit facility. On our April 30, 2003 balance sheet, the portion of the ROARS that was redeemed using the $50.0 million of additional Term Loan B financing is classified as a short-term obligation because we secured this financing prior to April 30, 2003 for the purpose of redeeming the ROARS. As of April 30, 2003, we had sufficient availability under our revolving credit facility to redeem the remainder of the $99.9 million outstanding ROARS. Accordingly, we classified this amount as long-term debt. Of the total amount of debt outstanding, including the portion subject to the interest rate swap agreements in effect as of April 30, 2003, approximately 86 percent was fixed-rate debt, with the remaining 14 percent subject to short-term variable interest rates averaging approximately 4.8 percent.

In order to hedge a portion of the interest rate risk associated with our variable-rate debt, effective March 11, 2002, we entered into two interest rate swap agreements, expiring on March 11, 2004 and March 11, 2005, each involving a notional amount of $50.0 million. The agreements effectively convert variable-rate debt bearing interest based on three-month LIBOR plus the applicable margin specified under our senior secured credit facility to fixed- rate debt bearing interest at the fixed swap rate plus such applicable margin. As of June 4, 2003, the effective rate of the debt hedged by the interest rate swaps was 7.025 percent and 7.64 percent on each $50.0 million swapped.

Preneed Sales and Deliveries

The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results above. We added $42.8 million in preneed sales to our funeral and cemetery merchandise and service backlog during the three months ended April 30, 2003 to be recognized in the future, net of cancellations, as these prepaid products and services are delivered, compared to $45.9 million for the corresponding period in 2002. Deliveries out of our preneed funeral and cemetery merchandise and service backlog, including accumulated trust fund earnings related to these preneed deliveries, amounted to $45.0 million for the three months ended April 30, 2003, compared to $47.4 million for the corresponding period in 2002.

Six Months Ended April 30, 2003 Compared to Six Months Ended April 30, 2002

Funeral Segment


	Six Months Ended
	April 30,
							Increase
	2003			2002			(Decrease)

				(In millions)
FUNERAL — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	151.1		$	157.2		$	(6.1	)
Opened operations		.3			.1			.2

	$	151.4		$	157.3		$	(5.9	)

Costs
Existing operations	$	113.3		$	110.1		$	3.2
Opened operations		.3			.2			.1

	$	113.6		$	110.3		$	3.3

Gross Profit
Existing operations	$	37.8		$	47.1		$	(9.3	)
Opened operations		—			(.1	)		.1

	$	37.8		$	47.0		$	(9.2	)

FUNERAL — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	1.1		$	28.6		$	(27.5	)
Costs		1.3			23.9			(22.6	)

Gross Profit	$	(.2	)	$	4.7		$	(4.9	)

Total Funeral Revenue	$	152.5		$	185.9		$	(33.4	)
Total Funeral Costs		114.9			134.2			(19.3	)

Total Funeral Gross Profit	$	37.6		$	51.7		$	(14.1	)

Total funeral revenue declined $33.4 million for the six months ended April 30, 2003, compared to the corresponding period in 2002 primarily due to a decrease in revenue from Closed and Held for Sale Operations. The decrease in revenue from Closed and Held for Sale Operations resulted primarily from the sale of our foreign operations in fiscal year 2002. The decline in total funeral revenue is also due to a decrease in the number of funeral services performed coupled with a reduction in trust earnings recognized upon the delivery of preneed funerals. The reduction in trust earnings in fiscal year 2003 compared to fiscal year 2002 resulted from lower investment returns realized in our preneed funeral trust funds during the last few years.

Funeral revenue from Operations to be Retained decreased $5.9 million, or 3.8 percent, for the six months ended April 30, 2003, compared to the corresponding period in 2002. There was a 4.0 percent decrease (1,561 events) in the number of funeral services performed, partially offset by a 1.2 percent increase in the average revenue per funeral service performed by these businesses. We experienced a $6.1 million, or 3.9 percent, decrease in funeral revenue from Existing Operations primarily due to a 4.2 percent decrease (1,618 events) in the number of funeral services performed, partially offset by a 1.3 percent increase in the average revenue per funeral service performed by these businesses.

Funeral gross profit margin from Existing Operations decreased from 30.0 percent for the six months ended April 30, 2002 to 25.0 percent for the corresponding period in 2003 primarily due to an increase in insurance and other costs combined with the decrease in revenue discussed above. The cremation rate for Existing Operations was 39.2 percent for the six months ended April 30, 2003, compared to 38.2 percent for the six months ended April 30, 2002.

Cemetery Segment


	Six Months Ended
	April 30,
						Increase
	2003		2002			(Decrease)

			(In millions)
CEMETERY — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	111.6	$	115.7		$	(4.1	)
Opened operations		—		—			—

	$	111.6	$	115.7		$	(4.1	)

Costs
Existing operations	$	85.0	$	85.8		$	(.8	)
Opened operations		—		—			—

	$	85.0	$	85.8		$	(.8	)

Gross Profit
Existing operations	$	26.6	$	29.9		$	(3.3	)
Opened operations		—		—			—

	$	26.6	$	29.9		$	(3.3	)

CEMETERY — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	.4	$	2.9		$	(2.5	)
Costs		.4		3.4			(3.0	)

Gross Profit	$	—	$	(.5	)	$	.5

Total Cemetery Revenue	$	112.0	$	118.6		$	(6.6	)
Total Cemetery Costs		85.4		89.2			(3.8	)

Total Cemetery Gross Profit	$	26.6	$	29.4		$	(2.8	)

Total cemetery revenue decreased $6.6 million, or 5.6 percent, for the six months ended April 30, 2003, compared to the corresponding period in 2002. We experienced a $4.1 million, or 3.5 percent, decrease in revenue from Operations to be Retained, primarily due to reduced perpetual care trust earnings and a decline in the number of families served in our cemeteries, which we believe resulted primarily from a decline in the number of deaths. We also experienced a decline in revenue from Closed and Held for Sale Operations due primarily to the disposition of our foreign operations in fiscal year 2002. We experienced an annualized average return, excluding unrealized gains and losses, of 4.4 percent in our perpetual care trust funds for the six months ended April 30, 2003 resulting in revenue of $4.0 million, compared to 6.5 percent for the corresponding period in 2002 resulting in revenue of $6.3 million.

Cemetery gross profit margin from Existing Operations decreased from 25.8 percent for the six months ended April 30, 2002 to 23.8 percent for the corresponding period in 2003. The decline was principally due to an increase in insurance costs and the decrease in cemetery revenue as discussed above.

Other

Corporate general and administrative expenses for the six months ended April 30, 2003 increased $.6 million compared to the same period in 2002. Effective April 1, 2002, we adopted the Stewart Enterprises, Inc. Supplemental Executive Retirement Plan (the “Plan”). The Plan provides retirement benefits to certain executive officers that are intended to supplement the benefits available under our 401(k) Plan and in part replace other benefits previously available under the executive officers’ employment agreements. Adoption of the Plan resulted in a charge to corporate general and administrative expenses of $.2 million for the second quarter of fiscal year 2002 and will result in a charge of approximately $.5 million per quarter thereafter.

Depreciation and amortization was $27.1 million for the six months ended April 30, 2003, compared to $28.0 million for the same period in 2002. The decrease is primarily due to the sale of our foreign operations in 2002.

Interest expense decreased $5.7 million to $27.1 million for the six months ended April 30, 2003, compared to $32.8 million for the same period in 2002. The decrease is primarily due to a $133.7 million decrease in the average debt outstanding, partially offset by an approximate 30 basis point increase in the average interest rate during the six months ended April 30, 2003 compared to the same period in 2002.

Other income, net, increased approximately $1.2 million during the six months ended April 30, 2003, compared to the same period in 2002. The increase is due in part to net gains on the sales of a few small domestic funeral homes in the first six months of 2003. We have approximately $5.5 million of assets held for sale, consisting primarily of domestic funeral homes, and we may elect to sell other small domestic properties from time to time. Any future sales may generate gains or losses that would be reflected in other income in future periods.

As of April 30, 2003, our outstanding debt totaled $594.5 million. Our outstanding debt is discussed further under the heading “Three Months Ended April 30, 2003 Compared to Three Months Ended April 30, 2002 — Other.”

Preneed Sales and Deliveries

The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results above. We added $80.0 million in preneed sales to our funeral and cemetery merchandise and service backlog during the six months ended April 30, 2003 to be recognized in the future, net of cancellations, as these prepaid products and services are delivered, compared to $82.9 million for the corresponding period in 2002. Deliveries out of our preneed funeral and cemetery merchandise and service backlog, including accumulated trust fund earnings related to these preneed deliveries, amounted to $88.5 million for the six months ended April 30, 2003, compared to $90.6 million for the corresponding period in 2002.

Liquidity and Capital Resources

Introduction

Historically, our growth has been primarily from acquisitions. This trend began to change in late fiscal year 1999. As industry conditions reduced the number of major consolidators participating in the acquisition market, those that remained generally applied significantly tighter pricing criteria, and many potential sellers withdrew their businesses from the market rather than pursue transactions at lower prices. As the business model shifted,

death care consolidators experienced diminishing access to capital. In response to these changes, we ceased our acquisition activity and developed strategies for improving cash flow and reducing and restructuring debt. Throughout fiscal years 2000, 2001 and 2002, we focused on debt reduction and cash flow. During fiscal year 2002, we began positioning ourselves for business expansion in fiscal year 2003.

In our first fiscal quarter of 2003, several external factors adversely impacted our business. There were decreased deaths nationwide according to data published by the Centers for Disease Control and Prevention. Weak financial markets reduced our perpetual care trust earnings, and low levels of consumer confidence negatively affected our ability to increase preneed sales. Based on these factors, we revised our outlook for 2003. We believe that most of the external factors adversely impacting our business are temporary. In fact, there have been recent improvements in some of the trends impacting us and our industry. Beginning in April of 2003 and continuing into May, consumer confidence levels improved from their 10-year lows of February and March. Although consumer confidence levels remained low during most of our second quarter, preneed sales increased in the quarter. We remain cautiously optimistic as we monitor this possible trend and other indicators that the economy may be improving, such as the performance of the stock market. The Dow Jones Industrial Average is up 6 percent this calendar year through May, and in the same time period, our trust portfolio, including unrealized gains and losses, is up nearly 7 percent, driven by strong performance in April and May. Because approximately 45 percent of our portfolio is currently invested in a diversified group of equity securities, we would generally expect our portfolio performance to follow the overall stock market performance. During our second quarter, the trend of decreased deaths continued. We track our at-need sales by market and regularly compare our performance with data from a variety of sources to gauge changes in market share. The data from these sources indicate a decline in the number of deaths in our markets during the quarter. We expect to eventually see more normalized mortality trends, and we expect our at-need results to improve when that occurs. Although not yet necessarily an indication of a trend, our preliminary results for the month of May indicate that at-need events appear to be increasing for the early part of our third quarter.

As we await improvements in the economy, financial markets and normalized mortality trends, we will remain focused on improving operational performance, generating cash and reducing debt. We will continue to evaluate our options for deployment of our cash flow as opportunities arise. We will consider acquiring high-quality cemeteries and funeral homes that are priced within our guidelines and that fit our new business model, opening new funeral homes or entering into agreements to construct funeral homes in third-party cemeteries. At certain levels, we believe our stock represents a better investment at lower risk than other external growth opportunities, and we would recommend that course of action to our Board of Directors if we determined that a stock repurchase represents the best return on our investment. Based on the results of our analysis, we may also consider reducing debt below our initial goal of $500 million.

Contractual Obligations and Commercial Commitments

As of April 30, 2003, our outstanding debt balance was $594.5 million. In order to redeem our Remarketable Or Redeemable Securities (“ROARS”) on May 1, 2003, we used $50.0 million of additional Term Loan B financing that was obtained prior to April 30, 2003 and drew down $50.0 million under our revolving credit facility. Subsequent to May 1, 2003, we received $23.3 million in tax proceeds related to the sale of our foreign operations. We used these proceeds and cash on hand to reduce our debt to $517.3 million as of June 4, 2003. The following table details our known future cash payments (in millions) related to various contractual obligations as of April 30, 2003.


			Payments Due by Period

			Fiscal Year		Fiscal Years		Fiscal Years
Contractual Obligations	Total		2003		2004 – 2005		2006 – 2007		Thereafter

Current maturities of long-term debt (1)	$	64.1	$	57.1	$	7.0	$	—	$	—
Long-term debt (1)		528.9		49.9		95.3		80.6		303.1
Operating lease agreements (2)		40.2		2.7		8.2		5.9		23.4
Non-competition agreements (3)		15.7		2.8		7.3		3.5		2.1

	$	648.9	$	112.5	$	117.8	$	90.0	$	328.6

(1)		These amounts exclude the unamortized option premium relating to the ROARS of $1.5 million as of April 30, 2003. See below for a breakdown of our future scheduled principal payments and maturities of our long-term debt by type as of April 30, 2003. On May 1, 2003, we redeemed the $99.9 million outstanding ROARS using $50.0 million of Term Loan B financing received prior to April 30, 2003, and $50.0 million drawn from our revolving credit facility in May 2003.

(2)		Our noncancellable operating leases are primarily for land and buildings and expire over the next one to 17 years, except for six leases that expire between 2032 and 2039. Our future minimum lease payments as of April 30, 2003 are $2.7 million, $4.6 million, $3.6 million, $3.2 million, $2.7 million and $23.4 million for the years ending October 31, 2003, 2004, 2005, 2006, 2007 and later years, respectively.

(3)		We have entered into non-competition agreements with prior owners of acquired subsidiaries that expire through 2012. During fiscal year 2001, we decided to relieve some of the prior owners and key employees of their obligations not to compete; however, we will continue to make the payments in accordance with the contract terms.

The following table reflects future scheduled principal payments and maturities of our long-term debt (in millions) as of April 30, 2003.


										Other,
										Principally
										Seller
Fiscal			Senior		6.40%					Financing of
Year Ending	Term		Subordinated		Public Notes			6.70%		Acquired
October 31,	Loan B		Notes		(ROARS)			Public Notes		Operations		Total

2003	$	5.0	$	—	$	99.9	(1)	$	—	$	2.1	$	107.0
2004		10.0		—		—			.1		3.9		14.0
2005		86.5		—		—			—		1.8		88.3
2006		79.0		—		—			—		.9		79.9
2007		—		—		—			—		.7		.7
Thereafter		—		300.0		—			—		3.1		303.1

Subtotal	$	180.5	$	300.0	$	99.9		$	.1	$	12.5		593.0

Unamortized option premium relating to ROARS													1.5

Total long-term debt												$	594.5

(1)

On May 1, 2003, we used $50.0 million of additional Term Loan B financing along with $50.0 million from our revolving credit facility to redeem our $99.9 million outstanding ROARS. When the remarketing dealer elected to remarket the ROARS, we exercised our right to redeem the ROARS rather than allow them to be remarketed. We paid the remarketing dealer $12.7 million, the contractually specified value of the remarketing right, which was based on the 10-year Treasury rate of 3.894 percent. Net of the $1.5 million unamortized ROARS option premium and $.1 million in costs, we will record a charge of $11.3 million

($7.3 million after-tax, or $.07 per share) in the third quarter of fiscal year 2003. On our April 30, 2003 balance sheet, the portion of the ROARS that was redeemed using the $50.0 million of additional Term Loan B financing is classified as a short-term obligation because we secured this financing prior to April 30, 2003 for the purpose of redeeming the ROARS. As of April 30, 2003, we had sufficient availability under our revolving credit facility to redeem the remainder of the $99.9 million outstanding ROARS. Accordingly, we classified that amount as long-term debt. In connection with the redemption of the ROARS, we amended the loan covenants that govern our revolving credit and Term Loan B credit. The amendment to the credit agreement provides greater financial flexibility.

We also have $14.1 million of outstanding letters of credit as of April 30, 2003, and we are required to maintain a bond to guarantee our obligations relating to funds we withdrew from our preneed funeral trusts in Florida. We substituted a bond to guarantee performance under certain preneed funeral contracts and agreed to maintain unused credit facilities in an amount that will equal or exceed the bond amount. As of April 30, 2003, the balance of the Florida bond was $41.1 million. We believe that cash flow from operations will be sufficient to cover our estimated cost of providing the related prearranged services and products in the future.

As of April 30, 2003 and June 4, 2003, there were $0 and $25.0 million, respectively, drawn on our $175.0 million revolving credit facility. As of April 30, 2003 and June 4, 2003, our availability under the revolver, after giving consideration to the aforementioned letters of credit, bond obligation and the required reserve, was $19.8 million and $94.7 million, respectively.

The amendment to our loan covenants relaxes certain financial ratio requirements and allows further flexibility with regard to higher spending limits on acquisitions, dividends and the repurchase of our stock. Under the amendment, if there is no default or event of default, we may pay cash dividends and repurchase our stock, provided that the aggregate amount of the dividends and stock repurchased plus other types of restricted payments in any fiscal year does not exceed $15.0 million, or, if our consolidated leverage ratio is not greater than 3.00 to 1.00 both before and after the payment, $25.0 million. Under the restrictions in our debt agreements, as of April 30, 2003, we could use up to $15.0 million to pay dividends or repurchase our stock during fiscal year 2003. The amendment limits capital expenditures (excluding the costs of acquisitions as defined in the amendment) in any fiscal year to $35.0 million, with a provision for the carryover of permitted but unused amounts under specified circumstances. The costs of acquisitions in any fiscal year are limited to $50.0 million, with a provision for the carryover of permitted but unused amounts under specified circumstances.

Cash Flow

Our operations provided cash of $18.1 million for the six months ended April 30, 2003, compared to providing cash of $32.1 million for the corresponding period in 2002. The decrease in operating cash flow is due primarily to a reduction in earnings before taxes. Additionally, through the first six months of fiscal year 2003, we paid $3.0 million in federal taxes. In the first six months of fiscal year 2002, we were not required to use any of our cash flow to pay federal taxes due to a 2001 federal tax refund that was applied to our 2002 estimated tax payments.

Our investing activities resulted in a net cash outflow of $5.0 million for the six months ended April 30, 2003, compared to a net cash inflow of $8.7 million for the comparable period in 2002. The change is primarily due to proceeds received from the sale of foreign operations, domestic funeral home real estate and small domestic operations during the first six months of fiscal year 2002. For the six months ended April 30, 2003, capital expenditures amounted to $7.5 million, which included $7.0 million for maintenance capital expenditures and $.5 million for new growth initiatives.

Our financing activities resulted in a net cash inflow of $43.0 million for the six months ended April 30, 2003, compared to a net cash outflow of $28.7 million for the comparable period in 2002. This change is due primarily to $50.0 million in Term Loan B financing received in 2003 in connection with the debt refinancing previously discussed under the heading “Contractual Obligations and Commercial Commitments.” The change is also due to repayments of long-term debt of $7.3 million in the six months ended April 30, 2003, compared to $29.1 million in the comparable period of 2002.

Ratio of Earnings to Fixed Charges

Our ratio of earnings to fixed charges was as follows:

Six Months

Ended

April 30,

Years Ended October 31,

2003

2002

2001

2000

1999

1998

2.08

1.75

⁽¹⁾

—

⁽²⁾⁽³⁾

2.57

3.43

⁽²⁾

2.38

⁽⁴⁾

		⁽¹⁾ Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million in connection with the writedown of assets held for sale. Excluding the charge, our ratio of earnings to fixed charges for fiscal year 2002 would have been 2.04.

		⁽²⁾ Excludes the cumulative effect of change in accounting principles.

		⁽³⁾ Pretax earnings for fiscal year 2001 include a noncash charge of $269.2 million in connection with the writedown of assets held for sale and other charges. As a result of this charge, our earnings for the fiscal year ended October 31, 2001, were insufficient to cover our fixed charges, and an additional $187.8 million in pretax earnings would have been required to eliminate the coverage deficiency. Excluding the charge, the early extinguishment of debt and the cumulative effect of the change in accounting principles, our ratio of earnings to fixed charges for fiscal year 2001 would have been 2.21.

		⁽⁴⁾ Pretax earnings for fiscal year 1998 include a nonrecurring, noncash charge of $76.8 million in connection with the vesting of performance-based stock options. Excluding the charge, our ratio of earnings to fixed charges for fiscal year 1998 would have been 4.01.

For purposes of computing the ratio of earnings to fixed charges, earnings consist of pretax earnings plus fixed charges (excluding interest capitalized during the period). Fixed charges consist of interest expense, capitalized interest, amortization of debt expense and discount or premium relating to any indebtedness and the portion of rental expense that management believes to be representative of the interest component of rental expense. The ratio of earnings to fixed charges for the six months ended April 30, 2003 and fiscal year 2002 reflect the adoption of SFAS No. 142; fiscal year 2001 reflects the 2001 change in accounting principles; fiscal years 2000 and 1999 reflect the 1999 change in accounting principle; and fiscal year 1998 reflects the accounting methods in effect that year.

Inflation

Inflation has not had a significant impact on our operations over the past three years, nor is it expected to have a significant impact in the foreseeable future.

Recent Accounting Standards

See Note 2 to the consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosure about market risk is presented in Item 7A to our Annual Report on Form 10-K for the fiscal year ended October 31, 2002, filed with the Securities and Exchange Commission on January 24, 2003. The following disclosure discusses only those instances in which the market risk has changed by more than 10 percent from the annual disclosure.

The market risk inherent in our market risk sensitive instruments and positions is the potential change arising from increases or decreases in the prices of marketable equity securities and interest rates as discussed below. Generally, our market risk sensitive instruments and positions are characterized as “other than trading.” Our exposure to market risk as discussed below includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in equity markets or interest rates. Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based on actual fluctuations in equity markets, interest rates and the timing of transactions.

Interest

We have entered into various fixed- and variable-rate debt obligations, which are detailed in Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002 and in the “Liquidity and Capital Resources” section of our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

Effective March 11, 2002, we entered into two interest rate swap agreements, each involving a notional amount of $50.0 million. The first agreement effectively converts $50.0 million of variable-rate debt bearing interest based on three-month LIBOR to a fixed rate based on the swap rate of 3.65 percent and expires on March 11, 2004. The second agreement effectively converts $50.0 million of variable-rate debt bearing interest based on three-month LIBOR to a fixed rate based on the swap rate of 4.265 percent and expires on March 11, 2005. The estimated fair value of the interest rate swaps based on quoted market prices was ($3.9) million and ($4.0) million as of April 30, 2003 and October 31, 2002, respectively. A hypothetical 100 basis point increase in the average interest rates applicable to such debt would result in an increase of approximately $1.3 million and $1.8 million in the fair value of these instruments as of April 30, 2003 and October 31, 2002, respectively.

As of April 30, 2003 and October 31, 2002, the carrying values of our Term Loan B, including accrued interest, were $180.5 million and $135.7 million, respectively, compared to fair values of $181.4 million and $136.5 million, respectively. Fair value was determined using quoted market prices. Of the $180.5 million outstanding under Term Loan B on April 30, 2003, $80.5 million was not hedged by the interest rate swaps and was subject to short-term variable interest rates. Each approximate 10 percent, or 55 basis point, change in the average interest rate applicable to this debt would result in a change of approximately $.1 million in our pretax earnings. Of the $135.7 million outstanding under Term Loan B on October 31, 2002, $35.7 million was not hedged by the interest rate swaps and was subject to short-term variable interest rates. Each approximate 10 percent, or 60 basis point, change in the average interest rate applicable to this debt would result in a change of approximately $.1 million in our pretax earnings.

As of April 30, 2003 and October 31, 2002, the carrying values of our long-term fixed-rate debt, including accrued interest and the unamortized portion of the ROARS option premium, were approximately $427.9 million and $430.1 million, respectively, compared to fair values of $459.8 million and $455.8 million, respectively. Fair values were determined using quoted market prices. Each approximate 10 percent change in the average interest rates applicable to such debt, 75 and 80 basis points for April 30, 2003 and October 31, 2002, respectively, would result in changes of approximately $8.5 million and $10.1 million, respectively, in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized.

We monitor our mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under our variable-rate revolving credit facility with fixed-rate debt or by entering into interest rate swaps.

Trust Funds

As of April 30, 2003 and October 31, 2002, our marketable equity securities and our fixed-income securities subject to market risk consisted principally of investments held by our prearranged funeral, cemetery merchandise and perpetual care trust funds and escrow accounts. We estimate that each 100 basis point increase or decrease in the yield, which excludes unrealized gains and losses, on the preneed funeral and cemetery merchandise and perpetual care trust funds, based on the April 30, 2003 balances, would result in an approximate increase or decrease in our revenues associated with the delivery of prearranged products and services and earnings from the perpetual care trust funds in fiscal year 2003 of $1.9 million, $2.3 million in 2004, $3.5 million in 2005 and $5.0 million in 2006.

Our prearranged funeral, cemetery merchandise and perpetual care trust funds and escrow accounts are detailed in Notes 4 and 5 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002. Generally, our wholly-owned subsidiary, Investors Trust, Inc. (“ITI”), serves as investment adviser on these trust funds and escrow accounts. ITI manages the mix of equities and fixed-income securities in accordance with an investment policy established by the Investment Committee of our Board of Directors with the assistance of third-party professional financial consultants. The policy emphasizes conservation, diversification and preservation of principal, while seeking appropriate levels of current income and capital appreciation. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Item 4. Controls and Procedures

(a) Within the 90-day time period prior to filing this report, we conducted an evaluation of the effectiveness of our “disclosure controls and procedures,” as that phrase is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934. The evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

Based on and as of the date of that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in the reports we file with or submit to the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, and in ensuring that the information required to be disclosed in those filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Subsequent to the date of the evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions taken with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We and certain of our subsidiaries are parties to a number of legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

We carry insurance with coverages and coverage limits that we believe to be adequate. Although there can be no assurance that such insurance is sufficient to protect us against all contingencies, management believes that our insurance protection is reasonable in view of the nature and scope of our operations.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2003 annual meeting of shareholders was held on April 8, 2003. All director nominees were elected. The voting tabulation was as follows: William E. Rowe: 121,285,968 votes for, 3,207,250 votes withheld; Michael O. Read: 119,730,864 votes for, 4,762,354 votes withheld; Leslie R. Jacobs: 119,711,843 votes for, 4,781,375 votes withheld. The proposal to approve the adoption of the 2003 Employee Stock Purchase Plan was approved. The voting tabulation was as follows: 119,272,943 votes for, 4,999,565 votes against and 220,710 abstentions. The proposal to ratify the retention of PricewaterhouseCoopers LLP, certified public accountants, as independent auditors for the fiscal year ending October 31, 2003 was approved. The voting tabulation was as follows: 121,088,858 votes for, 3,353,135 votes against and 51,225 abstentions.

Item 5. Other Information

Certain statements made herein or elsewhere by us or on our behalf that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Forward-looking statements contained in this report include but are not limited to statements relating to (1) our expectations of the timing of our receipt of income tax benefits related to the sale of our foreign operations, (2) our plans to reduce debt, (3) anticipated future performance of our preneed sales program, (4) anticipated future performance of funds held in trust, (5) anticipated mortality trends and (6) our long-term growth plan, including our ability to find attractive acquisition opportunities at prices we are willing to pay.

Accuracy of the forecasts is dependent upon assumptions about events that change over time and is thus susceptible to periodic change based on actual experience and new developments. The forecasts are based on a variety of estimates and assumptions made by our management with respect to, among other things, industry performance; general economic, market, industry and interest rate conditions; preneed and at-need sales activities and trends; fluctuations in cost of goods sold and other expenses; capital expenditures; and other matters that cannot be accurately predicted, may not be realized and are subject to significant business, economic and competitive uncertainties, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the assumptions made in preparing the forecasts will prove accurate,

and actual results may vary materially from those contained in the forecasts. For these reasons, the forecasts should not be regarded as an accurate prediction of future results, but only of results that may be obtained if substantially all of our principal expectations are realized.

We caution readers that we assume no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by us or on our behalf.

One of our goals is to reduce our outstanding debt to $500 million. During fiscal year 2002, we completed the sale of all of our foreign operations within our targeted timeframe, resulting in cash proceeds in our estimated range. Our goal was to sell our foreign operations and receive proceeds including tax benefits in the range of $200 million to $250 million. Now that all sales are completed, we expect to ultimately receive total proceeds of approximately $245 million. We have received $229 million of the proceeds including $2 million of tax proceeds received during the second quarter of 2003 and $23 million of tax proceeds received in May of 2003. We expect to realize the majority of the remaining proceeds of approximately $16 million of income tax benefits during 2003 and 2004. As of June 4, 2003, our outstanding debt was $517 million.

We believe that most of the external factors adversely impacting our business are temporary, but while they continue, we will remain focused on improving operational performance, generating cash and reducing debt. We will continue to evaluate our options for deployment of our cash flow as opportunities arise. We will consider acquiring high-quality cemeteries and funeral homes that are priced within our guidelines and that fit our new business model, opening new funeral homes or entering into agreements to construct funeral homes in third-party cemeteries. At certain levels, we believe our stock represents a better investment at lower risk than other external growth opportunities, and we would recommend that course of action to our Board of Directors if we determined that a stock repurchase represents the best return on our investment. Our goal is to produce an internal rate of return on the deployment of our cash of 15 to 20 percent. Based on the results of our analysis, we may also consider further reducing debt below our goal of $500 million.

We project that earnings will be between $0.23 and $0.28 per share for fiscal year 2003, including the ($.07) per share impact from the redemption of the ROARS as discussed below. We expect cash flow from operations to be between $50 million and $60 million and maintenance capital expenditures to be approximately $15 million.

We expect the following factors to impact fiscal year 2003 financial results:

Reduced Preneed Property Sales

The significant decline in consumer confidence in the national economy and reduced discretionary spending has placed significant downward pressure on preneed property sales. We had originally projected preneed property sales to increase over the prior year, but based on lower consumer confidence, we have lowered our expectations for preneed property sales to be less than last year. Beginning in April 2003 and continuing into May, consumer confidence levels improved from their 10-year lows of February and March. We remain cautiously optimistic as we monitor this possible trend.

Rising Insurance Costs

The terrorist attacks in the United States on September 11, 2001 and related subsequent events have resulted in higher insurance premiums. The volume of claims made in such a short time span resulted in liquidity challenges that many insurers have passed on to their policyholders. Additionally, insurers have increased premiums to offset losses in equity markets due to recent economic conditions. Our insurance costs are expected to increase materially in 2003.

Lower Returns on Trust Funds

From 1991 through 1999, we achieved an overall annual realized return of 8.0 percent to 9.0 percent in our trust funds. However, the average realized return on our domestic trust funds was 5.8 percent, 6.3 percent, 4.3 percent and 2.6 percent, for fiscal years 2000, 2001, 2002 and the six months ended April 30, 2003, respectively. These returns represent interest, dividends and realized capital gains or losses but not unrealized capital gains or losses. We defer recognition of all earnings and losses realized by preneed funeral and cemetery merchandise trust funds until the underlying products and services are delivered. Consequently, the lower investment returns realized during the last few years are expected to reduce the trust earnings to be recognized as revenue in 2003. We recognize all earnings and losses realized by our perpetual care trust funds currently. As a result, depressed stock prices and returns on fixed-income investments in the current market are expected to continue to put pressure on perpetual care trust earnings recognized. Because approximately 45 percent of our portfolio is currently invested in a diversified group of equity securities, we generally expect our portfolio performance to follow the overall stock market performance. The yield on our total trust portfolio, including unrealized gains and losses, through May of calendar year 2003 was up nearly 7.0 percent, driven by strong performance in April and May. We remain cautiously optimistic as we monitor this possible trend.

Fewer Deaths in the Short-Term

Although the death care business is relatively stable and predictable, our business can be affected by seasonal fluctuations in the death rate. Generally, death rates are higher during the winter months primarily related to higher incidents of deaths from pneumonia and influenza. We had originally projected deaths in our markets to increase slightly from the prior year. Based on data published by the Centers for Disease Control and Prevention and our actual results in the first six months of 2003, we are projecting deaths to be down slightly from the prior year.

Reduced Interest Costs

Interest expense is expected to decrease as a result of a reduction in our average debt balance.

Elimination of earnings contribution from foreign operations

Earnings are expected to decrease due to the elimination of earnings contributed by our foreign operations; however, the reduction in operating earnings from the sale of our foreign operations that remained during fiscal year 2002 (Spain, Portugal, France, Canada and Argentina) is expected to be substantially offset by interest expense savings resulting from the use of proceeds from these sales to reduce our average debt balance.

Redemption of the ROARS

We redeemed the ROARS as an alternative to allowing them to be remarketed on May 1, 2003. We paid the remarketing dealer $12.7 million, the contractually specified value of the remarketing right, which was based on the 10-year Treasury rate of 3.894 percent. Net of the $1.5 million unamortized portion of the option premium paid to us at the time of issuance for the right to remarket the ROARS and $.1 million in costs, we will report a charge of $11.3 million ($7.3 million after-tax or $.07 per share), in the third quarter of fiscal year 2003.

Cautionary Statements

We caution readers that the following important factors, among others, in some cases have affected, and in the future, could affect, our actual consolidated results and could cause our actual consolidated results in the future to differ materially from the goals and expectations expressed in the forward-looking statements above and in any other forward-looking statements made by us or on our behalf.

Risks Related to Our Business

Earnings from and principal of trust funds and escrow accounts could be reduced by changes in stock and bond prices and interest and dividend rates or by a decline in the size of the funds.

We maintain three types of trust funds and escrow accounts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) perpetual care. Earnings and investment gains and losses on trust funds and escrow accounts are affected by financial market conditions that are not within our control. Earnings are also affected by the mix of fixed-income and equity securities that we choose to maintain in the funds, and we may not choose the optimal mix for any particular market condition. The size of the funds depends upon the level of preneed sales and maturities, the amount of ordinary income and investment gains or losses and funds added through acquisitions, if any. Declines in earnings from perpetual care trust funds would cause a decline in current revenues, while declines in earnings from other trust funds and escrow accounts could cause a decline in future cash flows and revenues. In addition, any significant or sustained investment losses could result in there being insufficient funds in the trusts to cover the cost of delivering services and merchandise or maintaining cemeteries in the future. Any such deficiency would have to be covered by cash flow, which could have a material adverse effect on our financial position and results of operations.

Unrealized gains and losses in the funeral trust funds and cemetery merchandise trust funds have no immediate impact on our revenues, margins, earnings or cash flow, unless the fair market value of the funds were to decline below the estimated costs to deliver the underlying products and services. If that were to occur, we would record a charge to earnings to reduce the investment value to the expected cost to deliver. Over time, gains and losses realized in the funds are allocated to underlying preneed contracts and affect the amount of the trust fund earnings we record when we deliver the underlying product or service. Accordingly, if current market conditions do not improve, the funds may eventually realize losses, and our revenues, margins, earnings and cash flow would be negatively affected by the reduced revenue when we deliver the underlying products and services. We project that with approximately 3.0 percent to 5.0 percent annualized returns in the funds over the estimated lives of the associated preneed contracts, our trust and escrow funds would recover the net unrealized depreciation currently in the funds by the time the underlying products and services are delivered. Unrealized gains and losses in the perpetual care trust fund do not affect earnings but could limit the capital gains available to us and could result in lower returns and lower current revenues than we have historically achieved.

Increased costs may have a negative impact on earnings and cash flows.

We may not be able to achieve revenue growth that exceeds our cost increases. Although we continue to have a goal of increasing our revenues at a rate of growth greater than the growth in our costs, we have not achieved that goal in recent years or in the first six months of 2003, and we can give no assurance that we will be successful in doing so for the remainder of 2003.

We expect insurance costs, in particular, to increase substantially in 2003. The terrorist attacks in the United States on September 11, 2001 and related subsequent events have resulted in higher insurance premiums. The

volume of claims made in such a short span of time resulted in liquidity challenges that many insurers have passed on to their policyholders. Additionally, insurers have increased premiums to offset losses in equity markets due to recent economic conditions. While our insurance costs are expected to increase materially, the actual increase in insurance costs cannot be predicted.

We may experience declines in preneed sales due to numerous factors, including changes made to contract terms and sales force compensation and a weakening economy. Declines in preneed property sales would reduce current revenue. Declines in preneed funeral and cemetery service and merchandise sales would reduce our backlog and could reduce our future market share.

In an effort to increase cash flow, we modified our preneed sales strategies early in fiscal year 2000 by increasing finance charges, requiring larger down payments and shortening installment payment terms. Later in fiscal year 2000, we changed the compensation structure for our preneed sales force. These changes, and the accompanying sales force attrition and adverse impact on sales force morale, caused preneed sales to decline. Although we do not anticipate making further significant changes in these areas, we may decide that further adjustments are advisable, which could cause additional declines in preneed sales. In addition, a weakening economy that causes customers to reduce discretionary spending could cause, and we believe has caused, a decline in preneed sales. Geopolitical concerns could continue to lower consumer confidence, which could also result in a further decline in preneed sales. Declines in preneed cemetery property sales would reduce current revenue, and declines in other preneed sales would reduce our backlog and future revenue and could reduce future market share.

Our ability to achieve our debt reduction targets and to service our debt in the future depends upon our ability to generate sufficient cash, which depends upon many factors, some of which are beyond our control.

Our ability to achieve our debt reduction targets in the timeframe projected by us depends upon our ability to generate sufficient cash from two main sources: (1) income tax proceeds associated with foreign asset sales and (2) our ongoing operations. We expect to generate capital gains against which the foreign asset sale capital losses may be offset. There can be no assurance that we will receive the tax benefits within our expected timeframe. Our ability to receive the expected income tax benefits within our expected timeframe depends upon, among other things, the timing of our filing for capital loss carrybacks to apply against previously-taxed capital gains and the rate at which we realize additional capital gains. Our primary tax planning strategy is to produce these capital gains in our trust funds. Our ability to generate capital gains could be affected by a decline in market conditions. Our ability to generate cash flow from operations depends upon, among other things, the number of deaths in our markets, competition, the level of preneed sales and their maturities, our ability to control our costs, stock and bond market conditions, and general economic, financial and regulatory factors, most of which are beyond our control.

Increased preneed sales may have a negative impact on cash flow.

Preneed sales of cemetery property and funeral and cemetery products and services are generally cash flow negative initially, primarily due to the commissions paid on the sale, the portion of the sales proceeds required to be placed into trust or escrow and the terms of the particular contract such as the size of the down payment required and the length of the contract. In fiscal year 2000, we changed the terms and conditions of preneed sales contracts and commissions and moderated our preneed sales effort in order to reduce the initial negative impact on cash flow. Nevertheless, we will continue to invest a significant portion of cash flow in preneed acquisition costs, which reduces cash flow available for other activities, and, to the extent preneed activities are increased, cash flow would be further reduced, and our ability to service debt could be adversely affected.

Price competition could reduce market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenues and margins.

Our funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral homes and cemetery firms. We have historically experienced price competition primarily 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. In the past, this price competition has resulted in losing market share in some markets. In other markets, we have had to reduce prices thereby reducing profit margins in order to retain or recapture market share. Increased price competition in the future could further reduce revenues, profit margins and the backlog.

Increased advertising or better marketing by competitors, or increased activity by competitors offering products or services over the Internet, could cause us to lose market share and revenues or cause us to incur increased costs in order to retain or recapture our market share.

In recent years, the marketing of preneed funeral services through television, radio and print advertising, direct mailings and personal sales calls has increased. Extensive advertising or effective marketing by competitors in local markets could cause us to lose market share and revenues or cause us to increase marketing costs. In addition, competitors may change the types or mix of products or services offered. These changes may attract customers, causing us to lose market share and revenue or to incur costs in response to competition in order to vary the types or mix of products or services offered by us. Also, increased use of the Internet by customers to research and/or purchase products and services could cause us to lose market share to competitors offering to sell products or services over the Internet.

Increases in interest rates would increase interest costs on our variable-rate long-term debt and could have a material adverse effect on our net income and earnings per share.

As of June 4, 2003, $205.5 million of our long-term debt was subject to variable interest rates, although $100.0 million of that amount was fixed pursuant to the terms of interest rate swaps expiring in March of 2004 and 2005. Accordingly, any significant increase in interest rates could increase our interest costs on our variable-rate long-term debt or indebtedness incurred in the future, which could decrease our net income and earnings per share materially.

Covenant restrictions under our senior secured credit facility and senior subordinated note indenture limit our flexibility in operating our business.

Our senior secured credit facility and the indenture governing the senior subordinated notes contain, among other things, covenants that restrict us and our subsidiary guarantors’ ability to finance future operations or capital needs or to engage in other business activities. They limit, among other things, our and our subsidiary guarantors’ ability to: borrow money; pay dividends or distributions; purchase or redeem stock; make investments; engage in transactions with affiliates; engage in sale leaseback transactions; consummate specified asset sales; effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all assets; and create liens on assets. In addition, the senior secured credit facility contains specific limits on capital expenditures and requires us to maintain specified financial ratios and satisfy financial condition tests.

These covenants may require us to act in a manner contrary to our business objectives. In addition, events beyond our control, including changes in general economic and business conditions, may affect our ability to satisfy these covenants. A breach of any of those covenants could result in a default, allowing the lenders to

declare all amounts owed immediately due and payable.

Our projections for 2003 do not include any earnings from acquisition activity. Several important factors, among others, may affect our ability to consummate acquisitions.

Our projections for 2003 do not include any earnings from acquisition activity. The actual level of acquisition activity, if any, will depend not only on the number of properties acquired, but also on the size of the acquisitions. Several important factors, among others, may affect our ability to consummate acquisitions. We may not be able to find a sufficient number of businesses for sale at prices we are willing to pay, particularly in view of our new pricing parameters and cash flow criteria. Acquisition activity, if any, will also depend on our ability to enter into new markets. Due in part to our lack of experience operating in new areas and to the presence of competitors who have been in certain markets longer than we have, such entry may be more difficult or expensive than we anticipate.

Risks Related to the Death Care Industry

Declines in the number of deaths in our 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 by approximately 1 percent per year from 2000 to 2010, longer lifespans could reduce the rate of deaths. Data obtained from the Centers for Disease Control and Prevention (“CDC”) indicate a decrease in deaths in the United States of 1.3 percent during the first six months of our fiscal year 2003, compared to the same period in the prior year. In addition, changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in our markets or from quarter to quarter are not predictable. These variations can cause revenues to fluctuate.

Our comparisons of the change in the number of families served to the change in the number of deaths reported by the CDC from time to time may not necessarily be meaningful. The CDC receives weekly mortality reports from 122 cities and metropolitan areas in the United States within two to three weeks from the date of death and reports the total number of deaths occurring in these areas each week based on the reports received from state health departments. The comparability of our funeral calls to the CDC data is limited, as reports from the state health departments are often delayed, and the 122 cities reporting to the CDC are not necessarily comparable with the markets in which we operate. Nonetheless, we believe that the CDC data is the most comprehensive data of this kind available.

The increasing number of cremations in the United States could cause revenues to decline because we could lose market share to firms specializing in cremations. In addition, basic cremations produce no revenues for cemetery operations and lesser funeral revenues and, in certain cases, lesser profit margins than traditional funerals.

Our traditional cemetery and funeral service operations face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has steadily increased and that cremations will represent approximately 39 percent of the United States burial market by the year 2010, compared to 26 percent in 2000. The trends toward cremation could cause cemeteries and traditional funeral homes to lose market share and revenues to firms specializing in cremations. In addition, basic cremations (with no funeral service, casket, urn, mausoleum niche, columbarium niche or burial) produce no revenues for cemetery operations and lower revenues than traditional funerals and, when delivered at a traditional funeral home, produce lower profit margins as well.

If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.

Future market share, revenues and profits will depend in part on our ability to anticipate, identify and respond to changing consumer preferences. During fiscal year 2000, we began to implement strategies based on a proprietary, extensive study of consumer preferences we commissioned in 1999. However, we may not correctly anticipate or identify trends in consumer preferences, or we may identify them later than our competitors do. In addition, any strategies we may implement to address these trends may prove incorrect or ineffective.

Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative changes in revenue can have a disproportionately large effect on cash flow and profits.

Companies in the funeral home and cemetery business must incur many of the costs of operating and maintaining facilities, land and equipment regardless of the level of sales in any given period. For example, we must pay salaries, utilities, property taxes and maintenance costs on funeral homes and maintain the grounds of cemeteries regardless of the number of funeral services or interments performed. Because we cannot decrease these costs significantly or rapidly when we experience declines in sales, declines in sales can cause margins, profits and cash flow to decline at a greater rate than the decline in revenues.

Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.

The death care industry is subject to extensive regulation and licensing requirements under federal, state and local laws. For example, the funeral home industry is regulated by the Federal Trade Commission, which requires funeral homes to take actions designed to protect consumers. State laws impose licensing requirements and regulate preneed sales. Embalming facilities are subject to stringent environmental and health regulations. Compliance with these regulations is burdensome, and we are always at risk of not complying with the regulations.

In addition, from time to time, governments and agencies propose to amend or add regulations, which could increase costs or decrease cash flows. For example, federal, state, local and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the death care industry. In November 2002, the Federal Death Care Inspection and Disclosure Act was introduced in the Senate, which, if adopted, would more heavily regulate the death care industry and could result in an increase in our costs. Several states and regulatory agencies have considered or are considering regulations that could require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate our ability to use surety bonding, increase trust requirements and prohibit the common ownership of funeral homes and cemeteries in the same market. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on us, our financial condition, our results of operations and our future prospects.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1 Amended and Restated Articles of Incorporation of the Company, as amended and restated as of May 7, 2003

3.2 By-laws of the Company, as amended and restated as of December 19, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002)

4.1 See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock

4.2 Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991)

4.3 Indenture dated as of December 1, 1996 by and between the Company and Citibank, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 1996) and Supplemental Indenture dated April 24, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 21, 1998) and Second Supplemental Indenture dated June 29, 2001 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 29, 2001)

4.4 Form of 6.70 percent Note due 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Form S-4 dated August 14, 2001)

4.5 Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s Form 8-A dated November 3, 1999)

4.6 Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent, Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 1, 2003)

4.7 Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form S-4 dated August 14, 2001)

4.8 Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.2 to the Company’s Form S-4 dated August 14, 2001)

12 Calculation of Ratio of Earnings to Fixed Charges

99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of William E. Rowe, President and Chief Executive Officer, and Kenneth C. Budde, Executive Vice President and Chief Financial Officer

(b) Reports on Form 8-K

We filed a Form 8-K dated February 24, 2003, reporting under “Item 5. Other Events,” our preliminary first quarter 2003 earnings per share and updated forecast for fiscal year 2003.

We filed a Form 8-K dated March 11, 2003, reporting under “Item 5. Other Events,” the earnings release for the quarter ended January 31, 2003 and under “Item 9. Regulation FD Disclosures,” our revised forecasts for fiscal year 2003.

We filed a Form 8-K dated April 1, 2003, reporting under “Item 5. Other Events,” the announcement of discussions with lenders to redeem our Remarketable Or Redeemable Securities.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

SIGNATURES

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


		STEWART ENTERPRISES, INC


June 13, 2003		/s/ KENNETH C. BUDDE

		Kenneth C. Budde Executive Vice President Chief Financial Officer


June 13, 2003		/s/ MICHAEL G. HYMEL

		Michael G. Hymel Vice President Corporate Controller Chief Accounting Officer

Certifications Required by Rule 13a-14 under the Securities Exchange Act of 1934

I, William E. Rowe, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Stewart Enterprises, Inc.;

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

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

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 13, 2003


/s/WILLIAM E. ROWE William E. Rowe President and Chief Executive Officer

Certifications Required by Rule 13a-14 under the Securities Exchange Act of 1934

I, Kenneth C. Budde, certify that:

Date: June 13, 2003


/s/KENNETH C. BUDDE Kenneth C. Budde Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No. Description

3.1 Amended and Restated Articles of Incorporation of the Company, as amended and restated as of May 7, 2003

3.2 By-laws of the Company, as amended and restated as of December 19, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002)

4.1 See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock

4.2 Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991)

4.3 Indenture dated as of December 1, 1996 by and between the Company and Citibank, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 1996) and Supplemental Indenture dated April 24, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 21, 1998) and Second Supplemental Indenture dated June 29, 2001 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 29, 2001)

4.4 Form of 6.70 percent Note due 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Form S-4 dated August 14, 2001)

4.5 Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s Form 8-A dated November 3, 1999)

4.6 Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent, Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 1, 2003)

4.7 Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form S-4 dated August 14, 2001)

4.8 Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.2 to the Company’s Form S-4 dated August 14, 2001)

12 Calculation of Ratio of Earnings to Fixed Charges

99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of William E. Rowe, President and Chief Executive Officer, and Kenneth C. Budde, Executive Vice President and Chief Financial Officer

(a)		Exhibits

3.1		Amended and Restated Articles of Incorporation of the Company, as amended and restated as of May 7, 2003

3.2		By-laws of the Company, as amended and restated as of December 19, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002)

4.1		See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock

4.2		Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991)

4.3		Indenture dated as of December 1, 1996 by and between the Company and Citibank, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 1996) and Supplemental Indenture dated April 24, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 21, 1998) and Second Supplemental Indenture dated June 29, 2001 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 29, 2001)

4.4		Form of 6.70 percent Note due 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Form S-4 dated August 14, 2001)

4.5		Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s Form 8-A dated November 3, 1999)

4.6		Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent, Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 1, 2003)

4.7		Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form S-4 dated August 14, 2001)

4.8		Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.2 to the Company’s Form S-4 dated August 14, 2001)


12		Calculation of Ratio of Earnings to Fixed Charges

99.1		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of William E. Rowe, President and Chief Executive Officer, and Kenneth C. Budde, Executive Vice President and Chief Financial Officer

(b)		Reports on Form 8-K

		We filed a Form 8-K dated February 24, 2003, reporting under “Item 5. Other Events,” our preliminary first quarter 2003 earnings per share and updated forecast for fiscal year 2003.

		We filed a Form 8-K dated March 11, 2003, reporting under “Item 5. Other Events,” the earnings release for the quarter ended January 31, 2003 and under “Item 9. Regulation FD Disclosures,” our revised forecasts for fiscal year 2003.

		We filed a Form 8-K dated April 1, 2003, reporting under “Item 5. Other Events,” the announcement of discussions with lenders to redeem our Remarketable Or Redeemable Securities.

1.		I have reviewed this quarterly report on Form 10-Q of Stewart Enterprises, Inc.;

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

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

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Exhibit No.		Description

3.1		Amended and Restated Articles of Incorporation of the Company, as amended and restated as of May 7, 2003

3.2		By-laws of the Company, as amended and restated as of December 19, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002)

4.1		See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock

4.2		Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991)

4.3		Indenture dated as of December 1, 1996 by and between the Company and Citibank, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 1996) and Supplemental Indenture dated April 24, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 21, 1998) and Second Supplemental Indenture dated June 29, 2001 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 29, 2001)

4.4		Form of 6.70 percent Note due 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Form S-4 dated August 14, 2001)

4.5		Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s Form 8-A dated November 3, 1999)

4.6		Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent, Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 1, 2003)

4.7		Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form S-4 dated August 14, 2001)

4.8		Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.2 to the Company’s Form S-4 dated August 14, 2001)

12		Calculation of Ratio of Earnings to Fixed Charges

99.1		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of William E. Rowe, President and Chief Executive Officer, and Kenneth C. Budde, Executive Vice President and Chief Financial Officer