##### Table of Contents



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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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                                                       



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Commission File Number: 1-15449



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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)                               



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



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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.



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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    



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##### Table of Contents



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  

2



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##### Table of Contents






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.

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##### Table of Contents






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.

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##### Table of Contents






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)

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##### Table of Contents






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.

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##### Table of Contents






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.

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##### Table of Contents






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)

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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.

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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.

(c) Interim Disclosures

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.

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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.

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##### Table of Contents



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 | 
|                                                                                                     |                       |   |                    |     |                  |   |        |     |      |   |        |     |  |   |        |    

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##### Table of Contents



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

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##### Table of Contents



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.

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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

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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.

16



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##### Table of Contents



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

17



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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.

18



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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 |    
|                                   |                                                                                          |                                           |        |             |        |               |  |           |         |  |   |     |     | 

19



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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.

20



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##### Table of Contents



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 | 
|                                              |                              |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |        | 

21



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##### Table of Contents



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  | 
|                                              |                                                   |  |                                   |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |        | 

22



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##### Table of Contents



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 | 
|                                              |                                                   |  |                                   |        |              |  |              |        |               |  |              |        |   |  |        |         |   |  |         |        | 

23



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##### Table of Contents



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  | 
|                                              |                                                   |  |                                 |        |              |  |              |         |               |  |              |        |   |  |         |         |   |  |         |         | 

24



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##### Table of Contents



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  |  
|                                              |                                                   |  |                                 |        |              |  |              |         |               |  |              |         |   |  |        |        |   |  |         |         |  

25



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##### Table of Contents



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 |          
|                                                   |                                                  |                           |            |                |         |              |           |              |        |               |         |              |        |   |          |          |   |   |           |           |        

26



---



##### Table of Contents



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 |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |           |        

27



---



##### Table of Contents



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 |       
|                                               |                                              |                                                     |        |                                 |        |              |        |              |        |               |       |              |        |   |   |   |   |   |        |       

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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 |        
|                                                      |                                                                        |                                                     |        |                                 |         |              |        |              |        |               |       |              |       |   |   |   |   |   |        |        

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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 | 
|                                     |                                                  |             |        |       |                |   |                  |      

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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 |  
|                            |  |           |          |                      |  |                |          |             |  |           |         |             |  |   |         |   |  |   |         |   |  |   |         |  

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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

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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.

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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.

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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

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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.

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

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.

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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.

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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.

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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.

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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.

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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,

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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.

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|                                         |  |       |       |      |  |                        |       |              |  |              |       |  |  |   |      |  |  |   |       | 
|---------------------------------------- |  | ----- | ----- | ---- |  | ---------------------- | ----- | ------------ |  | ------------ | ----- |  |  | - | ---- |  |  | - | ----- | 
|                                         |  |       |       |      |  | 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
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | ($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.

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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.

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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.

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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.

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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,

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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.

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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.

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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

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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.

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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

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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.

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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.

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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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



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|12  
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|99.1
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|(b) 
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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

59



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##### Table of Contents






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

60



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

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

61



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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