##### Table of Contents





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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549








FORM 10-Q

x
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended July 31, 2003ORo
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to




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Commission File Number: 1-15449



STEWART ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


LOUISIANA
(State or other jurisdiction of incorporation or organization)
    
    72-0693290
(I.R.S. Employer Identification No.)110 Veterans Memorial Boulevard
Metairie, Louisiana
(Address of principal executive offices)
    
    70005
(Zip Code)




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



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

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 September 2, 2003, was 104,729,151 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         
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|                                               | Item 2. 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 5. Other Information                                                                    
|                                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                    
|EX-10.1 Retirement Benefits Agreement         
|EX-10.2 Supplement to Employment Agreement    
|EX-10.3 Supplement to Employment Agreement    
|EX-10.4 Supplement to Employment Agreement    
|EX-10.5 Supplement to Employment Agreement    
|EX-12 Calculation of Ratio of Earnings        
|EX-31.1 Certifcation Pursuant to Section 302  
|EX-31.2 Certifcation Pursuant to Section 302  
|EX-32 Certifications Pursuant to Section 906  



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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX

PagePart I.
    
    Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Statements of Earnings Three Months Ended July 31, 2003 and 2002
    
    3Consolidated Statements of Earnings Nine Months Ended July 31, 2003 and 2002
    
    4Consolidated Balance Sheets July 31, 2003 and October 31, 2002
    
    5Consolidated Statement of Shareholders Equity Nine Months Ended July 31, 2003
    
    7Consolidated Statements of Cash Flows Nine Months Ended July 31, 2003 and 2002
    
    8Notes to Consolidated Financial Statements
    
    10Item 2.   Managements Discussion and Analysis ofFinancial Condition and Results of Operations
    
    37Item 3.   Quantitative and Qualitative DisclosuresAbout Market Risk
    
    49Item 4.   Controls and Procedures
    
    51Part II.
    
    Other InformationItem 1.   Legal Proceedings
    
    51Item 5.   Other Information
    
    51Item 6.   Exhibits and Reports on Form 8-K
    
    59Signatures
    
    61


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 July 31,2003
    
    2002Revenues:Funeral
    
    $
    73,513
    
    
    $
    83,265Cemetery
    
    
    55,266
    
    
    
    60,989128,779
    
    
    
    144,254Costs and expenses:Funeral
    
    
    56,964
    
    
    
    64,428Cemetery
    
    
    43,905
    
    
    
    46,430100,869
    
    
    
    110,858Gross profit
    
    
    27,910
    
    
    
    33,396Corporate general and administrative expenses
    
    
    7,381
    
    
    
    4,516Loss on assets held for sale (Note 7)
    
    
    
    
    
    
    18,500Operating earnings
    
    
    20,529
    
    
    
    10,380Interest expense
    
    
    (13,249
    )
    
    
    (15,560
    )Loss on early extinguishment of debt (Note 8)
    
    
    (11,289
    )
    
    
    Investment income
    
    
    66
    
    
    
    152Other income, net
    
    
    459
    
    
    
    583Loss before income taxes
    
    
    (3,484
    )
    
    
    (4,445
    )Income tax benefit
    
    
    (985
    )
    
    
    (1,959
    )Net loss
    
    $
    (2,499
    )
    
    $
    (2,486
    )Net loss per common share:Basic
    
    $
    (.02
    )
    
    $
    (.02
    )Diluted
    
    $
    (.02
    )
    
    $
    (.02
    )Weighted average common shares outstanding (in thousands):Basic
    
    
    108,386
    
    
    
    107,961Diluted
    
    
    108,386
    
    
    
    107,961


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)

Nine Months Ended July 31,2003
    
    2002Revenues:Funeral
    
    $
    226,044
    
    
    $
    269,196Cemetery
    
    
    167,316
    
    
    
    179,616393,360
    
    
    
    448,812Costs and expenses:Funeral
    
    
    171,847
    
    
    
    198,626Cemetery
    
    
    129,324
    
    
    
    135,675301,171
    
    
    
    334,301Gross profit
    
    
    92,189
    
    
    
    114,511Corporate general and administrative expenses
    
    
    15,863
    
    
    
    12,401Loss on assets held for sale (Note 7)
    
    
    
    
    
    
    18,500Operating earnings
    
    
    76,326
    
    
    
    83,610Interest expense
    
    
    (40,405
    )
    
    
    (48,389
    )Loss on early extinguishment of debt (Note 8)
    
    
    (11,289
    )
    
    
    Investment income
    
    
    237
    
    
    
    374Other income, net
    
    
    2,234
    
    
    
    1,173Earnings before income taxes
    
    
    27,103
    
    
    
    36,768Income taxes
    
    
    10,638
    
    
    
    13,702Net earnings
    
    $
    16,465
    
    
    $
    23,066Net earnings per common share:Basic
    
    $
    .15
    
    
    $
    .21Diluted
    
    $
    .15
    
    
    $
    .21Weighted average common shares outstanding (in thousands):Basic
    
    
    108,242
    
    
    
    107,807Diluted
    
    
    108,266
    
    
    
    108,355


See accompanying notes to consolidated financial statements.

4



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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES







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

July 31,
    
    October 31,ASSETS
    
    2003
    
    2002Current assets:Cash and cash equivalent investments
    
    $
    19,370
    
    
    $
    28,190Marketable securities
    
    
    2,289
    
    
    
    2,588Receivables, net of allowances
    
    
    68,391
    
    
    
    86,827Inventories
    
    
    43,178
    
    
    
    41,666Prepaid expenses
    
    
    3,422
    
    
    
    2,815Deferred income taxes, net
    
    
    1,764
    
    
    
    1,348Assets held for sale
    
    
    5,448
    
    
    
    8,966Total current assets
    
    
    143,862
    
    
    
    172,400Receivables due beyond one year, net of allowances
    
    
    77,663
    
    
    
    76,653Prearranged receivables, net
    
    
    1,216,392
    
    
    
    1,200,914Goodwill
    
    
    491,323
    
    
    
    491,323Deferred charges
    
    
    253,990
    
    
    
    253,083Cemetery property, at cost
    
    
    387,691
    
    
    
    388,065Property and equipment, at cost:Land
    
    
    44,555
    
    
    
    44,402Buildings
    
    
    308,782
    
    
    
    304,125Equipment and other
    
    
    159,949
    
    
    
    154,389513,286
    
    
    
    502,916Less accumulated depreciation
    
    
    184,368
    
    
    
    168,600Net property and equipment
    
    
    328,918
    
    
    
    334,316Deferred income taxes, net
    
    
    83,489
    
    
    
    95,794Other assets
    
    
    1,243
    
    
    
    3,036Total assets
    
    $
    2,984,571
    
    
    $
    3,015,584


(continued)

5



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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES







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

July 31,
    
    October 31,LIABILITIES AND SHAREHOLDERS' EQUITY
    
    2003
    
    2002Current liabilities:Current maturities of long-term debt (Note 8)
    
    $
    16,745
    
    
    $
    9,396Accounts payable
    
    
    8,243
    
    
    
    11,113Accrued payroll
    
    
    9,728
    
    
    
    11,813Accrued insurance
    
    
    18,280
    
    
    
    14,764Accrued interest
    
    
    3,189
    
    
    
    14,642Other current liabilities
    
    
    15,235
    
    
    
    15,883Liabilities associated with assets held for sale
    
    
    2,174
    
    
    
    2,911Total current liabilities
    
    
    73,594
    
    
    
    80,522Long-term debt, less current maturities (Note 8)
    
    
    502,737
    
    
    
    542,548Prearranged deferred revenue, net
    
    
    1,559,645
    
    
    
    1,561,533Other long-term liabilities
    
    
    17,166
    
    
    
    18,718Total liabilities
    
    
    2,153,142
    
    
    
    2,203,321Commitments and contingenciesShareholders 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
104,910,651 and 104,469,572 shares at July 31, 2003
and October 31, 2002, respectively
    
    
    104,911
    
    
    
    104,470Class B authorized 5,000,000 shares; issued and outstanding
3,555,020 shares at July 31, 2003 and October 31, 2002;
10 votes per share; convertible into an equal number of
Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    678,673
    
    
    
    677,087Retained earnings
    
    
    47,069
    
    
    
    30,604Accumulated other comprehensive loss:Unrealized depreciation of investments
    
    
    (818
    )
    
    
    (965
    )Derivative financial instrument losses
    
    
    (1,961
    )
    
    
    (2,488
    )Total accumulated other comprehensive loss
    
    
    (2,779
    )
    
    
    (3,453
    )Total shareholders equity
    
    
    831,429
    
    
    
    812,263Total liabilities and shareholders equity
    
    $
    2,984,571
    
    
    $
    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)

UnrealizedAppreciation
    
    DerivativeAdditional
    
    
    
    
    
    (Depreciation)
    
    Financial
    
    TotalCommon
    
    Paid-In
    
    Retained
    
    of
    
    Instrument
    
    ShareholdersStock(1)
    
    Capital
    
    Earnings
    
    Investments
    
    Gains (Losses)
    
    EquityBalance October 31, 2002
    
    $
    108,025
    
    
    $
    677,087
    
    
    $
    30,604
    
    
    $
    (965
    )
    
    $
    (2,488
    )
    
    $
    812,263Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    16,465
    
    
    
    
    
    
    
    
    
    
    
    16,465Other comprehensive income:Unrealized appreciation of
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    238Net deferred income tax expense
on unrealized appreciation
of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Unrealized appreciation on
derivative instrument
designated and qualifying as
a cash flow hedging
instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849
    
    
    
    849Deferred income tax expense on
unrealized appreciation on
derivative instrument
designated and qualifying
as a cash flow hedging
instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )
    
    
    (322
    )Total other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    527
    
    
    
    674Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    16,465
    
    
    
    147
    
    
    
    527
    
    
    
    17,139Issuance of common stock
    
    
    441
    
    
    
    1,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,027Balance July 31, 2003
    
    $
    108,466
    
    
    $
    678,673
    
    
    $
    47,069
    
    
    $
    (818
    )
    
    $
    (1,961
    )
    
    $
    831,429




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|(1) |  | Amount includes 104,911 and 104,470 shares (in thousands) of Class A common stock with a stated value of $1 per share as of July 31, 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.

7



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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)

Nine Months Ended July 31,2003
    
    2002Cash flows from operating activities:Net earnings
    
    $
    16,465
    
    
    $
    23,066Adjustments to reconcile net earnings to net cash
provided by operating activities:Loss on assets held for sale
    
    
    
    
    
    
    18,500Loss on early extinguishment of debt
    
    
    11,289
    
    
    
    Depreciation and amortization
    
    
    40,375
    
    
    
    42,415Provision for doubtful accounts
    
    
    5,406
    
    
    
    8,470Net loss realized on marketable securities
    
    
    
    
    
    
    485Net gains on sale of assets
    
    
    (1,072
    )
    
    
    (559
    )Provision for deferred income taxes
    
    
    11,246
    
    
    
    10,367Changes in assets and liabilities:Decrease in other receivables
    
    
    12,844
    
    
    
    7,979Decrease in deferred charges
    
    
    5,088
    
    
    
    4,179Increase in inventories and cemetery property
    
    
    (140
    )
    
    
    (2,579
    )Decrease in accounts payable and accrued expenses
    
    
    (12,948
    )
    
    
    (14,183
    )Change in prearranged activity
    
    
    (18,267
    )
    
    
    (15,517
    )Prearranged acquisition costs
    
    
    (27,346
    )
    
    
    (23,054
    )Increase (decrease) in other
    
    
    3,294
    
    
    
    (2,549
    )Net cash provided by operating activities
    
    
    46,234
    
    
    
    57,020Cash flows from investing activities:Proceeds from sales of marketable securities and
long-term investments
    
    
    550
    
    
    
    169Purchases of marketable securities and long-term investments
    
    
    (12
    )
    
    
    (34
    )Proceeds from sale of assets, net
    
    
    2,009
    
    
    
    18,152Additions to property and equipment
    
    
    (13,967
    )
    
    
    (14,115
    )Other
    
    
    84
    
    
    
    (579
    )Net cash provided by (used in) investing activities
    
    
    (11,336
    )
    
    
    3,593


(continued)

8



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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)

Nine Months Ended July 31,2003
    
    2002Cash flows from financing activities:Retirement of Remarketable Or Redeemable Securities (ROARS)
    
    
    (12,691
    )
    
    
    Proceeds from long-term debt
    
    
    105,000
    
    
    
    Repayments of long-term debt
    
    
    (135,796
    )
    
    
    (54,845
    )Debt issue costs
    
    
    (813
    )
    
    
    Issuance of common stock
    
    
    582
    
    
    
    806Net cash used in financing activities
    
    
    (43,718
    )
    
    
    (54,039
    )Effect of exchange rates on cash and cash equivalents
    
    
    
    
    
    
    (205
    )Net increase (decrease) in cash
    
    
    (8,820
    )
    
    
    6,369Cash and cash equivalents, beginning of period
    
    
    28,190
    
    
    
    23,123Cash and cash equivalents, end of period
    
    $
    19,370
    
    
    $
    29,492Supplemental cash flow information:Cash paid (received) during the period for:Income taxes
    
    $
    (17,200
    )
    
    $
    (12,200
    )Interest
    
    $
    47,300
    
    
    $
    54,200Noncash investing and financing activities:Issuance of common stock to fund employee benefit plan
    
    $
    1,445
    
    
    $
    1,318


See accompanying notes to consolidated financial statements.

9



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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

(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 July 31, 2003, the Company owned and operated 300 funeral homes and
148 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.

(c) Interim Disclosures

The information as of July 31, 2003, and for the three and nine months
ended July 31, 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 nine months ended July 31,
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.

10



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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)

(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, where applicable, or
future cash flows discounted at rates for similar types of borrowing
arrangements.

(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. The Company recorded
a $2,000 increase in its valuation allowance in the first quarter of fiscal
year 2003 and a $7,000 decrease in its valuation allowance in the second
quarter of fiscal year 2003. In the third quarter of 2003, the Company
recorded a $10,000 decrease in its valuation allowance related to its
prearranged receivables, which resulted in an increase in prearranged
receivables and prearranged deferred revenue. Accordingly, the valuation
allowance as of July 31, 2003 was $5,000. 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.

11



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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 July 31, 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 (loss) and net
earnings (loss) 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
    
    Nine Months EndedJuly 31,
    
    July 31,2003
    
    2002
    
    2003
    
    2002Net earnings (loss)
    
    $
    (2,499
    )
    
    $
    (2,486
    )
    
    $
    16,465
    
    
    $
    23,066Total stock-based employee compensation expense
determined under fair value-based method,
net of tax
    
    
    (752
    )
    
    
    (1,177
    )
    
    
    (2,197
    )
    
    
    (3,431
    )Pro forma net earnings (loss)
    
    $
    (3,251
    )
    
    $
    (3,663
    )
    
    $
    14,268
    
    
    $
    19,635Net earnings (loss) per common share:Basic  as reported
    
    $
    (.02
    )
    
    $
    (.02
    )
    
    $
    .15
    
    
    $
    .21Basic  pro forma
    
    $
    (.03
    )
    
    $
    (.03
    )
    
    $
    .13
    
    
    $
    .18Diluted  as reported
    
    $
    (.02
    )
    
    $
    (.02
    )
    
    $
    .15
    
    
    $
    .21Diluted  pro forma
    
    $
    (.03
    )
    
    $
    (.03
    )
    
    $
    .13
    
    
    $
    .18


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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)

(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.

On June 26, 2003, the Company announced that its Board of Directors had
approved a new stock repurchase program that will allow the Company to invest
up to $25,000 in repurchases of its Class A common stock. The

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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)

repurchases are limited to the Companys Class A common stock and will be made
in the open market or in privately negotiated transactions at such times and in
such amounts as management deems appropriate, depending on market conditions
and other factors. These repurchases will reduce the weighted average number
of common shares outstanding during each period. As of July 31, 2003, no Class
A common stock repurchases had taken place.

(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 is
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

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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)

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
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. The
Companys annual goodwill impairment analysis occurs during its fourth fiscal
quarter each year.

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 July 31, 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

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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)

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.

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 11.

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

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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)

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
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 nine months ended July 31, 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
currently evaluating the impact of FIN 46 and believes that its preneed
funeral, preneed cemetery merchandise and perpetual care trust funds and escrow
accounts will be consolidated at fair value in the Companys balance sheet.

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 adoption of SFAS No. 149 had no impact on the Companys
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

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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)

after June 15, 2003. The adoption of SFAS No. 150 had no impact on the
Companys financial condition or results of operations.

(3) Commitments and Contingencies

On July 15, 2003, the Company announced that Frank B. Stewart, Jr.,
Chairman of the Board, had elected to retire and become Chairman Emeritus of
the Company. As part of Mr. Stewarts retirement benefits agreement, the
Company agreed to pay Mr. Stewart $1,650, payable in three installments of $550
each. The first payment was made within five days after the announcement of
his retirement. The remaining two payments will be made on June 20, 2004 and
June 20, 2005. The Company recorded the $1,650 charge in the third quarter of
2003 but will continue to make the payments in accordance with the terms of the
agreement.

On June 10, 2003, the Company announced that Brian J. Marlowe, Chief
Operating Officer, had stepped down to pursue other interests. According to
the terms of his employment agreement, he is entitled to receive an amount
equal to two years of salary, or $800, over the next two years. The Company
recorded the $800 charge in the third quarter of 2003 but will continue to make
the payments in accordance with the terms of the agreement.

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.

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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

Loss
    
    Shares
    
    Per ShareThree Months Ended July 31, 2003
    
    (Numerator)
    
    (Denominator)
    
    DataNet loss
    
    $
    (2,499
    )Basic loss per common share:Loss available to common shareholders
    
    $
    (2,499
    )
    
    
    108,386
    
    
    $
    (.02
    )Effect of dilutive securities:Time-vest stock options assumed exercised
    
    
    
    
    
    
    Diluted loss per common share:Loss available to common shareholders
plus time-vest stock options assumed exercised
    
    $
    (2,499
    )
    
    
    108,386
    
    
    $
    (.02
    )


Loss
    
    Shares
    
    Per ShareThree Months Ended July 31, 2002
    
    (Numerator)
    
    (Denominator)
    
    DataNet loss
    
    $
    (2,486
    )Basic loss per common share:Loss available to common shareholders
    
    $
    (2,486
    )
    
    
    107,961
    
    
    $
    (.02
    )Effect of dilutive securities:Time-vest stock options assumed exercised
    
    
    
    
    
    
    Diluted loss per common share:Loss available to common shareholders
plus time-vest stock options assumed exercised
    
    $
    (2,486
    )
    
    
    107,961
    
    
    $
    (.02
    )


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)

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

Earnings
    
    Shares
    
    Per ShareNine Months Ended July 31, 2003
    
    (Numerator)
    
    (Denominator)
    
    DataNet earnings
    
    $
    16,465Basic earnings per common share:Earnings available to common shareholders
    
    $
    16,465
    
    
    
    108,242
    
    
    $
    .15Effect of dilutive securities:Time-vest stock options assumed exercised
    
    
    
    
    
    
    24Diluted earnings per common share:Earnings available to common shareholders
plus time-vest stock options assumed exercised
    
    $
    16,465
    
    
    
    108,266
    
    
    $
    .15


Earnings
    
    Shares
    
    Per ShareNine Months Ended July 31, 2002
    
    (Numerator)
    
    (Denominator)
    
    DataNet earnings
    
    $
    23,066Basic earnings per common share:Earnings available to common shareholders
    
    $
    23,066
    
    
    
    107,807
    
    
    $
    .21Effect of dilutive securities:Time-vest stock options assumed exercised
    
    
    
    
    
    
    548Diluted earnings per common share:Earnings available to common shareholders
plus time-vest stock options assumed exercised
    
    $
    23,066
    
    
    
    108,355
    
    
    $
    .21


Options to purchase 4,995,130 shares of common stock at prices ranging
from $4.41 to $27.25 per share were outstanding during the nine months ended
July 31, 2003, 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. These options expire between July 31, 2004
and April 12, 2005. Options to purchase 1,260,826 shares of common stock at
prices ranging from $5.96 to $27.25 per share were outstanding during the nine
months ended July 31, 2002 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.

Common stock equivalents are excluded in the calculation of weighted
average shares outstanding when a company reports a net loss from continuing
operations for a period. The number of potentially antidilutive shares
excluded from the calculation of diluted loss per share was 6,964,631 and
6,897,694 for the three months ended July 31, 2003 and 2002, respectively,
because of the net loss from continuing operations for those periods.

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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:

ConsolidatedFuneral
    
    Cemetery
    
    TotalsRevenues from external customers:Three months ended July 31,2003
    
    $
    73,513
    
    
    
    55,266
    
    
    $
    128,7792002
    
    $
    83,265
    
    
    
    60,989
    
    
    $
    144,254Nine months ended July 31,2003
    
    $
    226,044
    
    
    
    167,316
    
    
    $
    393,3602002
    
    $
    269,196
    
    
    
    179,616
    
    
    $
    448,812Gross profit:Three months ended July 31,2003
    
    $
    16,549
    
    
    
    11,361
    
    
    $
    27,9102002
    
    $
    18,837
    
    
    
    14,559
    
    
    $
    33,396Nine months ended July 31,2003
    
    $
    54,197
    
    
    
    37,992
    
    
    $
    92,1892002
    
    $
    70,570
    
    
    
    43,941
    
    
    $
    114,511Goodwill:July 31, 2003
    
    $
    332,508
    
    
    
    158,815
    
    
    $
    491,323October 31, 2002
    
    $
    332,508
    
    
    
    158,815
    
    
    $
    491,323


A reconciliation of total segment gross profit to total earnings (loss)
before income taxes for the three and nine months ended July 31, 2003 and 2002
is as follows:

Three Months Ended
    
    Nine Months EndedJuly 31,
    
    July 31,2003
    
    2002
    
    2003
    
    2002Gross profit for reportable segments
    
    $
    27,910
    
    
    $
    33,396
    
    
    $
    92,189
    
    
    $
    114,511Corporate general and administrative expenses
    
    
    (7,381
    )
    
    
    (4,516
    )
    
    
    (15,863
    )
    
    
    (12,401
    )Loss on assets held for sale
    
    
    
    
    
    
    (18,500
    )
    
    
    
    
    
    
    (18,500
    )Interest expense
    
    
    (13,249
    )
    
    
    (15,560
    )
    
    
    (40,405
    )
    
    
    (48,389
    )Loss on early extinguishment of debt
    
    
    (11,289
    )
    
    
    
    
    
    
    (11,289
    )
    
    
    Investment income
    
    
    66
    
    
    
    152
    
    
    
    237
    
    
    
    374Other income, net
    
    
    459
    
    
    
    583
    
    
    
    2,234
    
    
    
    1,173Earnings (loss) before income taxes
    
    $
    (3,484
    )
    
    $
    (4,445
    )
    
    $
    27,103
    
    
    $
    36,768


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

The following tables present the condensed consolidating historical
financial statements as of July 31, 2003 and October 31, 2002 and for the three
and nine months ended July 31, 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 July 31, 2003Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    68,429
    
    
    $
    5,084
    
    
    $
    
    
    
    $
    73,513Cemetery
    
    
    
    
    
    
    47,907
    
    
    
    7,359
    
    
    
    
    
    
    
    55,266
    
    
    
    116,336
    
    
    
    12,443
    
    
    
    
    
    
    
    128,779Costs and expenses:Funeral
    
    
    
    
    
    
    53,223
    
    
    
    3,741
    
    
    
    
    
    
    
    56,964Cemetery
    
    
    
    
    
    
    38,497
    
    
    
    5,408
    
    
    
    
    
    
    
    43,905
    
    
    
    91,720
    
    
    
    9,149
    
    
    
    
    
    
    
    100,869Gross profit
    
    
    
    
    
    
    24,616
    
    
    
    3,294
    
    
    
    
    
    
    
    27,910Corporate general and administrative
expenses
    
    
    7,493
    
    
    
    (112
    )
    
    
    
    
    
    
    
    
    
    
    7,381Operating earnings (loss)
    
    
    (7,493
    )
    
    
    24,728
    
    
    
    3,294
    
    
    
    
    
    
    
    20,529Interest income (expense)
    
    
    7,847
    
    
    
    (18,367
    )
    
    
    (2,729
    )
    
    
    
    
    
    
    (13,249
    )Loss on early extinguishment of debt
    
    
    (11,289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,289
    )Investment income
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Other income, net
    
    
    84
    
    
    
    291
    
    
    
    84
    
    
    
    
    
    
    
    459Earnings (loss) before income taxes
    
    
    (10,785
    )
    
    
    6,652
    
    
    
    649
    
    
    
    
    
    
    
    (3,484
    )Income tax expense (benefit)
    
    
    (4,256
    )
    
    
    2,520
    
    
    
    751
    
    
    
    
    
    
    
    (985
    )Net earnings (loss) before equity in
subsidiaries
    
    
    (6,529
    )
    
    
    4,132
    
    
    
    (102
    )
    
    
    
    
    
    
    (2,499
    )Equity in subsidiaries
    
    
    4,030
    
    
    
    
    
    
    
    
    
    
    
    (4,030
    )
    
    
    Net earnings (loss)
    
    
    (2,499
    )
    
    
    4,132
    
    
    
    (102
    )
    
    
    (4,030
    )
    
    
    (2,499
    )Other comprehensive income, net
    
    
    518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518Comprehensive income (loss)
    
    $
    (1,981
    )
    
    $
    4,132
    
    
    $
    (102
    )
    
    $
    (4,030
    )
    
    $
    (1,981
    )


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

Three Months Ended July 31, 2002Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    68,841
    
    
    $
    14,424
    
    
    $
    
    
    
    $
    83,265Cemetery
    
    
    
    
    
    
    55,430
    
    
    
    5,559
    
    
    
    
    
    
    
    60,989
    
    
    
    124,271
    
    
    
    19,983
    
    
    
    
    
    
    
    144,254Costs and expenses:Funeral
    
    
    
    
    
    
    52,411
    
    
    
    12,017
    
    
    
    
    
    
    
    64,428Cemetery
    
    
    
    
    
    
    40,740
    
    
    
    5,690
    
    
    
    
    
    
    
    46,430
    
    
    
    93,151
    
    
    
    17,707
    
    
    
    
    
    
    
    110,858Gross profit
    
    
    
    
    
    
    31,120
    
    
    
    2,276
    
    
    
    
    
    
    
    33,396Corporate general and administrative
expenses
    
    
    4,566
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    4,516Loss on assets held for sale
    
    
    
    
    
    
    688
    
    
    
    17,812
    
    
    
    
    
    
    
    18,500Operating earnings (loss)
    
    
    (4,566
    )
    
    
    30,482
    
    
    
    (15,536
    )
    
    
    
    
    
    
    10,380Interest income (expense)
    
    
    12,815
    
    
    
    (20,978
    )
    
    
    (7,397
    )
    
    
    
    
    
    
    (15,560
    )Investment income
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152Other income, net
    
    
    201
    
    
    
    198
    
    
    
    184
    
    
    
    
    
    
    
    583Earnings (loss) before income taxes
    
    
    8,602
    
    
    
    9,702
    
    
    
    (22,749
    )
    
    
    
    
    
    
    (4,445
    )Income tax expense (benefit)
    
    
    (6,721
    )
    
    
    3,881
    
    
    
    881
    
    
    
    
    
    
    
    (1,959
    )Net earnings (loss) before equity loss
in subsidiaries
    
    
    15,323
    
    
    
    5,821
    
    
    
    (23,630
    )
    
    
    
    
    
    
    (2,486
    )Equity loss in subsidiaries
    
    
    (17,809
    )
    
    
    
    
    
    
    
    
    
    
    17,809
    
    
    
    Net earnings (loss)
    
    
    (2,486
    )
    
    
    5,821
    
    
    
    (23,630
    )
    
    
    17,809
    
    
    
    (2,486
    )Other comprehensive income, net
    
    
    1,812
    
    
    
    
    
    
    
    3,219
    
    
    
    (3,219
    )
    
    
    1,812Comprehensive income (loss)
    
    $
    (674
    )
    
    $
    5,821
    
    
    $
    (20,411
    )
    
    $
    14,590
    
    
    $
    (674
    )


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

Nine Months Ended July 31, 2003Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    210,544
    
    
    $
    15,500
    
    
    $
    
    
    
    $
    226,044Cemetery
    
    
    
    
    
    
    146,511
    
    
    
    20,805
    
    
    
    
    
    
    
    167,316
    
    
    
    357,055
    
    
    
    36,305
    
    
    
    
    
    
    
    393,360Costs and expenses:Funeral
    
    
    
    
    
    
    160,856
    
    
    
    10,991
    
    
    
    
    
    
    
    171,847Cemetery
    
    
    
    
    
    
    113,616
    
    
    
    15,708
    
    
    
    
    
    
    
    129,324
    
    
    
    274,472
    
    
    
    26,699
    
    
    
    
    
    
    
    301,171Gross profit
    
    
    
    
    
    
    82,583
    
    
    
    9,606
    
    
    
    
    
    
    
    92,189Corporate general and administrative
expenses
    
    
    16,293
    
    
    
    (430
    )
    
    
    
    
    
    
    
    
    
    
    15,863Operating earnings (loss)
    
    
    (16,293
    )
    
    
    83,013
    
    
    
    9,606
    
    
    
    
    
    
    
    76,326Interest income (expense)
    
    
    21,763
    
    
    
    (54,246
    )
    
    
    (7,922
    )
    
    
    
    
    
    
    (40,405
    )Loss on early extinguishment of debt
    
    
    (11,289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,289
    )Investment income
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237Other income, net
    
    
    547
    
    
    
    1,439
    
    
    
    248
    
    
    
    
    
    
    
    2,234Earnings (loss) before income taxes
    
    
    (5,035
    )
    
    
    30,206
    
    
    
    1,932
    
    
    
    
    
    
    
    27,103Income tax expense (benefit)
    
    
    (3,225
    )
    
    
    11,470
    
    
    
    2,393
    
    
    
    
    
    
    
    10,638Net earnings (loss) before equity
in subsidiaries
    
    
    (1,810
    )
    
    
    18,736
    
    
    
    (461
    )
    
    
    
    
    
    
    16,465Equity in subsidiaries
    
    
    18,275
    
    
    
    
    
    
    
    
    
    
    
    (18,275
    )
    
    
    Net earnings (loss)
    
    
    16,465
    
    
    
    18,736
    
    
    
    (461
    )
    
    
    (18,275
    )
    
    
    16,465Other comprehensive income, net
    
    
    674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674Comprehensive income (loss)
    
    $
    17,139
    
    
    $
    18,736
    
    
    $
    (461
    )
    
    $
    (18,275
    )
    
    $
    17,139


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 Statements of Earnings and Other Comprehensive Income

Nine Months Ended July 31, 2002Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    217,409
    
    
    $
    51,787
    
    
    $
    
    
    
    $
    269,196Cemetery
    
    
    
    
    
    
    161,246
    
    
    
    18,370
    
    
    
    
    
    
    
    179,616
    
    
    
    378,655
    
    
    
    70,157
    
    
    
    
    
    
    
    448,812Costs and expenses:Funeral
    
    
    
    
    
    
    157,964
    
    
    
    40,662
    
    
    
    
    
    
    
    198,626Cemetery
    
    
    
    
    
    
    117,446
    
    
    
    18,229
    
    
    
    
    
    
    
    135,675
    
    
    
    275,410
    
    
    
    58,891
    
    
    
    
    
    
    
    334,301Gross profit
    
    
    
    
    
    
    103,245
    
    
    
    11,266
    
    
    
    
    
    
    
    114,511Corporate general and administrative
expenses
    
    
    12,669
    
    
    
    (268
    )
    
    
    
    
    
    
    
    
    
    
    12,401Loss on assets held for sale
    
    
    
    
    
    
    688
    
    
    
    17,812
    
    
    
    
    
    
    
    18,500Operating earnings (loss)
    
    
    (12,669
    )
    
    
    102,825
    
    
    
    (6,546
    )
    
    
    
    
    
    
    83,610Interest income (expense)
    
    
    41,379
    
    
    
    (66,274
    )
    
    
    (23,494
    )
    
    
    
    
    
    
    (48,389
    )Investment income
    
    
    355
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    374Other income (expense), net
    
    
    (35
    )
    
    
    890
    
    
    
    318
    
    
    
    
    
    
    
    1,173Earnings (loss) before income taxes
    
    
    29,030
    
    
    
    37,441
    
    
    
    (29,703
    )
    
    
    
    
    
    
    36,768Income tax expense (benefit)
    
    
    (4,577
    )
    
    
    14,977
    
    
    
    3,302
    
    
    
    
    
    
    
    13,702Net earnings (loss) before equity loss
in subsidiaries
    
    
    33,607
    
    
    
    22,464
    
    
    
    (33,005
    )
    
    
    
    
    
    
    23,066Equity loss in subsidiaries
    
    
    (10,541
    )
    
    
    
    
    
    
    
    
    
    
    10,541
    
    
    
    Net earnings (loss)
    
    
    23,066
    
    
    
    22,464
    
    
    
    (33,005
    )
    
    
    10,541
    
    
    
    23,066Other comprehensive income,
net
    
    
    1,625
    
    
    
    1,310
    
    
    
    1,755
    
    
    
    (3,065
    )
    
    
    1,625Comprehensive income (loss)
    
    $
    24,691
    
    
    $
    23,774
    
    
    $
    (31,250
    )
    
    $
    7,476
    
    
    $
    24,691


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

July 31, 2003Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    16,951
    
    
    $
    3,187
    
    
    $
    (768
    )
    
    $
    
    
    
    $
    19,370Marketable securities
    
    
    993
    
    
    
    26
    
    
    
    1,270
    
    
    
    
    
    
    
    2,289Receivables, net of allowances
    
    
    10,901
    
    
    
    36,132
    
    
    
    21,358
    
    
    
    
    
    
    
    68,391Inventories
    
    
    317
    
    
    
    35,128
    
    
    
    7,733
    
    
    
    
    
    
    
    43,178Prepaid expenses
    
    
    651
    
    
    
    2,673
    
    
    
    98
    
    
    
    
    
    
    
    3,422Deferred income taxes, net
    
    
    501
    
    
    
    1,263
    
    
    
    
    
    
    
    
    
    
    
    1,764Assets held for sale
    
    
    
    
    
    
    4,930
    
    
    
    518
    
    
    
    
    
    
    
    5,448Total current assets
    
    
    30,314
    
    
    
    83,339
    
    
    
    30,209
    
    
    
    
    
    
    
    143,862Receivables due beyond one year, net of
allowances
    
    
    180
    
    
    
    51,363
    
    
    
    26,120
    
    
    
    
    
    
    
    77,663Prearranged receivables, net
    
    
    
    
    
    
    1,198,530
    
    
    
    17,862
    
    
    
    
    
    
    
    1,216,392Goodwill
    
    
    
    
    
    
    451,656
    
    
    
    39,667
    
    
    
    
    
    
    
    491,323Deferred charges
    
    
    7,960
    
    
    
    226,330
    
    
    
    19,700
    
    
    
    
    
    
    
    253,990Cemetery property, at cost
    
    
    
    
    
    
    364,444
    
    
    
    23,247
    
    
    
    
    
    
    
    387,691Property and equipment, at cost
    
    
    31,039
    
    
    
    440,340
    
    
    
    41,907
    
    
    
    
    
    
    
    513,286Less accumulated depreciation
    
    
    16,042
    
    
    
    155,971
    
    
    
    12,355
    
    
    
    
    
    
    
    184,368Net property and equipment
    
    
    14,997
    
    
    
    284,369
    
    
    
    29,552
    
    
    
    
    
    
    
    328,918Deferred income taxes, net
    
    
    30,910
    
    
    
    52,579
    
    
    
    
    
    
    
    
    
    
    
    83,489Investment in subsidiaries
    
    
    150,649
    
    
    
    
    
    
    
    
    
    
    
    (150,649
    )
    
    
    Other assets
    
    
    103
    
    
    
    1,140
    
    
    
    
    
    
    
    
    
    
    
    1,243Total assets
    
    $
    235,113
    
    
    $
    2,713,750
    
    
    $
    186,357
    
    
    $
    (150,649
    )
    
    $
    2,984,571LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    16,745
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    16,745Accounts payable
    
    
    229
    
    
    
    7,596
    
    
    
    418
    
    
    
    
    
    
    
    8,243Accrued expenses and other current
liabilities
    
    
    11,130
    
    
    
    29,185
    
    
    
    6,117
    
    
    
    
    
    
    
    46,432Liabilities associated with assets held
for sale
    
    
    
    
    
    
    2,159
    
    
    
    15
    
    
    
    
    
    
    
    2,174Total current liabilities
    
    
    28,104
    
    
    
    38,940
    
    
    
    6,550
    
    
    
    
    
    
    
    73,594Long-term debt, less current maturities
    
    
    472,737
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    502,737Intercompany payables, net
    
    
    (1,109,671
    )
    
    
    1,056,734
    
    
    
    52,937
    
    
    
    
    
    
    
    Prearranged deferred revenue, net
    
    
    
    
    
    
    1,465,597
    
    
    
    94,048
    
    
    
    
    
    
    
    1,559,645Other long-term liabilities
    
    
    12,514
    
    
    
    4,652
    
    
    
    
    
    
    
    
    
    
    
    17,166Total liabilities
    
    
    (596,316
    )
    
    
    2,565,923
    
    
    
    183,535
    
    
    
    
    
    
    
    2,153,142Common stock
    
    
    108,466
    
    
    
    426
    
    
    
    53
    
    
    
    (479
    )
    
    
    108,466Other
    
    
    725,742
    
    
    
    147,401
    
    
    
    2,769
    
    
    
    (150,170
    )
    
    
    725,742Accumulated other comprehensive loss
    
    
    (2,779
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,779
    )Total shareholders equity
    
    
    831,429
    
    
    
    147,827
    
    
    
    2,822
    
    
    
    (150,649
    )
    
    
    831,429Total liabilities and shareholders equity
    
    $
    235,113
    
    
    $
    2,713,750
    
    
    $
    186,357
    
    
    $
    (150,649
    )
    
    $
    2,984,571


27



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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

October 31, 2002Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    24,752
    
    
    $
    3,209
    
    
    $
    229
    
    
    $
    
    
    
    $
    28,190Marketable securities
    
    
    755
    
    
    
    26
    
    
    
    1,807
    
    
    
    
    
    
    
    2,588Receivables, net of allowances
    
    
    24,340
    
    
    
    41,131
    
    
    
    21,356
    
    
    
    
    
    
    
    86,827Inventories
    
    
    407
    
    
    
    32,987
    
    
    
    8,272
    
    
    
    
    
    
    
    41,666Prepaid expenses
    
    
    706
    
    
    
    2,032
    
    
    
    77
    
    
    
    
    
    
    
    2,815Deferred income taxes, net
    
    
    591
    
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    1,348Assets held for sale
    
    
    
    
    
    
    8,424
    
    
    
    542
    
    
    
    
    
    
    
    8,966Total current assets
    
    
    51,551
    
    
    
    88,566
    
    
    
    32,283
    
    
    
    
    
    
    
    172,400Receivables due beyond one year, net of
allowances
    
    
    
    
    
    
    52,020
    
    
    
    24,633
    
    
    
    
    
    
    
    76,653Prearranged receivables, net
    
    
    
    
    
    
    1,181,775
    
    
    
    19,139
    
    
    
    
    
    
    
    1,200,914Goodwill
    
    
    
    
    
    
    451,656
    
    
    
    39,667
    
    
    
    
    
    
    
    491,323Deferred charges
    
    
    8,716
    
    
    
    224,959
    
    
    
    19,408
    
    
    
    
    
    
    
    253,083Cemetery property, at cost
    
    
    
    
    
    
    364,830
    
    
    
    23,235
    
    
    
    
    
    
    
    388,065Property and equipment, at cost
    
    
    29,028
    
    
    
    432,492
    
    
    
    41,396
    
    
    
    
    
    
    
    502,916Less accumulated depreciation
    
    
    13,385
    
    
    
    144,059
    
    
    
    11,156
    
    
    
    
    
    
    
    168,600Net property and equipment
    
    
    15,643
    
    
    
    288,433
    
    
    
    30,240
    
    
    
    
    
    
    
    334,316Deferred income taxes, net
    
    
    30,794
    
    
    
    63,980
    
    
    
    1,020
    
    
    
    
    
    
    
    95,794Investment in subsidiaries
    
    
    150,555
    
    
    
    
    
    
    
    
    
    
    
    (150,555
    )
    
    
    Other assets
    
    
    1,981
    
    
    
    1,055
    
    
    
    
    
    
    
    
    
    
    
    3,036Total assets
    
    $
    259,240
    
    
    $
    2,717,274
    
    
    $
    189,625
    
    
    $
    (150,555
    )
    
    $
    3,015,584LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    9,396
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,396Accounts payable
    
    
    880
    
    
    
    9,836
    
    
    
    397
    
    
    
    
    
    
    
    11,113Accrued expenses and other current
liabilities
    
    
    24,062
    
    
    
    27,744
    
    
    
    5,296
    
    
    
    
    
    
    
    57,102Liabilities associated with assets held
for sale
    
    
    
    
    
    
    2,896
    
    
    
    15
    
    
    
    
    
    
    
    2,911Total current liabilities
    
    
    34,338
    
    
    
    40,476
    
    
    
    5,708
    
    
    
    
    
    
    
    80,522Long-term debt, less current maturities
    
    
    512,548
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    542,548Intercompany payables, net
    
    
    (1,112,077
    )
    
    
    1,071,567
    
    
    
    40,510
    
    
    
    
    
    
    
    Prearranged deferred revenue, net
    
    
    
    
    
    
    1,469,680
    
    
    
    91,853
    
    
    
    
    
    
    
    1,561,533Other long-term liabilities
    
    
    12,168
    
    
    
    6,550
    
    
    
    
    
    
    
    
    
    
    
    18,718Total liabilities
    
    
    (553,023
    )
    
    
    2,588,273
    
    
    
    168,071
    
    
    
    
    
    
    
    2,203,321Common stock
    
    
    108,025
    
    
    
    336
    
    
    
    53
    
    
    
    (389
    )
    
    
    108,025Other
    
    
    707,691
    
    
    
    128,665
    
    
    
    21,501
    
    
    
    (150,166
    )
    
    
    707,691Accumulated other comprehensive loss
    
    
    (3,453
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,453
    )Total shareholders equity
    
    
    812,263
    
    
    
    129,001
    
    
    
    21,554
    
    
    
    (150,555
    )
    
    
    812,263Total liabilities and shareholders equity
    
    $
    259,240
    
    
    $
    2,717,274
    
    
    $
    189,625
    
    
    $
    (150,555
    )
    
    $
    3,015,584


28



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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 Cash Flows

Nine Months Ended July 31, 2003Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    21,548
    
    
    $
    19,847
    
    
    $
    4,839
    
    
    $
    
    
    
    $
    46,234Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    550Purchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Proceeds from sale of assets, net
    
    
    (860
    )
    
    
    2,869
    
    
    
    
    
    
    
    
    
    
    
    2,009Additions to property and
equipment
    
    
    (2,085
    )
    
    
    (11,352
    )
    
    
    (530
    )
    
    
    
    
    
    
    (13,967
    )Other
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    84Net cash provided by (used in)
investing activities
    
    
    (2,945
    )
    
    
    (8,399
    )
    
    
    8
    
    
    
    
    
    
    
    (11,336
    )Cash flows from financing activities:Retirement of ROARS
    
    
    (12,691
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,691
    )Proceeds from long-term debt
    
    
    105,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,000Repayments of long-term debt
    
    
    (135,796
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,796
    )Intercompany receivables
(payables)
    
    
    17,314
    
    
    
    (11,470
    )
    
    
    (5,844
    )
    
    
    
    
    
    
    Debt issue costs
    
    
    (813
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (813
    )Issuance of common stock
    
    
    582
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582Net cash used in financing
activities
    
    
    (26,404
    )
    
    
    (11,470
    )
    
    
    (5,844
    )
    
    
    
    
    
    
    (43,718
    )Net decrease in cash
    
    
    (7,801
    )
    
    
    (22
    )
    
    
    (997
    )
    
    
    
    
    
    
    (8,820
    )Cash and cash equivalents, beginning of
period
    
    
    24,752
    
    
    
    3,209
    
    
    
    229
    
    
    
    
    
    
    
    28,190Cash and cash equivalents, end of
period
    
    $
    16,951
    
    
    $
    3,187
    
    
    $
    (768
    )
    
    $
    
    
    
    $
    19,370


29



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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 Cash Flows

Nine Months Ended July 31, 2002Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    46,090
    
    
    $
    9,601
    
    
    $
    1,329
    
    
    $
    
    
    
    $
    57,020Cash flows from investing activities:Proceeds from sales of marketable
securities and long-term
investments
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    169Purchases of marketable securities
and long-term investments
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (34
    )Proceeds from sale of assets, net
    
    
    10,897
    
    
    
    7,255
    
    
    
    
    
    
    
    
    
    
    
    18,152Additions to property and
equipment
    
    
    (2,097
    )
    
    
    (11,184
    )
    
    
    (834
    )
    
    
    
    
    
    
    (14,115
    )Other
    
    
    (899
    )
    
    
    210
    
    
    
    110
    
    
    
    
    
    
    
    (579
    )Net cash provided by (used in)
investing activities
    
    
    7,901
    
    
    
    (3,719
    )
    
    
    (589
    )
    
    
    
    
    
    
    3,593Cash flows from financing activities:Repayments of long-term debt
    
    
    (53,733
    )
    
    
    
    
    
    
    (1,112
    )
    
    
    
    
    
    
    (54,845
    )Intercompany receivables
(payables)
    
    
    2,961
    
    
    
    906
    
    
    
    (3,867
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806Net cash provided by (used in)
financing activities
    
    
    (49,966
    )
    
    
    906
    
    
    
    (4,979
    )
    
    
    
    
    
    
    (54,039
    )Effect of exchange rates on cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    (205
    )Net increase (decrease) in cash
    
    
    4,025
    
    
    
    6,788
    
    
    
    (4,444
    )
    
    
    
    
    
    
    6,369Cash and cash equivalents, beginning of
period
    
    
    22,537
    
    
    
    (5,636
    )
    
    
    6,222
    
    
    
    
    
    
    
    23,123Cash and cash equivalents, end of
period
    
    $
    26,562
    
    
    $
    1,152
    
    
    $
    1,778
    
    
    $
    
    
    
    $
    29,492


30



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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)

(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 July 31, 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
July 31, 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
July 31, 2003 and October 31, 2002 is as follows:

July 31, 2003
    
    October 31, 2002AssetsReceivables, net of allowances
    
    $
    464
    
    
    $
    590Inventories and other current assets
    
    
    777
    
    
    
    876Net property and equipment
    
    
    958
    
    
    
    2,384Prearranged receivables, net
    
    
    1,443
    
    
    
    2,460Deferred charges and other assets
    
    
    981
    
    
    
    1,831Cemetery property
    
    
    825
    
    
    
    825Assets held for sale
    
    $
    5,448
    
    
    $
    8,966LiabilitiesCurrent liabilities
    
    $
    117
    
    
    $
    561Deferred income taxes, net
    
    
    2
    
    
    
    299Prearranged deferred revenue, net
    
    
    2,055
    
    
    
    2,051Liabilities associated with assets held for sale
    
    $
    2,174
    
    
    $
    2,911


31



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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)

(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 nine months ended July
31, 2003 and 2002 were as follows:

Three Months Ended
    
    Nine Months EndedJuly 31,
    
    July 31,2003
    
    2002
    
    2003
    
    2002Revenues
    
    $
    966
    
    
    $
    11,980
    
    
    $
    3,442
    
    
    $
    44,451Operating earnings (loss)
    
    $
    (172
    )
    
    $
    699
    
    
    $
    (106
    )
    
    $
    5,195


(8) Long-term Debt

July 31,
    
    October 31,2003
    
    2002Long-term debt:Senior secured credit facility:Revolving credit facility
    
    $
    30,000
    
    
    $
    Term Loan B
    
    
    178,000
    
    
    
    135,7506.40% ROARS
    
    
    
    
    
    
    101,5636.70% Notes
    
    
    100
    
    
    
    10010.75% senior subordinated notes due 2008
    
    
    300,000
    
    
    
    300,000Other, principally seller financing of acquired operations or
assumption upon acquisition, weighted average interest rates
of 6.4% and 6.5% as of July 31, 2003 and October 31, 2002,
respectively, partially secured by assets of subsidiaries, with
maturities through 2023
    
    
    11,382
    
    
    
    14,531Total long-term debt
    
    
    519,482
    
    
    
    551,944Less current maturities
    
    
    16,745
    
    
    
    9,396$
    502,737
    
    
    $
    542,548


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 recorded 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.

32



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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)

(8) Long-term Debt(Continued)

The Company also amended the loan covenants that govern its revolving
credit and Term Loan B credit. The amendment relaxes certain financial ratio
requirements and allows further flexibility with regard to higher spending
limits on acquisitions, dividends and the repurchase of Company stock. Under
the amendment, if there is no default or event of default, the Company may pay
cash dividends and repurchase its 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 $15,000, or, if the Companys consolidated
leverage ratio is not greater than 3.00 to 1.00 both before and after the
payment, $25,000. Under the restrictions in its debt agreements, as of July
31, 2003, the Company could use up to $15,000 to pay dividends or repurchase
its 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 $35,000, 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 $50,000, with a provision for the carryover of permitted
but unused amounts under specified circumstances.

In the third quarter of 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 to reduce its debt balance. The Company also
drew down an additional $5,000 from its revolving credit facility in the third
quarter of 2003.

(9) 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, increased its
valuation allowance by $2,000 as of January 31, 2003 and reduced its valuation
allowance by $7,000 as of April 30, 2003. As of July 31, 2003, the Company
reduced its valuation allowance by $10,000, which resulted in an increase to
prearranged receivables and prearranged deferred revenue. Accordingly, as of
July 31, 2003, the valuation allowance was $5,000. 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
July 31, 2003 and October 31, 2002.

Funeral
    
    Cemetery Merchandise
    
    Perpetual CareJuly 31,
    
    October 31,
    
    July 31,
    
    October 31,
    
    July 31,
    
    October 31,2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002Total value at cost
    
    $
    533,773
    
    
    $
    538,180
    
    
    $
    228,738
    
    
    $
    227,588
    
    
    $
    223,140
    
    
    $
    217,174Net unrealized depreciation
    
    
    (80,649
    )
    
    
    (116,760
    )
    
    
    (45,391
    )
    
    
    (60,010
    )
    
    
    (29,498
    )
    
    
    (38,007
    )Total value at market
    
    $
    453,124
    
    
    $
    421,420
    
    
    $
    183,347
    
    
    $
    167,578
    
    
    $
    193,642
    
    
    $
    179,167


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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(10) Consolidated Comprehensive Income

Consolidated comprehensive income for the nine months ended July 31, 2003
and 2002 is as follows:

Nine Months Ended July 31,2003
    
    2002Net earnings
    
    $
    16,465
    
    
    $
    23,066Other comprehensive income:Reclassification adjustment for realized loss on foreign translation
    
    
    
    
    
    
    10,700Foreign translation adjustment
    
    
    
    
    
    
    (8,945
    )Unrealized appreciation of investments
    
    
    238
    
    
    
    510Net deferred income tax expense on unrealized appreciation of
investments
    
    
    (91
    )
    
    
    (166
    )Expiration of derivative instrument designated and qualifying
as a cash flow hedging instrument
    
    
    
    
    
    
    2,128Unrealized appreciation (depreciation) on derivative instrument
designated and qualifying as a cash flow hedging instrument
    
    
    849
    
    
    
    (2,935
    )Deferred income tax expense (benefit) on unrealized appreciation
(depreciation) on derivative instrument designated and qualifying
as a
cash flow hedging instrument
    
    
    (322
    )
    
    
    333Total other comprehensive income
    
    
    674
    
    
    
    1,625Total comprehensive income
    
    $
    17,139
    
    
    $
    24,691


(11) 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 shares of directors) of all
direct existing and future foreign subsidiaries, and (3) all other existing and
future assets

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Guarantees(Continued)

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 July 31, 2003, the Company has guaranteed long-term debt of its
subsidiaries of approximately $4,767 that represents notes the subsidiaries
issued as part of the purchase price of acquired businesses or debt the
subsidiaries assumed in connection with acquisitions.

(12) 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)

(12) 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 July 31, 2003, including
accrued interest, was approximately $958.

On July 15, 2003, the Company announced that Frank B. Stewart, Jr.
Chairman of the Board, had elected to retire and become Chairman Emeritus. On
June 10, 2003, the Company announced that Brian J. Marlowe, Chief Operating
Officer, had stepped down to pursue other interests. See Note 3 for
information regarding the separation pay related to these former executive
officers.

(13) Subsequent Events

As stated in Note 1(o), in June of 2003, the Company announced that its
Board of Directors had approved a new stock repurchase program that allows the
Company to invest up to $25,000 in repurchases of its Class A common stock. No
stock repurchases had taken place as of July 31, 2003. As of September 2,
2003, the Company had repurchased 181,500 shares of its Class A common stock at an average price of $3.95 per share.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES







Item 2. 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 September 2,
2003, we owned and operated 300 funeral homes and 148 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 2.3 percent, for fiscal years 2000, 2001, 2002 and the nine months ended
July 31, 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 50 percent of our total trust 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.

As disclosed in Note 9 to the consolidated financial statements, our
preneed funeral and preneed cemetery merchandise trust funds and escrow
accounts had net unrealized depreciation of $80.6 million and $45.4 million,
respectively, as of July 31, 2003. Unrealized gains and losses in the funeral
trust funds and cemetery merchandise trust funds have no immediate impact on
our revenues, margins, earnings or cash flow, unless the fair market value of
the funds were to decline below the estimated costs to deliver the underlying
products and services. If that were to occur, we would record a charge to
earnings to reduce the investment value to the expected cost to deliver. Over
time, gains and losses realized in the funds are allocated to underlying
preneed contracts and affect the amount of trust fund earnings we record when
we deliver the underlying product or service. Accordingly, if current market
conditions do not improve, the funds may eventually realize losses, and

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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 2.0
percent to 4.0 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 9 to the consolidated financial
statements, our perpetual care trust fund accounts had net unrealized
depreciation of $29.5 million as of July 31, 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.

Historically, our growth has been primarily from acquisitions. This trend
began to change in late fiscal year 1999. As industry conditions reduced the
number of major consolidators participating in the acquisition market, those
that remained generally applied significantly tighter pricing criteria, and
many potential sellers withdrew their businesses from the market rather than
pursue transactions at lower prices. As the business model shifted, death care
consolidators experienced diminishing access to capital. In response to these
changes, we ceased our acquisition activity and developed strategies for
improving cash flow and reducing and restructuring debt. Throughout fiscal
years 2000, 2001 and 2002, we focused on debt reduction and cash flow. During
fiscal year 2002, we began positioning ourselves for business expansion in
fiscal year 2003.

At the end of the first fiscal quarter of 2003, we announced that several
external factors were impacting us and our industry with regard to recent death
trends, todays economy, consumer confidence and financial markets. Based on
these factors, we revised our outlook for 2003. While we believe that most of
the external factors adversely impacting our business are temporary, through
the first nine months of fiscal year 2003, these factors have continued to
impact our at-need results, preneed sales, trust portfolio performance and
growth strategies.

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
through the first nine months of fiscal year 2003. We expect to eventually see
more normalized mortality trends, and we expect our at-need results to improve
when that occurs. In fact, we began to see more normalized mortality trends
during our third fiscal quarter.

We believe that low levels of consumer confidence can negatively affect
our ability to increase preneed sales. The consumer confidence index reached
10-year lows in February and March of 2003. The index improved in April of
2003 and remained at that level during most of our third fiscal quarter. We
remain cautiously optimistic as we monitor this index and its effect on our
preneed sales organization.

The financial markets were weaker in the early part of our fiscal year and
in May of 2003, have begun improving. The Dow Jones Industrial Average is up
approximately 13 percent this calendar year through August, and in the same
time period, our trust portfolio, including unrealized gains and losses,
increased over 8 percent. Because approximately 50 percent of our total trust
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.

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. In that regard, having achieved substantial
financial goals and other strategic initiatives outlined by management near the
end of fiscal year 2000, we have also announced a set of new operating
initiatives, which have resulted in the creation

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of four task forces to address
the following key areas: growth in the number of funeral events performed,
increased cemetery property sales volume, cost improvements and employee
development initiatives.

Our funeral call volume task force is using our top performing businesses
as a benchmark for the rest of our operations to implement similar successes
throughout the organization. The task force is working directly with the
manager of each location to develop specific proven strategies to grow market
share. Our preneed cemetery property task force is strategically targeting
businesses with maximum potential, and developing specific plans to increase
preneed property sales and attain new customers at each of the targeted
locations. The third key area is to reduce costs, and we have formed a task
force of several key employees who are conducting in-depth reviews of cost
centers outside of their areas of responsibility to assure that all resources
are being effectively utilized without sacrificing our long-term results. The
fourth initiative is to enhance employee satisfaction through professional
growth, which includes the implementation of a mentoring program and succession
plan for the Company including all key employee positions.

We will also 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, or we may consider further reducing our debt
levels. On June 26, 2003, we announced that our Board of Directors approved a
new stock repurchase program that will allow us to invest up to $25.0 million
in repurchases of our Class A common stock. The repurchases are limited to our
Class A common stock and will be made in the open market or in privately
negotiated transactions at such times and in such amounts as management deems
appropriate, depending upon market conditions and other factors. As of
September 2, 2003, we had repurchased 181,500 shares of our Class A common
stock at an average price of $3.95 per share.

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, elimination of the earnings contribution from foreign
operations, redemption of the ROARS and separation pay to former officers 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 July 31, 2003 Compared to Three Months Ended July 31, 2002

Funeral Segment

Three Months EndedJuly 31,Increase2003
    
    2002
    
    (Decrease)(In millions)FUNERAL  OPERATIONS TO BE RETAINEDRevenueExisting operations
    
    $
    72.6
    
    
    $
    72.5
    
    
    $
    .1Opened operations
    
    
    .1
    
    
    
    
    
    
    
    .1$
    72.7
    
    
    $
    72.5
    
    
    $
    .2CostsExisting operations
    
    $
    55.9
    
    
    $
    54.5
    
    
    $
    1.4Opened operations
    
    
    .1
    
    
    
    .1
    
    
    
    $
    56.0
    
    
    $
    54.6
    
    
    $
    1.4Gross ProfitExisting operations
    
    $
    16.7
    
    
    $
    18.0
    
    
    $
    (1.3
    )Opened operations
    
    
    
    
    
    
    (.1
    )
    
    
    .1$
    16.7
    
    
    $
    17.9
    
    
    $
    (1.2
    )FUNERAL  CLOSED AND HELD FOR SALE OPERATIONSRevenue
    
    $
    .8
    
    
    $
    10.7
    
    
    $
    (9.9
    )Costs
    
    
    1.0
    
    
    
    9.8
    
    
    
    (8.8
    )Gross Profit
    
    $
    (.2
    )
    
    $
    .9
    
    
    $
    (1.1
    )Total Funeral Revenue
    
    $
    73.5
    
    
    $
    83.2
    
    
    $
    (9.7
    )Total Funeral Costs
    
    
    57.0
    
    
    
    64.4
    
    
    
    (7.4
    )Total Funeral Gross Profit
    
    $
    16.5
    
    
    $
    18.8
    
    
    $
    (2.3
    )


Total funeral revenue declined $9.7 million in the third 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.

Funeral revenue from Operations to be Retained increased $.2 million, or .3 percent, for the three months ended July 31, 2003, compared to the
corresponding period in 2002. There was a 2.0 percent increase in the average
revenue per funeral service performed by these businesses, partially offset by
a .6 percent decrease (107 events) in the number of funeral services performed.
All of the reduction in calls can be attributed to a few of our low-cost
cremation centers, where our call volumes are primarily price-driven. We
experienced a $.1 million, or .1 percent, increase in funeral revenue from
Existing Operations, primarily due to a 2.1 percent increase in the average
revenue per funeral service performed by these businesses, partially offset by
a .8 percent decrease (141 events) in the number of funeral services performed.
The average revenue per call increases for Operations to be Retained and
Existing Operations were negatively impacted by a reduction in trust earnings
recognized upon the delivery of preneed funerals. The reduction resulted from
lower investment returns realized in our preneed funeral trust funds during the
last few years.

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Funeral gross profit margin from Existing Operations decreased from 24.8
percent in the third quarter of fiscal year 2002 to 23.0 percent in the third
quarter of fiscal year 2003. The decline is primarily due to an increase in
insurance costs combined with reduced trust earnings recognition. The
cremation rate for Existing Operations was 39.2 percent for the quarter ended
July 31, 2003 compared to 38.9 percent for the quarter ended July 31, 2002.

Cemetery Segment

Three Months EndedJuly 31,Increase2003
    
    2002
    
    (Decrease)(In millions)CEMETERY  OPERATIONS TO BE RETAINEDRevenueExisting operations
    
    $
    55.1
    
    
    $
    59.8
    
    
    $
    (4.7
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    55.1
    
    
    $
    59.8
    
    
    $
    (4.7
    )CostsExisting operations
    
    $
    43.7
    
    
    $
    45.0
    
    
    $
    (1.3
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    43.7
    
    
    $
    45.0
    
    
    $
    (1.3
    )Gross ProfitExisting operations
    
    $
    11.4
    
    
    $
    14.8
    
    
    $
    (3.4
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    11.4
    
    
    $
    14.8
    
    
    $
    (3.4
    )CEMETERY  CLOSED AND HELD FOR SALE OPERATIONSRevenue
    
    $
    .2
    
    
    $
    1.2
    
    
    $
    (1.0
    )Costs
    
    
    .2
    
    
    
    1.4
    
    
    
    (1.2
    )Gross Profit
    
    $
    
    
    
    $
    (.2
    )
    
    $
    .2Total Cemetery Revenue
    
    $
    55.3
    
    
    $
    61.0
    
    
    $
    (5.7
    )Total Cemetery Costs
    
    
    43.9
    
    
    
    46.4
    
    
    
    (2.5
    )Total Cemetery Gross Profit
    
    $
    11.4
    
    
    $
    14.6
    
    
    $
    (3.2
    )


Total cemetery revenue decreased $5.7 million, or 9.3 percent, for the
three months ended July 31, 2003, compared to the corresponding period in 2002.
We experienced a $4.7 million, or 7.9 percent, decrease in revenue from
Operations to be Retained, primarily due to a decline in merchandise
deliveries. We believe the decline in the third quarter is due primarily to
the decrease in the number of deaths in our markets in recent prior quarters.
Cemetery merchandise revenue is not recognized until the merchandise is
delivered and installed. Typically, installation of cemetery merchandise
occurs several months after the burial occurs. Thus, a decline in the number
of deaths in one quarter can cause a decline in cemetery merchandise deliveries
in subsequent quarters. In addition to the decline in the volume of
deliveries, the merchandise delivered during the third quarter of 2003 had a
lower value than the merchandise delivered during the third quarter of 2002.
We also experienced a $1.0 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 July 31, 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

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losses, of 4.4 percent in our perpetual care trust funds for the quarter ended July 31,
2003 resulting in revenue of $2.1 million, compared to 4.5 percent for the
corresponding period in 2002 resulting in revenue of $2.1 million.

Cemetery gross profit margin from Existing Operations decreased from 24.7
percent in the third quarter of 2002 to 20.7 percent in the third quarter of
2003. The decline was principally due to increased insurance costs coupled
with the reduction in cemetery revenue as discussed above.

Other

Corporate general and administrative expenses for the three months ended
July 31, 2003 increased $2.9 million compared to the same period in 2002. The
increase is primarily due to a $2.5 million charge for separation pay incurred
in the third quarter of fiscal year 2003 related to two former executive
officers. For additional information, see Note 3 to the consolidated financial
statements.

Depreciation and amortization was $13.3 million for the third quarter of
fiscal year 2003 compared to $14.4 million for the same period in 2002. The
decrease is primarily due to the sale of our foreign operations during 2002.

Interest expense decreased $2.4 million to $13.2 million for the third
quarter of fiscal year 2003 compared to $15.6 million for the same period in
2002. The decrease is primarily due to a $124.7 million decrease in the
average debt outstanding, partially offset by an approximate 50 basis point
increase in the average interest rate during the quarter ended July 31, 2003
compared to the quarter ended July 31, 2002.

As of July 31, 2003 and September 2, 2003, our outstanding debt totaled
$519.5 million and $512.7 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 and recorded a
loss on early extinguishment of debt of $11.3 million as discussed in Note 8 to
the consolidated financial statements. 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. Of the total amount of debt outstanding, including
the portion subject to the interest rate swap agreements in effect as of July
31, 2003, approximately 79 percent was fixed-rate debt, with the remaining 21
percent subject to short-term variable interest rates averaging approximately
4.5 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 September 2, 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 $42.6 million in preneed sales to our funeral and
cemetery merchandise and service backlog during the three months ended July 31,
2003 to be recognized in the future, net of cancellations, as these prepaid
products and services are delivered, compared to $44.1 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 $42.3 million for the
three months ended July 31, 2003, compared to $46.1 million for the
corresponding period in 2002.

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Nine Months Ended July 31, 2003 Compared to Nine Months Ended July 31, 2002

Funeral Segment

Nine Months EndedJuly 31,Increase2003
    
    2002
    
    (Decrease)(In millions)FUNERAL  OPERATIONS TO BE RETAINEDRevenueExisting operations
    
    $
    222.8
    
    
    $
    228.8
    
    
    $
    (6.0
    )Opened operations
    
    
    .3
    
    
    
    .1
    
    
    
    .2$
    223.1
    
    
    $
    228.9
    
    
    $
    (5.8
    )CostsExisting operations
    
    $
    168.5
    
    
    $
    164.0
    
    
    $
    4.5Opened operations
    
    
    .3
    
    
    
    .2
    
    
    
    .1$
    168.8
    
    
    $
    164.2
    
    
    $
    4.6Gross ProfitExisting operations
    
    $
    54.3
    
    
    $
    64.8
    
    
    $
    (10.5
    )Opened operations
    
    
    
    
    
    
    (.1
    )
    
    
    .1$
    54.3
    
    
    $
    64.7
    
    
    $
    (10.4
    )FUNERAL  CLOSED AND HELD FOR SALE OPERATIONSRevenue
    
    $
    2.9
    
    
    $
    40.3
    
    
    $
    (37.4
    )Costs
    
    
    3.0
    
    
    
    34.4
    
    
    
    (31.4
    )Gross Profit
    
    $
    (.1
    )
    
    $
    5.9
    
    
    $
    (6.0
    )Total Funeral Revenue
    
    $
    226.0
    
    
    $
    269.2
    
    
    $
    (43.2
    )Total Funeral Costs
    
    
    171.8
    
    
    
    198.6
    
    
    
    (26.8
    )Total Funeral Gross Profit
    
    $
    54.2
    
    
    $
    70.6
    
    
    $
    (16.4
    )


Total funeral revenue declined $43.2 million for the nine months ended
July 31, 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 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 $5.8 million, or
2.5 percent, for the nine months ended July 31, 2003, compared to the
corresponding period in 2002. There was a 2.8 percent decrease (1,550 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 $6.0 million, or 2.6 percent, decrease in funeral
revenue from Existing Operations primarily due to a 3.0 percent decrease (1,638
events) in the number of funeral services performed, partially offset by a 1.4
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 28.3
percent for the nine months ended July 31, 2002 to 24.4 percent for the
corresponding period in 2003 primarily due to an increase in insurance costs
combined with the decrease in revenue discussed above. The cremation rate for
Existing Operations was 39.2 percent for the nine months ended July 31, 2003,
compared to 38.5 percent for the nine months ended July 31, 2002.

Cemetery Segment

Nine Months EndedJuly 31,Increase2003
    
    2002
    
    (Decrease)(In millions)CEMETERY  OPERATIONS TO BE RETAINEDRevenueExisting operations
    
    $
    166.7
    
    
    $
    175.4
    
    
    $
    (8.7
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    166.7
    
    
    $
    175.4
    
    
    $
    (8.7
    )CostsExisting operations
    
    $
    128.7
    
    
    $
    130.8
    
    
    $
    (2.1
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    128.7
    
    
    $
    130.8
    
    
    $
    (2.1
    )Gross ProfitExisting operations
    
    $
    38.0
    
    
    $
    44.6
    
    
    $
    (6.6
    )Opened operations
    
    
    
    
    
    
    
    
    
    
    $
    38.0
    
    
    $
    44.6
    
    
    $
    (6.6
    )CEMETERY  CLOSED AND HELD FOR SALE OPERATIONSRevenue
    
    $
    .6
    
    
    $
    4.2
    
    
    $
    (3.6
    )Costs
    
    
    .6
    
    
    
    4.9
    
    
    
    (4.3
    )Gross Profit
    
    $
    
    
    
    $
    (.7
    )
    
    $
    .7Total Cemetery Revenue
    
    $
    167.3
    
    
    $
    179.6
    
    
    $
    (12.3
    )Total Cemetery Costs
    
    
    129.3
    
    
    
    135.7
    
    
    
    (6.4
    )Total Cemetery Gross Profit
    
    $
    38.0
    
    
    $
    43.9
    
    
    $
    (5.9
    )


Total cemetery revenue decreased $12.3 million, or 6.8 percent, for the
nine months ended July 31, 2003, compared to the corresponding period in 2002.
We experienced an $8.7 million, or 5.0 percent, decrease in revenue from
Operations to be Retained, primarily due to a decline in merchandise deliveries
and reduced perpetual care trust earnings. We believe the decline in
merchandise deliveries during the first nine months of fiscal year 2003 is due
primarily to the decrease in the number of deaths in our markets in recent
prior quarters. Cemetery merchandise revenue is not recognized until the
merchandise is delivered and installed. Typically, installation of cemetery
merchandise occurs several months after the burial occurs. Thus, a decline in
the number of deaths in one quarter can cause a decline in cemetery merchandise
deliveries in subsequent quarters. In addition to the decline in the volume of
deliveries, the merchandise delivered during the nine months ended July 31,
2003 had a lower value than the merchandise delivered during the comparable
period in 2002. We experienced an annualized average return, excluding
unrealized gains and losses, of 4.4 percent in our perpetual care trust funds
for the nine months ended July 31, 2003 resulting in revenue of $6.1 million,
compared to 5.8 percent for the corresponding period in 2002 resulting in
revenue of $8.3 million. 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.

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Cemetery gross profit margin from Existing Operations decreased from 25.4
percent for the nine months ended July 31, 2002 to 22.8 percent for the
corresponding period in 2003. The decline was principally due to an increase
in insurance costs and the decrease in cemetery revenue as discussed above.

Other

Corporate general and administrative expenses for the nine months ended
July 31, 2003 increased $3.5 million compared to the same period in 2002. The
increase is primarily due to a $2.5 million charge for separation pay incurred
during the third quarter of fiscal year 2003 related to two former executive
officers. For additional information, see Note 3 to the consolidated financial
statements. The increase is also due to expenses related to the Supplemental
Executive Retirement Plan (the Plan). The Plan, which became effective April
30, 2002, 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.

Depreciation and amortization was $40.4 million for the nine months ended
July 31, 2003, compared to $42.4 million for the same period in 2002. The
decrease is primarily due to the sale of our foreign operations in 2002.

Interest expense decreased $8.0 million to $40.4 million for the nine
months ended July 31, 2003, compared to $48.4 million for the same period in
2002. The decrease is primarily due to a $130.3 million decrease in the
average debt outstanding, partially offset by an approximate 40 basis point
increase in the average interest rate during the nine months ended July 31,
2003 compared to the same period in 2002.

Other income, net, increased approximately $1.1 million during the nine
months ended July 31, 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 nine months of 2003. We have approximately $5.4 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 July 31, 2003, our outstanding debt totaled $519.5 million. Our
outstanding debt and the loss on early extinguishment of debt incurred in the
third quarter of fiscal year 2003 are discussed under the heading Three Months
Ended July 31, 2003 Compared to Three Months Ended July 31, 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 $121.7 million in preneed sales to our funeral and
cemetery merchandise and service backlog during the nine months ended July 31,
2003 to be recognized in the future, net of cancellations, as these prepaid
products and services are delivered, compared to $127.0 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 $130.8 million for
the nine months ended July 31, 2003, compared to $136.7 million for the
corresponding period in 2002.

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Liquidity and Capital Resources

Cash Flow

Our operations provided cash of $46.2 million for the nine months ended
July 31, 2003, compared to providing cash of $57.0 million for the
corresponding period in 2002. The decrease in operating cash flow is due
primarily to a reduction in earnings before taxes, an increase in the investment in preneed activity and an increase in
cash used to pay taxes. In the first nine months of 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 and due to benefits
realized related to the sale of our foreign operations. During the first nine
months of 2003, we were required to pay federal taxes. This was partially
offset by a $23.3 million tax refund received related to the sale of our
foreign operations in the first nine months of 2003, compared to an $11.1
million tax refund received related to the sale of our foreign operations for
the comparable period in 2002.

Our investing activities resulted in a net cash outflow of $11.3 million
for the nine months ended July 31, 2003, compared to a net cash inflow of $3.6
million for the comparable period in 2002. The change is primarily due to
proceeds of $18.2 million received from the sale of foreign operations,
domestic funeral home real estate and small domestic operations during the
first nine months of fiscal year 2002 compared to $2.0 million for the
comparable period in 2003. For the nine months ended July 31, 2003, capital
expenditures amounted to $14.0 million, which included $12.9 million for
maintenance capital expenditures and $1.1 million for new growth initiatives.

Our financing activities resulted in a net cash outflow of $43.7 million
for the nine months ended July 31, 2003, compared to a net cash outflow of
$54.0 million for the comparable period in 2002. The change is primarily due
to the $105.0 million in proceeds from long-term debt received in 2003 and the
$12.7 million remarketing right paid 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 $135.8 million in the nine months ended July 31, 2003, compared to
$54.8 million in the comparable period of 2002.

Contractual Obligations and Commercial Commitments

As of July 31, 2003, our outstanding debt balance was $519.5 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 and $50.0
million from our revolving credit facility. We also received $23.3 million in
tax proceeds related to the sale of our foreign operations in the third quarter
of 2003. We used these proceeds and cash on hand to reduce our debt to $512.7
million as of September 2, 2003. The following table details our known future
cash payments (in millions) related to various contractual obligations as of
July 31, 2003.

Payments Due by PeriodFiscal Year
    
    Fiscal Years
    
    Fiscal YearsContractual Obligations
    
    Total
    
    2003
    
    2004  2005
    
    2006  2007
    
    ThereafterCurrent maturities of long-term debt(1)
    
    $
    16.8
    
    
    $
    6.3
    
    
    $
    10.5
    
    
    $
    
    
    
    $
    Long-term debt(1)
    
    
    502.7
    
    
    
    
    
    
    
    121.7
    
    
    
    80.3
    
    
    
    300.7Operating lease agreements(2)
    
    
    38.9
    
    
    
    1.4
    
    
    
    8.2
    
    
    
    5.9
    
    
    
    23.4Non-competition and other agreements(3)
    
    
    16.2
    
    
    
    1.5
    
    
    
    9.1
    
    
    
    3.5
    
    
    
    2.1$
    574.6
    
    
    $
    9.2
    
    
    $
    149.5
    
    
    $
    89.7
    
    
    $
    326.2




---

|(1) |  | See below for a breakdown of our future scheduled principal payments and
maturities of our long-term debt by type as of July 31, 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
July 31, 2003 are $1.4 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. This category also includes
separation pay related to two former executive officers payable over the
next two years.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The following table reflects future scheduled principal payments and
maturities of our long-term debt (in millions) as of July 31, 2003.

Other,PrincipallySellerFiscal
    
    Revolving
    
    
    
    
    
    Senior
    
    
    
    
    
    Financing ofYear Ending
    
    Credit
    
    Term
    
    Subordinated
    
    6.70%
    
    AcquiredOctober 31,
    
    Facility
    
    Loan B
    
    Notes
    
    Public Notes
    
    Operations
    
    Total2003
    
    $
    
    
    
    $
    2.5
    
    
    $
    
    
    
    $
    
    
    
    $
    3.8
    
    
    $
    6.32004
    
    
    
    
    
    
    10.0
    
    
    
    
    
    
    
    .1
    
    
    
    3.9
    
    
    
    14.02005
    
    
    30.0
    
    
    
    86.5
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    118.22006
    
    
    
    
    
    
    79.0
    
    
    
    
    
    
    
    
    
    
    
    .8
    
    
    
    79.82007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .5
    
    
    
    .5Thereafter
    
    
    
    
    
    
    
    
    
    
    300.0
    
    
    
    
    
    
    
    .7
    
    
    
    300.7Total long-term debt
    
    $
    30.0
    
    
    $
    178.0
    
    
    $
    300.0
    
    
    $
    .1
    
    
    $
    11.4
    
    
    $
    519.5




---

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 recorded a charge of $11.3 million
($7.3 million after-tax, or $.07 per share) in the third quarter of fiscal year
2003. 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 July 31,
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 July 31, 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 July 31, 2003 and September 2, 2003, there was $30.0 million drawn
on our $175.0 million revolving credit facility. As of July 31, 2003 and
September 2, 2003, our availability under the revolving credit facility, after
giving consideration to the aforementioned letters of credit, bond obligation
and the required reserve, was $89.7 million.

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 July 31, 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

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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.

Ratio of Earnings to Fixed Charges

Our ratio of earnings to fixed charges was as follows:

Nine MonthsEnded
    
    Years Ended October 31,July 31,2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    19981.64(1)
    
    
    1.75
    (2)
    
    
    
    (3)(4)
    
    
    2.57
    
    
    
    3.43
    (3)
    
    
    2.38
    (5)




---



|(1) |  | Pretax earnings for the nine months ended July 31, 2003 include a charge
of $11.3 million for the loss on early extinguishment of debt in
connection with the redemption of the ROARS.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Pretax earnings for fiscal year 2002 include a noncash charge of $18.5
million in connection with the writedown of assets held for sale.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Excludes the cumulative effect of change in accounting principles.
|--- |  | ------------------------------------------------------------------



|(4) |  | 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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 nine months ended July 31, 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.

Marketable Equity Securities

As of July 31, 2003 and October 31, 2002, our marketable equity securities
subject to market risk consisted principally of investments held by our
prearranged funeral, merchandise and perpetual care trust funds and escrow
accounts and had fair values of $576.7 million and $476.0 million,
respectively, which were determined using final sale prices quoted on stock
exchanges. Each 10 percent change in the average market prices of the equity
securities held in such accounts would result in a change of approximately
$57.7 million and $47.6 million, respectively, in the fair value of such
accounts.

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 in Item 2.

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 ($3.2) million and ($4.0) million as of July
31, 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 $1.0 million and $1.8 million in the fair value of
these instruments as of July 31, 2003 and October 31, 2002, respectively.

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As of July 31, 2003 and October 31, 2002, the carrying values of our Term
Loan B and revolving credit facility, including accrued interest, were $208.0
million and $135.7 million, respectively, compared to fair values of $209.6
million and $136.5 million, respectively. Fair value was determined using
quoted market prices, where applicable, or future cash flows discounted at
rates for similar types of borrowing arrangements. Of the $208.0 million
outstanding under our Term Loan B and revolving credit facility on July 31,
2003, $108.0 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 $.3 million in our pretax earnings. Of the
$135.7 million outstanding under Term Loan B on October 31, 2002, $35.7 million
was not hedged by the interest rate swaps and was subject to short-term
variable interest rates. Each approximate 10 percent, or 60 basis point,
change in the average interest rate applicable to this debt would result in a
change of approximately $.1 million in our pretax earnings.

As of July 31, 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 $314.2 million and
$430.1 million, respectively, compared to fair values of $344.8 million and
$455.8 million, respectively. Fair values were determined using quoted market
prices. For a discussion of the redemption of the ROARS, see Note 8 to the
consolidated financial statements. Each approximate 10 percent change in the
average interest rates applicable to such debt, 80 basis points for July 31,
2003 and October 31, 2002, would result in changes of approximately $8.6
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 July 31, 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 July 31, 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.

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Item 4. Controls and Procedures







We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report. The evaluation was carried out under the supervision of and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Based on the evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective as of the end of the period covered by this report in
timely alerting them to material information relating to the Company, including
its consolidated subsidiaries, required to be included in reports we file with
or submit to the Securities and Exchange Commission under the Securities
Exchange Act of 1934. There have been no changes in our internal control over
financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

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 5. Other Information







Forward-Looking Statements

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, (6) potential results of our new operating initiatives and
(7) 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

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cannot be accurately predicted, may not be realized and are
subject to significant business, economic and competitive uncertainties, all of
which are difficult to predict and many of which are beyond our control.
Accordingly, there can be no assurance that the assumptions made in preparing
the forecasts will prove accurate, and actual results may vary materially from
those contained in the forecasts. For these reasons, the forecasts should not be
regarded as an accurate prediction of future results, but only of results that
may be obtained if substantially all of our principal expectations are
realized.

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

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 and income tax benefits of approximately $245 million. We have
received $229 million of the proceeds including $2 million of tax benefits
realized during the second quarter of 2003 and $23 million of tax refunds
received in the third quarter of 2003. We expect to realize the majority of
the remaining proceeds of approximately $16 million of income tax benefits
during 2004.

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. In that
regard, having achieved substantial financial goals and other strategic
initiatives outlined by management near the end of fiscal year 2000, we have
also announced a set of new operating initiatives, which have resulted in the
creation of four task forces to address the following key areas: growth in the
number of funeral events performed, increased cemetery property sales volume,
cost improvements and employee development initiatives. For a discussion of
these new operating initiatives, see Managements Discussion and Analysis of
Financial Condition and Results of Operations  General included in Item 2.

We will also 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. Our goal is to produce
an internal rate of return on the deployment of our cash of 15 to 20 percent.
At certain levels, we believe our stock represents a better investment at lower
risk than other external growth opportunities. On June 26, 2003, we announced
that our Board of Directors approved a new stock repurchase program that will
allow us to invest up to $25.0 million in repurchases of our Class A common
stock. The repurchases are limited to our Class A common stock and will be
made in the open market or in privately negotiated transactions at such times
and in such amounts as management deems appropriate, depending upon market
conditions and other factors. As of September 2, 2003, we had repurchased
181,500 shares of our Class A common stock at an average price of $3.95 per share.

We project that earnings will be in the low end of the range of $.21 and
$.26 per share for fiscal year 2003, including the ($.07) per share impact from
the redemption of the Remarketable Or Redeemable Securities (ROARS) as
discussed below and the ($.01) per share impact for the separation pay to
former executive officers as discussed below. We expect cash flow from
operations to be between $73 million and $81 million including $23 million in
tax refunds received related to the sale of our foreign operations and
maintenance capital expenditures to be between $15 million and $18 million.

The following factors have impacted fiscal year 2003 financial results:

Reduced Preneed Property Sales

We believe that significant declines in consumer confidence in the
national economy and reduced discretionary spending can place 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. The consumer confidence index reached 10-year lows in
February and March of 2003. The index improved in April of 2003 and remained
at that level during most of

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our third fiscal quarter. We remain cautiously optimistic as we monitor this
possible trend and its effect on our preneed sales organization.

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. Accordingly, our insurance costs
have increased materially in 2003.

Lower Returns on Trust Funds

From 1991 through 1999, we achieved an overall annual realized return of
8.0 percent to 9.0 percent in our trust funds. However, the average realized
return on our domestic trust funds was 5.8 percent, 6.3 percent, 4.3 percent
and 2.3 percent, for fiscal years 2000, 2001, 2002 and the nine months ended
July 31, 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 50
percent of our total trust 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 August of calendar
year 2003 increased over 8 percent. 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 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 through the first
nine months of fiscal year 2003. We had originally projected deaths in our
markets to increase slightly from the prior year. Based on our actual results
in the first nine months of 2003, we are projecting deaths to be down slightly
from the prior year.

Reduced Interest Costs

Interest expense has decreased as a result of a reduction in our average
debt balance.

Elimination of earnings contribution from foreign operations

Earnings have decreased 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) was substantially offset by interest
expense savings resulting from the use of proceeds from these sales to reduce
our average debt balance.

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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 recorded a charge of $11.3
million ($7.3 million after-tax, or $.07 per share) in the third quarter of
fiscal year 2003.

Separation Pay to Former Officers

In July of 2003, we incurred a charge to corporate general and
administrative expense of $2.5 million ($1.5 million after-tax, or $.01 per
share) for separation pay related to two former executive officers.

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 2.0 percent to 4.0 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

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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 nine months of 2003, and we can give no
assurance that we will be successful in doing so for the remainder of 2003.

Insurance costs, in particular, have increased substantially in 2003. The
terrorist attacks in the United States on September 11, 2001 and related
subsequent events have resulted in higher insurance premiums. The volume of
claims made in such a short span of time resulted in liquidity challenges that
many insurers have passed on to their policyholders. Additionally, insurers
have increased premiums to offset losses in equity markets due to recent
economic conditions. While our insurance costs have increased 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 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 service our debt depends upon our ability to generate
sufficient cash. We expect to be able to reduce our debt with approximately
$16 million of remaining income tax benefits relating to the sale of our
foreign operations, the majority of which we expect to receive during 2004.
Our ability to receive the expected income tax benefits within our expected
time frame 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 flows 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.

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

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

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

Our funeral home and cemetery operations generally face intense
competition in local markets that typically are served by numerous funeral
homes and cemetery firms. We have historically experienced price competition
primarily from independent funeral home and cemetery operators, and from
monument dealers, casket retailers, low-cost funeral providers and other
non-traditional providers of services or products. In the past, this price
competition has resulted in losing market share in some markets. In other
markets, we have had to reduce prices thereby reducing profit margins in order
to retain or recapture market share. Increased price competition in the future
could further reduce revenues, profit margins and the backlog and potentially
impact our annual goodwill impairment analysis.

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 September 2, 2003, $203.0 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.

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

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

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

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

Risks Related to the Death Care Industry

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

Declines in the number of deaths could cause at-need sales of funeral and
cemetery services, property and merchandise to decline, which could decrease
revenues. Although the United States Bureau of the Census estimates that the
number of deaths in the United States will increase by approximately 1 percent
per year from 2000 to 2010, longer lifespans could reduce the rate of deaths.
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 Centers for Disease Control and
Prevention (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

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market share to firms specializing in cremations. In addition, basic
cremations produce no revenues for cemetery operations and lesser funeral
revenues and, in certain cases, lesser profit margins than traditional
funerals.

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

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

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

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

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

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

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

In addition, from time to time, governments and agencies propose to amend
or add regulations, which could increase costs or decrease cash flows. For
example, federal, state, local and other regulatory agencies have considered
and may enact additional legislation or regulations that could affect the death
care industry. In November 2002, the Federal Death Care Inspection and
Disclosure Act was introduced in the Senate, which, if adopted, would more
heavily regulate the death care industry and could result in an increase in our
costs. Several states and regulatory agencies have considered or are
considering regulations that could require more liberal refund and cancellation
policies for preneed sales of products and services, limit or eliminate our
ability to use surety bonding, increase trust requirements and prohibit the
common ownership of funeral homes and cemeteries in the same market. If
adopted by the regulatory authorities of the jurisdictions in which we operate,
these and other possible proposals could have a material adverse effect on us, our financial condition, our
results of operations, our cash flows 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 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 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 stock4.2
    
    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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10.1
    
    Retirement Benefits Agreement dated June 20, 2003 between the Company and
Frank B. Stewart, Jr.10.2
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Randall L. Stricklin10.3
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and G. Kenneth Stephens, Jr.10.4
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Michael K. Crane10.5
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Everett N. Kendrick12
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of William
E. Rowe, President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
Kenneth C. Budde, Executive Vice President and Chief Financial Officer32
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
William E. Rowe, President and Chief Executive Officer, and Kenneth C.
Budde, Executive Vice President and Chief Financial Officer


(b)   Reports on Form 8-K

We filed a Form 8-K dated May 1, 2003, reporting under Item 5. Other Events,
Item 7. Financial Statements and Exhibits, and Item 9. Regulation FD
Disclosure (Information Provided Under Item 12), the announcement of the
refinancing of our Remarketable Or Redeemable Securities and an amendment to
our Credit Agreement dated April 25, 2003.

We filed a Form 8-K dated June 10, 2003, reporting under Item 7. Financial
Statements and Exhibits, and under Item 9. Regulation FD Disclosure
(Information Provided under Item 12), the earnings release for the quarter
ended April 30, 2003 and our forecasts for fiscal year 2003.

We filed a Form 8-K dated June 10, 2003, reporting under Item 5. Other
Events, the announcement of management changes.

We filed a Form 8-K dated June 26, 2003, reporting under Item 5. Other
Events, the announcement of a stock repurchase program.



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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.September 9, 2003
    
    /s/ KENNETH C. BUDDEKenneth C. Budde
Executive Vice President
Chief Financial OfficerSeptember 9, 2003
    
    /s/ MICHAEL G. HYMELMichael G. Hymel
Vice President
Corporate Controller
Chief Accounting Officer


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INDEX TO EXHIBITS

EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended
and restated as of May 7, 2003 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 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 stock4.2
    
    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)10.1
    
    Retirement Benefits Agreement dated June 20, 2003 between the Company and
Frank B. Stewart, Jr.10.2
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Randall L. Stricklin10.3
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and G. Kenneth Stephens, Jr.10.4
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Michael K. Crane10.5
    
    Second Supplement to Appendix A to Employment Agreement dated June 25,
2003 between the Company and Everett N. Kendrick12
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of William
E. Rowe, President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
Kenneth C. Budde, Executive Vice President and Chief Financial Officer32
    
    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