##### Table of Contents



---

---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-Q

|      |  |                                                                                          | 
|----- |  | ---------------------------------------------------------------------------------------- | 
|(X)   |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|      |  | For the quarterly period ended January 31, 2003                                         
|OR   
|(   ) |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|      |  | For the transition period from to                                                       



---

Commission File Number: 0-19508



---

STEWART ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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 March 6, 2003, was 104,797,103 and 3,555,020, respectively.



---

---





---

TABLE OF CONTENTS



|                                                                                      |                                                                    |                                                |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------- |  |  |  |  |  | 
|                                                                                      |                                                                    | 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    
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                      | Item 3. Quantitative and Qualitative Disclosures About Market Risk
|PART II. OTHER INFORMATION                                                           
|                                                                                      | Item 1. Legal Proceedings                                         
|                                                                                      | Item 5. Other Information                                         
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K                          
|SIGNATURES                                                                           
|Certifications Required by Rule 13a-14 under the Securities Exchange Act of 1934     
|Certifications Required by Rule 13a-14 under the Securities Exchange Act of 1934     
|EX-12 Ratio of Earnings to Fixed Charges                                             



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

INDEX

|         |  |                       |  |                                                                                               |  |      |    | 
|-------- |  | --------------------- |  | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                       |  |                                                                                               |  | Page
|Part I.  |  | Financial Information |  |                                                                                               |  |     
|         |  |                       |  | Item 1. Financial Statements (Unaudited)                                                      |  |      |    | 
|         |  |                       |  | Consolidated Statements of Earnings 
Three Months Ended January 31, 2003 and 2002            |  |      | 3  | 
|         |  |                       |  | Consolidated Balance Sheets 
January 31, 2003 and October 31, 2002                           |  |      | 4  | 
|         |  |                       |  | Consolidated Statement of Shareholders Equity 
Three Months Ended January 31, 2003          |  |      | 6  | 
|         |  |                       |  | Consolidated Statements of Cash Flows 
Three Months Ended January 31, 2003 and 2002          |  |      | 7  | 
|         |  |                       |  | Notes to Consolidated Financial Statements                                                    |  |      | 8  | 
|         |  |                       |  | Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |  |      | 29 | 
|         |  |                       |  | Item 3. Quantitative and Qualitative Disclosures

About Market Risk                           |  |      | 40 | 
|         |  |                       |  | Item 4. Controls and Procedures                                                               |  |      | 41 | 
|Part II. |  | Other Information     |  |                                                                                               |  |     
|         |  |                       |  | Item 1. Legal Proceedings                                                                     |  |      | 42 | 
|         |  |                       |  | Item 5. Other Information                                                                     |  |      | 42 | 
|         |  |                       |  | Item 6. Exhibits and Reports on Form 8-K                                                      |  |      | 50 | 
|         |  |                       |  | Signatures                                                                                    |  |      | 52 | 
|         |  |                       |  | Certifications                                                                                |  |      | 53 | 

2



---



##### Table of Contents






STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

|                                                           |                              |  |                                |         |      |  |         |         | 
|---------------------------------------------------------- | ---------------------------- |  | ------------------------------ | ------- | ---- |  | ------- | ------- | 
|                                                           |                              |  | Three Months Ended January 31,
|                                                           |                              |  |                               
|                                                           |                              |  | 2003                           |         | 2002
|                                                           |                              |  |                                |         |     
|Revenues:                                                  |                              |  |                                |         |      |  |         |        
|                                                           | Funeral                      |  | $                              | 76,736  |      |  | $       | 95,083  | 
|                                                           | Cemetery                     |  |                                | 54,481  |      |  |         | 58,486  | 
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           |                              |  | 131,217                        |         |      |  | 153,569 |        
|                                                           |                              |  |                                |         |      |  |         |         | 
|Costs and expenses:                                        |                              |  |                                |         |      |  |         |        
|                                                           | Funeral                      |  |                                | 57,626  |      |  |         | 68,625  | 
|                                                           | Cemetery                     |  |                                | 42,208  |      |  |         | 43,968  | 
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           |                              |  | 99,834                         |         |      |  | 112,593 |        
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           | Gross profit                 |  |                                | 31,383  |      |  |         | 40,976  | 
|Corporate general and administrative expenses              |                              |  | 4,300                          |         |      |  | 3,770   |        
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           | Operating earnings           |  |                                | 27,083  |      |  |         | 37,206  | 
|Interest expense                                           |                              |  | (13,577                        | )       |      |  | (16,970 | )      
|Investment income                                          |                              |  | 87                             |         |      |  | 124     |        
|Other income, net                                          |                              |  | 1,685                          |         |      |  | 80      |        
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           | Earnings before income taxes |  |                                | 15,278  |      |  |         | 20,440  | 
|Income taxes                                               |                              |  | 5,805                          |         |      |  | 7,767   |        
|                                                           |                              |  |                                |         |      |  |         |         | 
|                                                           | Net earnings                 |  | $                              | 9,473   |      |  | $       | 12,673  | 
|                                                           |                              |  |                                |         |      |  |         |        
|Net earnings per common share:                             |                              |  |                                |         |      |  |         |        
|                                                           | Basic                        |  | $                              | .09     |      |  | $       | .12     | 
|                                                           |                              |  |                                |         |      |  |         |        
|                                                           | Diluted                      |  | $                              | .09     |      |  | $       | .12     | 
|                                                           |                              |  |                                |         |      |  |         |        
|Weighted average common shares outstanding (in thousands): |                              |  |                                |         |      |  |         |        
|                                                           | Basic                        |  |                                | 108,043 |      |  |         | 107,639 | 
|                                                           |                              |  |                                |         |      |  |         |        
|                                                           | Diluted                      |  |                                | 108,320 |      |  |         | 108,258 | 
|                                                           |                              |  |                                |         |      |  |         |        

See accompanying notes to consolidated financial statements.

3



---



##### Table of Contents






STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

|                                                   |                                      |                      |           |             |           |             |           |         |           | 
|-------------------------------------------------- | ------------------------------------ | -------------------- | --------- | ----------- | --------- | ----------- | --------- | ------- | --------- | 
|                                                   |                                      |                      |           | January 31, |           | October 31,
|ASSETS                                             |                                      | 2003                 |           | 2002       
|                                                   |                                      |                      |           |            
|Current assets:                                    |                                      |                      |           |             |           |             |           |        
|                                                   | Cash and cash equivalent investments |                      | $         | 17,009      |           |             | $         | 28,190  |          
|                                                   | Marketable securities                |                      |           | 2,666       |           |             |           | 2,588   |          
|                                                   | Receivables, net of allowances       |                      |           | 89,581      |           |             |           | 86,827  |          
|                                                   | Inventories                          |                      |           | 42,982      |           |             |           | 41,666  |          
|                                                   | Prepaid expenses                     |                      |           | 2,199       |           |             |           | 2,815   |          
|                                                   | Deferred income taxes, net           |                      |           | 1,320       |           |             |           | 1,348   |          
|                                                   | Assets held for sale (Note 7)        |                      |           | 5,481       |           |             |           | 8,966   |          
|                                                   |                                      |                      |           |             |           |             |           |         |          
|                                                   |                                      | Total current assets |           |             | 161,238   |             |           |         | 172,400   | 
|Receivables due beyond one year, net of allowances |                                      |                      | 76,131    |             |           |             | 76,653    |        
|Prearranged receivables, net                       |                                      |                      | 1,195,873 |             |           |             | 1,200,914 |        
|Goodwill                                           |                                      |                      | 491,323   |             |           |             | 491,323   |        
|Deferred charges                                   |                                      |                      | 252,419   |             |           |             | 253,083   |        
|Cemetery property, at cost                         |                                      |                      | 387,960   |             |           |             | 388,065   |        
|Property and equipment, at cost:                   |                                      |                      |           |             |           |             |           |        
|                                                   | Land                                 |                      |           | 44,132      |           |             |           | 44,402  |          
|                                                   | Buildings                            |                      |           | 304,931     |           |             |           | 304,125 |          
|                                                   | Equipment and other                  |                      |           | 154,819     |           |             |           | 154,389 |          
|                                                   |                                      |                      |           |             |           |             |           |         |          
|                                                   |                                      |                      | 503,882   |             |           |             | 502,916   |        
|                                                   | Less accumulated depreciation        |                      |           | 173,153     |           |             |           | 168,600 |          
|                                                   |                                      |                      |           |             |           |             |           |         |          
|                                                   | Net property and equipment           |                      |           | 330,729     |           |             |           | 334,316 |          
|Deferred income taxes, net                         |                                      |                      | 89,988    |             |           |             | 95,794    |        
|Other assets                                       |                                      |                      | 3,050     |             |           |             | 3,036     |        
|                                                   |                                      |                      |           |             |           |             |           |         |          
|                                                   |                                      | Total assets         |           | $           | 2,988,711 |             |           | $       | 3,015,584 | 
|                                                   |                                      |                      |           |             |           |             |           |         |          

(continued)

4



---



##### Table of Contents






STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |             |           |           |         | 
|--------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------------- | --------- | ----------- | --------- | ----------- | --------- | --------- | ------- | 
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           | January 31, |           | October 31,
|LIABILITIES AND SHAREHOLDERS' EQUITY    |                                                                                 | 2003                                                                                                                                                                                          |                                            | 2002                      
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                           
|Current liabilities:                    |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        | Current maturities of long-term debt                                            |                                                                                                                                                                                               | $                                          | 6,645                      |           |             | $         | 6,689       |          
|                                        | Accounts payable                                                                |                                                                                                                                                                                               |                                            | 8,493                      |           |             |           | 11,113      |          
|                                        | Accrued payroll                                                                 |                                                                                                                                                                                               |                                            | 7,588                      |           |             |           | 13,903      |          
|                                        | Accrued insurance                                                               |                                                                                                                                                                                               |                                            | 15,760                     |           |             |           | 14,764      |          
|                                        | Accrued interest                                                                |                                                                                                                                                                                               |                                            | 4,787                      |           |             |           | 14,642      |          
|                                        | Accrued other                                                                   |                                                                                                                                                                                               |                                            | 9,109                      |           |             |           | 10,978      |          
|                                        | Liabilities associated with assets held for sale (Note 7)                       |                                                                                                                                                                                               |                                            | 2,153                      |           |             |           | 2,911       |          
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        |                                                                                 | Total current liabilities                                                                                                                                                                     |                                            |                            | 54,535    |             |           |             | 75,000    |          
|Long-term debt, less current maturities |                                                                                 |                                                                                                                                                                                               | 542,550                                    |                            |           |             | 545,255   |            
|Prearranged deferred revenue, net       |                                                                                 |                                                                                                                                                                                               | 1,547,479                                  |                            |           |             | 1,561,533 |            
|Other long-term liabilities             |                                                                                 |                                                                                                                                                                                               | 22,009                                     |                            |           |             | 21,533    |            
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        |                                                                                 | Total liabilities                                                                                                                                                                             |                                            |                            | 2,166,573 |             |           |             | 2,203,321 |          
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|Commitments and contingencies (Note 3)  |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|Shareholders equity:                   |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        | Preferred stock, $1.00 par value, 5,000,000 shares authorized;
no shares issued |                                                                                                                                                                                               |                                            |                           |           |             |           |            |          
|                                        | Common stock, $1.00 stated value:                                               |                                                                                                                                                                                               |                                            |                            |           |             |           |             |          
|                                        |                                                                                 | Class A authorized 150,000,000 shares; issued and outstanding 104,533,816
and 104,469,572 shares at January 31, 2003
and October 31, 2002, respectively                                       |                                            |                            | 104,534   |             |           |             | 104,470   |          
|                                        |                                                                                 | Class B authorized 5,000,000 shares; issued and outstanding
3,555,020 shares at January 31, 2003 and October 31, 2002; 10 votes
per share; convertible into an equal number of
Class A shares |                                            |                            | 3,555     |             |           |             | 3,555     |          
|                                        | Additional paid-in capital                                                      |                                                                                                                                                                                               |                                            | 677,336                    |           |             |           | 677,087     |          
|                                        | Retained earnings                                                               |                                                                                                                                                                                               |                                            | 40,077                     |           |             |           | 30,604      |          
|                                        | Accumulated other comprehensive loss:                                           |                                                                                                                                                                                               |                                            |                            |           |             |           |             |          
|                                        |                                                                                 | Unrealized depreciation of investments                                                                                                                                                        |                                            |                            | (921      | )           |           |             | (965      | )        
|                                        |                                                                                 | Derivative financial instrument losses                                                                                                                                                        |                                            |                            | (2,443    | )           |           |             | (2,488    | )        
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        |                                                                                 |                                                                                                                                                                                               | Total accumulated other comprehensive loss |                            |           | (3,364      | )         |             |           | (3,453    | )      
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        |                                                                                 |                                                                                                                                                                                               |                                            | Total shareholders equity |           |             | 822,138   |             |           |           | 812,263 | 
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            
|                                        |                                                                                 |                                                                                                                                                                                               | Total liabilities and shareholders equity |                            | $         | 2,988,711   |           |             | $         | 3,015,584 |        
|                                        |                                                                                 |                                                                                                                                                                                               |                                            |                            |           |             |           |            

See accompanying notes to consolidated financial statements.

5



---



##### Table of Contents






STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)

|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |       |  
|------------------------ | --------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | - | ------- | - | ---------- | - | ----------- | - | -------------- | ----- | -------------- | - | ------------ | --- | ---------- | - | ------ | --- | - | - | ------- | ----- | -
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   | Unrealized   |     |            |   |        |     |   |   |        
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   | Appreciation |     | Derivative |   |        |     |  
|                         |                                                                                                                                         |   |           |   |         |   | Additional |   |             |   |                |       | (Depreciation) |   | Financial    |     | Total     
|                         |                                                                                                                                         |   | Common    |   | Paid-In |   | Retained   |   | of          |   | Instrument     |       | Shareholders' 
|                         |                                                                                                                                         |   | Stock (1) |   | Capital |   | Earnings   |   | Investments |   | Gains (Losses) |       | Equity        
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |               
|Balance October 31, 2002 |                                                                                                                                         | $ | 108,025   |   |         | $ | 677,087    |   |             | $ | 30,604         |       |                | $ | (965         | )   |            | $ | (2,488 | )   |   | $ | 812,263 |      
|Comprehensive income:    |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |      
|                         | Net earnings                                                                                                                            |   |           |   |         |   |            |   |             |   |                | 9,473 |                |   |              |     |            |   |        |     |   |   |         | 9,473 |  
|                         | Other comprehensive income:                                                                                                             |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |       |  
|                         | Unrealized appreciation of
investments                                                                                                  |   |           |   |         |   |            |   |             |   |                |       |                |   |              | 72  |            |   |        |     |   |   |         | 72    |  
|                         | Deferred income tax expense
on unrealized appreciation
of investments                                                                   |   |           |   |         |   |            |   |             |   |                |       |                |   |              | (28 | )          |   |        |     |   |   |         | (28   | )
|                         | Unrealized appreciation on
derivative instrument
designated and qualifying as
a cash flow hedging
instrument                            |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        | 73  |   |   |         | 73    |  
|                         | Net deferred income tax on
unrealized appreciation on
derivative instrument
designated and qualifying
as a cash flow hedging
instrument |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        | (28 | ) |   |         | (28   | )
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |      
|                         | Total other comprehensive
income                                                                                                        |   |           |  |         |   |            |  |             |   |                |      |                |   |              | 44  |            |   |        | 45  |   |   |         | 89    |  
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |      
|                         | Total comprehensive
income                                                                                                              |   |           |  |         |   |            |  |             |   |                | 9,473 |                |   |              | 44  |            |   |        | 45  |   |   |         | 9,562 |  
|Issuance of common stock |                                                                                                                                         |   | 64        |   |         |   | 249        |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   | 313     |      
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |      
|Balance January 31, 2003 |                                                                                                                                         | $ | 108,089   |   |         | $ | 677,336    |   |             | $ | 40,077         |       |                | $ | (921         | )   |            | $ | (2,443 | )   |   | $ | 822,138 |      
|                         |                                                                                                                                         |   |           |   |         |   |            |   |             |   |                |       |                |   |              |     |            |   |        |     |   |   |         |      



---

|(1) |  | Amount includes 104,534 and 104,470 shares (in thousands) of common stock with a stated value of $1 per share as of January 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.

6



---



##### Table of Contents






STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |         |  
|----------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------- | ------- | ------------------------------ | ------- | ---- | ------ | ------ | ------- | -
|                                                      |                                                                                 |                                                   |         | Three Months Ended January 31,
|                                                      |                                                                                 |                                                   |         |                               
|                                                      |                                                                                 |                                                   |         | 2003                           |         | 2002
|                                                      |                                                                                 |                                                   |         |                                |         |     
|Cash flows from operating activities:                 |                                                                                 |                                                   |         |                                |         |      |        |       
|                                                      | Net earnings                                                                    |                                                   | $       | 9,473                          |         |      | $      | 12,673 |        
|                                                      | Adjustments to reconcile net earnings to net cash
used in operating activities: |                                                   |         |                                |         |      |        |        |        
|                                                      | Depreciation and amortization                                                   |                                                   |         | 13,436                         |         |      |        | 13,441 |        
|                                                      | Provision for doubtful accounts                                                 |                                                   |         | 2,009                          |         |      |        | 2,667  |        
|                                                      | Net loss realized on marketable securities                                      |                                                   |         |                               |         |      |        | 485    |        
|                                                      | Net gains on sale of assets                                                     |                                                   |         | (1,038                         | )       |      |        |       |        
|                                                      | Provision for deferred income taxes                                             |                                                   |         | 5,777                          |         |      |        | 6,050  |        
|                                                      | Changes in assets and liabilities:                                              |                                                   |         |                                |         |      |        |        |        
|                                                      |                                                                                 | Increase in receivables                           |         |                                | (4,507  | )    |        |        | (3,383  | )
|                                                      |                                                                                 | Decrease in other deferred charges                |         |                                | 1,606   |      |        |        | 1,311   |  
|                                                      |                                                                                 | Increase in inventories and cemetery property     |         |                                | (180    | )    |        |        | (1,298  | )
|                                                      |                                                                                 | Decrease in accounts payable and accrued expenses |         |                                | (19,401 | )    |        |        | (19,193 | )
|                                                      |                                                                                 | Change in prearranged activity                    |         |                                | (7,962  | )    |        |        | (7,489  | )
|                                                      |                                                                                 | Prearranged acquisition costs                     |         |                                | (8,019  | )    |        |        | (7,229  | )
|                                                      |                                                                                 | Increase (decrease) in other                      |         |                                | 1,122   |      |        |        | (78     | )
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|                                                      |                                                                                 | Net cash used in operating activities             |         |                                | (7,684  | )    |        |        | (2,043  | )
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|Cash flows from investing activities:                 |                                                                                 |                                                   |         |                                |         |      |        |       
|                                                      | Proceeds from sale of assets, net                                               |                                                   |         | 1,830                          |         |      |        | 1,794  |        
|                                                      | Additions to property and equipment                                             |                                                   |         | (3,052                         | )       |      |        | (2,582 | )      
|                                                      | Other                                                                           |                                                   |         | 94                             |         |      |        | (259   | )      
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|                                                      |                                                                                 | Net cash used in investing activities             |         |                                | (1,128  | )    |        |        | (1,047  | )
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|Cash flows from financing activities:                 |                                                                                 |                                                   |         |                                |         |      |        |       
|                                                      | Repayments of long-term debt                                                    |                                                   |         | (2,682                         | )       |      |        | (3,475 | )      
|                                                      | Issuance of common stock                                                        |                                                   |         | 313                            |         |      |        | 336    |        
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|                                                      |                                                                                 | Net cash used in financing activities             |         |                                | (2,369  | )    |        |        | (3,139  | )
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|Effect of exchange rates on cash and cash equivalents |                                                                                 |                                                   |        |                                |         |      | (599   | )     
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|Net decrease in cash                                  |                                                                                 |                                                   | (11,181 | )                              |         |      | (6,828 | )     
|Cash and cash equivalents, beginning of period        |                                                                                 |                                                   | 28,190  |                                |         |      | 23,123 |       
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |        |        
|Cash and cash equivalents, end of period              |                                                                                 | $                                                 | 17,009  |                                |         | $    | 16,295 |       
|                                                      |                                                                                 |                                                   |         |                                |         |      |        |       
|Supplemental cash flow information:                   |                                                                                 |                                                   |         |                                |         |      |        |       
|                                                      | Cash paid during the period for:                                                |                                                   |         |                                |         |      |        |        |        
|                                                      |                                                                                 | Income taxes                                      |         | $                              | 25      |      |        | $      | 100     |  
|                                                      |                                                                                 | Interest                                          |         | $                              | 21,900  |      |        | $      | 25,400  |  

See accompanying notes to consolidated financial statements.

7



---



##### 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 range 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 January 31, 2003, the Company owned and operated 302 funeral homes
and 149 cemeteries in 29 states within the United States and Puerto Rico. In
fiscal year 2001, the Company sold its operations in Mexico, Australia, New
Zealand, Belgium and the Netherlands, which consisted of 94 funeral homes and 2
cemeteries. In fiscal year 2002, the Company sold its remaining foreign
operations in Spain, Portugal, France, Canada and Argentina, which consisted of
196 funeral homes and 8 cemeteries.

(b)  Principles of Consolidation

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

(c)  Interim Disclosures

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

(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

8



---



##### 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)

could realize in a current market. The use of different market assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.

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

(f)  Prearranged Trust Receivable and Prearranged Deferred Revenue

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

(h)  Depreciation and Amortization

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.

9



---



##### 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)

(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 period until they were sold. The
resulting translation adjustments were reflected in a separate component of
shareholders equity. As discussed in Note 7, at the time of sale, the Company
realized comprehensive income and an increase to shareholders equity for the
cumulative foreign currency translation adjustments related to the sale of the
Companys operations in Mexico, Australia, New Zealand, Belgium and the
Netherlands in 2001 and Spain, Portugal, France, Canada and Argentina in 2002.

In the first quarter of 2002, the Company recorded a $6,215 cumulative
foreign translation adjustment related to its operations in Argentina. In
previous years, the Argentine peso was valued at a one-to-one ratio with the
U.S. dollar, and no foreign currency translation adjustment related to the
Companys operations in Argentina was necessary. Due to the depressed
economic conditions existing in Argentina, the Argentine peso had significantly
devalued, which necessitated the need for an adjustment.

(j)  Stock-Based Compensation

At January 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 and net
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation using the
Black-Scholes option pricing methodology.

|                                                                                                     |                       |   |                                |     |      |   |        |     | 
|---------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------------------ | --- | ---- | - | ------ | --- | 
|                                                                                                     |                       |   | Three Months Ended January 31,
|                                                                                                     |                       |   |                               
|                                                                                                     |                       |   | 2003                           |     | 2002
|                                                                                                     |                       |   |                                |     |     
|Net earnings                                                                                         |                       | $ | 9,473                          |     |      | $ | 12,673 |    
|Total stock-based employee compensation expense determined
under fair value-based method, net of tax |                       |   | (727                           | )   |      |   | (1,216 | )  
|                                                                                                     |                       |   |                                |     |      |   |        |    
|Pro forma net earnings                                                                               |                       | $ | 8,746                          |     |      | $ | 11,457 |    
|                                                                                                     |                       |   |                                |     |      |   |        |    
|Net earnings per common share:                                                                       |                       |   |                                |     |      |   |        |    
|                                                                                                     | Basic  as reported   |   | $                              | .09 |      |   | $      | .12 | 
|                                                                                                     |                       |   |                                |     |      |   |        |    
|                                                                                                     | Basic  pro forma     |   | $                              | .08 |      |   | $      | .11 | 
|                                                                                                     |                       |   |                                |     |      |   |        |    
|                                                                                                     | Diluted  as reported |   | $                              | .09 |      |   | $      | .12 | 
|                                                                                                     |                       |   |                                |     |      |   |        |    
|                                                                                                     | Diluted  pro forma   |   | $                              | .08 |      |   | $      | .11 | 
|                                                                                                     |                       |   |                                |     |      |   |        |    

10



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation(Continued)

(k)  Funeral Revenue

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

Commissions and other direct costs that vary with and are primarily
related to the acquisition of new prearranged funeral services and prearranged
funeral merchandise sales are deferred and amortized as the funeral 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 sheet
until the underlying merchandise is delivered. Principal and earnings are
withdrawn only as the merchandise and services are delivered or contracts are
cancelled.

11



---



##### 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)

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 have 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 and operating losses and
tax credit carry forwards. 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.

(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

12



---



##### 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)

of derivatives. The amounts exchanged are calculated based upon the notional
amounts as well as other terms of the instruments, such as interest rates,
exchange rates or other indices. In accordance with SFAS No. 133, the Company
accounts for its interest rate swaps as cash flow hedges whereby the fair value
of the interest rate swaps are reflected as a liability in the accompanying
consolidated balance sheet with the offset recorded to other comprehensive
income.

(q)  Reclassifications

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

(2) Change in Accounting Principles

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

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

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

Impairment losses recognized as a result of an impairment test occurring
subsequent to the first six months after adoption will be included in operating
income. Goodwill of a reporting unit must be tested for impairment after the
initial adoption of the statement on an annual basis and between annual tests
if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount.

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

13



---



##### 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)

(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. SFAS
No. 143 is effective for financial statements for fiscal years beginning after
June 15, 2002,
although early application is encouraged. The implementation of SFAS No. 143
in fiscal year 2003 will have 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 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. Because SFAS No.
121 did not address the accounting for a segment of a business accounted for as
a discontinued operation under APB Opinion No. 30, two accounting models
existed for long-lived assets to be disposed. The FASB decided to establish a
single accounting model, based on the framework established in SFAS No. 121,
for long-lived assets to be disposed of by sale. The FASB also decided to
resolve significant implementation issues related to SFAS No. 121. The
provisions of the statement are effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early application encouraged. The provisions of this
statement generally are to be applied prospectively. The adoption of SFAS No.
144 had no impact on the Companys financial condition or results of
operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. With the rescission of FASB Statements No. 4 and 64, only gains
and losses from extinguishments of debt meeting the criteria in APB Opinion No.
30 would be classified as extraordinary items. Applying the provisions of APB
Opinion No. 30 will distinguish transactions that are part of an entitys
recurring operations from those that are unusual or infrequent or that meet the
criteria for classification as an extraordinary item. This statement also
rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor
Carriers. This statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under

14



---



##### 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)

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 net earnings.

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.
Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the
date of an entitys commitment to an exit plan. The FASB
reached the conclusion that an entitys commitment to a plan, by itself, does
not create a present obligation to others that meets the definition of a
liability. Therefore, this statement eliminates the definition and
requirements for recognition of
exit costs in EITF Issue No. 94-3. This statement also establishes that fair
value is the objective for initial measurement
of the liability. The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS No. 146 had no impact on the
Companys financial condition or results of operations.

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

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

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an Amendment of FASB
Statement No. 123, to provide alternative methods of transition for a
voluntary change to the fair value-based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on

15



---



##### 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)

reported results. This statement also requires that those effects be disclosed
more prominently by specifying the form, content and location of those
disclosures. SFAS No. 148 improves the prominence and clarity of the pro forma
disclosures required by SFAS No. 123 by prescribing a specific tabular format
and by requiring disclosure in the Summary of Significant Accounting Policies
or its equivalent. In addition, this statement improves the timeliness of
those disclosures by requiring their inclusion in financial reports for interim
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 months
ended January 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 in the process of determining what impact, if any, the adoption
of the provisions of FIN 46 will have on its accounting for its trust funds and
escrow accounts.

(3) Contingencies

As discussed in the Companys Forward-Looking Statements included in
Part II, Item 5, management is currently considering recommending to the
Companys Board of Directors that the Company redeem the 6.40 percent
Remarketable Or Redeemable Securities (ROARS) as an alternative to allowing
them to be remarketed on May 1, 2003. If the Company elects to redeem the
ROARS, the Company will be required to pay the remarketing dealer an amount
equal to the contractually specified value of the remarketing right, which
varies based on the 10-year Treasury rate, and will result in a charge to
earnings that could be material. Based on the 10-year Treasury rate on March
5, 2003, the value of the remarketing right was $14,756.

The Companys senior secured credit facility contains financial covenants
including a maximum leverage ratio, a minimum fixed charge coverage ratio and
a minimum interest coverage ratio. The covenants are calculated quarterly on a
consolidated basis for the four quarter period ending on the date of
computation after giving pro forma effect to permitted asset dispositions and
acquisitions. Because payment of the value of the remarketing right would
cause the Company to be in violation of these covenants, the Company would be
required to obtain a waiver of these covenants prior to making the payment.

16



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3) Contingencies(Continued)

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

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

(4) Reconciliation of Basic and Diluted Per Share Data

|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |     | 
|----------------------------------- | ---------------------------------------------------------------------------------------- | - | ----------- | ------ | ------------- |  | --------- | ------- |  |  | - | --- | 
|                                    |                                                                                          |   | Earnings    |        | Shares        |  | Per Share
|                                    |                                                                                          |   | (Numerator) |        | (Denominator) |  | Data     
|                                    |                                                                                          |   |             |        |               |  |          
|Three Months Ended January 31, 2003 |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Net earnings                        |                                                                                          | $ | 9,473       |        |               |  |           |         |  |  |   |    
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Basic earnings per common share:    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Earnings available to common shareholders                                                |   | $           | 9,473  |               |  |           | 108,043 |  |  | $ | .09 | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Effect of dilutive securities:      |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Time-vest stock options assumed exercised                                                |   |             |       |               |  |           | 277     |  |  |   |     | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Diluted earnings per common share:  |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Earnings available to common shareholders
plus time-vest stock options assumed exercised |   | $           | 9,473  |               |  |           | 108,320 |  |  | $ | .09 | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    |                                                                                          |   |             |        |               |  |          
|                                    |                                                                                          |   | Earnings    |        | Shares        |  | Per Share
|                                    |                                                                                          |   | (Numerator) |        | (Denominator) |  | Data     
|                                    |                                                                                          |   |             |        |               |  |          
|Three Months Ended January 31, 2002 |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Net earnings                        |                                                                                          | $ | 12,673      |        |               |  |           |         |  |  |   |    
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Basic earnings per common share:    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Earnings available to common shareholders                                                |   | $           | 12,673 |               |  |           | 107,639 |  |  | $ | .12 | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Effect of dilutive securities:      |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Time-vest stock options assumed exercised                                                |   |             |       |               |  |           | 619     |  |  |   |     | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|Diluted earnings per common share:  |                                                                                          |   |             |        |               |  |           |         |  |  |   |    
|                                    | Earnings available to common shareholders
plus time-vest stock options assumed exercised |   | $           | 12,673 |               |  |           | 108,258 |  |  | $ | .12 | 
|                                    |                                                                                          |   |             |        |               |  |           |         |  |  |   |    

Options to purchase 4,110,061 shares of common stock at prices ranging from
$5.50 to $27.25 per share were outstanding during the three months ended
January 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 during that period. The options
expire between July 31, 2004 and April 12, 2005.

Options to purchase 775,368 shares of common stock at prices ranging from $6.96
to $27.25 per share were outstanding during the three months ended January 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 during that period.

17



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(5) Segment Data

The Companys reportable segment information is as follows:

|                                  |                                |      |   |         |        |          |  |         |        |  |   |              |         | 
|--------------------------------- | ------------------------------ | ---- | - | ------- | ------ | -------- |  | ------- | ------ |  | - | ------------ | ------- | 
|                                  |                                |      |   |         |        |          |  |         |        |  |   | Consolidated
|                                  |                                |      |   | Funeral |        | Cemetery |  | Totals 
|                                  |                                |      |   |         |        |          |  |        
|Revenues from external customers: |                                |      |   |         |        |          |  |         |        |  |   |             
|                                  | Three months ended January 31, |      |   |         |        |          |  |         |        |  |   |              |        
|                                  |                                | 2003 |   | $       | 76,736 |          |  |         | 54,481 |  |   | $            | 131,217 | 
|                                  |                                | 2002 |   | $       | 95,083 |          |  |         | 58,486 |  |   | $            | 153,569 | 
|Gross profit:                     |                                |      |   |         |        |          |  |         |        |  |   |             
|                                  | Three months ended January 31, |      |   |         |        |          |  |         |        |  |   |              |        
|                                  |                                | 2003 |   | $       | 19,110 |          |  |         | 12,273 |  |   | $            | 31,383  | 
|                                  |                                | 2002 |   | $       | 26,458 |          |  |         | 14,518 |  |   | $            | 40,976  | 
|Goodwill:                         |                                |      |   |         |        |          |  |         |        |  |   |             
|                                  | January 31, 2003               |      | $ | 332,508 |        |          |  | 158,815 |        |  | $ | 491,323      |        
|                                  | October 31, 2002               |      | $ | 332,508 |        |          |  | 158,815 |        |  | $ | 491,323      |        

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

|                                              |                              |   |                    |        |      |   |         |        | 
|--------------------------------------------- | ---------------------------- | - | ------------------ | ------ | ---- | - | ------- | ------ | 
|                                              |                              |   | Three Months Ended
|                                              |                              |   | January 31,       
|                                              |                              |   |                   
|                                              |                              |   | 2003               |        | 2002
|                                              |                              |   |                    |        |     
|Gross profit for reportable segments          |                              | $ | 31,383             |        |      | $ | 40,976  |       
|Corporate general and administrative expenses |                              |   | (4,300             | )      |      |   | (3,770  | )     
|Interest expense                              |                              |   | (13,577            | )      |      |   | (16,970 | )     
|Investment income                             |                              |   | 87                 |        |      |   | 124     |       
|Other income, net                             |                              |   | 1,685              |        |      |   | 80      |       
|                                              |                              |   |                    |        |      |   |         |       
|                                              | Earnings before income taxes |   | $                  | 15,278 |      |   | $       | 20,440 | 
|                                              |                              |   |                    |        |      |   |         |       

18



---



##### 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 January 31, 2003 and October 31, 2002 and for the
three months ended January 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 January 31, 2003
|                                              |                                                   |  |                                    
|                                              |                                                   |  |                                     |        |              |  | Guarantor    |        | Non-Guarantor |  |              |       |   |  |        |        |  
|                                              |                                                   |  | Parent                              |        | Subsidiaries |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |             
|Revenues:                                     |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Funeral                                           |  | $                                   |       |              |  | $            | 71,556 |               |  | $            | 5,180 |   |  | $      |       |   |  | $       | 76,736 | 
|                                              | Cemetery                                          |  |                                     |       |              |  |              | 48,370 |               |  |              | 6,111 |   |  |        |       |   |  |         | 54,481 | 
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              |                                                   |  |                                    |        |              |  | 119,926      |        |               |  | 11,291       |       |   |  |       |        |   |  | 131,217 |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|Costs and expenses:                           |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Funeral                                           |  |                                     |       |              |  |              | 54,038 |               |  |              | 3,588 |   |  |        |       |   |  |         | 57,626 | 
|                                              | Cemetery                                          |  |                                     |       |              |  |              | 37,391 |               |  |              | 4,817 |   |  |        |       |   |  |         | 42,208 | 
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              |                                                   |  |                                    |        |              |  | 91,429       |        |               |  | 8,405        |       |   |  |       |        |   |  | 99,834  |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Gross profit                                      |  |                                     |       |              |  |              | 28,497 |               |  |              | 2,886 |   |  |        |       |   |  |         | 31,383 | 
|Corporate general and administrative
expenses |                                                   |  | 4,472                               |        |              |  | (172         | )      |               |  |             |       |   |  |       |        |   |  | 4,300   |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Operating earnings (loss)                         |  |                                     | (4,472 | )            |  |              | 28,669 |               |  |              | 2,886 |   |  |        |       |   |  |         | 27,083 | 
|Interest income (expense)                     |                                                   |  | 7,271                               |        |              |  | (18,354      | )      |               |  | (2,494       | )     |   |  |       |        |   |  | (13,577 | )     
|Investment income                             |                                                   |  | 87                                  |        |              |  |             |        |               |  |             |       |   |  |       |        |   |  | 87      |       
|Other income, net                             |                                                   |  | 332                                 |        |              |  | 1,279        |        |               |  | 74           |       |   |  |       |        |   |  | 1,685   |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Earnings before income taxes                      |  |                                     | 3,218  |              |  |              | 11,594 |               |  |              | 466   |   |  |        |       |   |  |         | 15,278 | 
|Income taxes                                  |                                                   |  | 620                                 |        |              |  | 4,406        |        |               |  | 779          |       |   |  |       |        |   |  | 5,805   |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Net earnings (loss) before equity
in subsidiaries |  |                                     | 2,598  |              |  |              | 7,188  |               |  |              | (313  | ) |  |        |       |   |  |         | 9,473  | 
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|Equity in subsidiaries                        |                                                   |  | 6,875                               |        |              |  |             |        |               |  |             |       |   |  | (6,875 | )      |   |  |        |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Net earnings (loss)                               |  |                                     | 9,473  |              |  |              | 7,188  |               |  |              | (313  | ) |  |        | (6,875 | ) |  |         | 9,473  | 
|                                              | Other comprehensive income,
net                   |  |                                     | 89     |              |  |              |       |               |  |              |      |   |  |        |       |   |  |         | 89     | 
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       
|                                              | Comprehensive income (loss)                       |  | $                                   | 9,562  |              |  | $            | 7,188  |               |  | $            | (313  | ) |  | $      | (6,875 | ) |  | $       | 9,562  | 
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |       |   |  |        |        |   |  |         |       

19



---



##### 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 January 31, 2002
|                                              |                                                   |  |                                    
|                                              |                                                   |  |                                     |        |              |  | Guarantor    |        | Non-Guarantor |  |              |         |   |  |        |        |  
|                                              |                                                   |  | Parent                              |        | Subsidiaries |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |             
|Revenues:                                     |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Funeral                                           |  | $                                   |       |              |  | $            | 73,311 |               |  | $            | 21,772  |   |  | $      |       |   |  | $       | 95,083 |  
|                                              | Cemetery                                          |  |                                     |       |              |  |              | 51,708 |               |  |              | 6,778   |   |  |        |       |   |  |         | 58,486 |  
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              |                                                   |  |                                    |        |              |  | 125,019      |        |               |  | 28,550       |         |   |  |       |        |   |  | 153,569 |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|Costs and expenses:                           |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Funeral                                           |  |                                     |       |              |  |              | 51,835 |               |  |              | 16,790  |   |  |        |       |   |  |         | 68,625 |  
|                                              | Cemetery                                          |  |                                     |       |              |  |              | 37,481 |               |  |              | 6,487   |   |  |        |       |   |  |         | 43,968 |  
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              |                                                   |  |                                    |        |              |  | 89,316       |        |               |  | 23,277       |         |   |  |       |        |   |  | 112,593 |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Gross profit                                      |  |                                     |       |              |  |              | 35,703 |               |  |              | 5,273   |   |  |        |       |   |  |         | 40,976 |  
|Corporate general and administrative
expenses |                                                   |  | 3,849                               |        |              |  | (79          | )      |               |  |             |         |   |  |       |        |   |  | 3,770   |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Operating earnings (loss)                         |  |                                     | (3,849 | )            |  |              | 35,782 |               |  |              | 5,273   |   |  |        |       |   |  |         | 37,206 |  
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|Interest income (expense)                     |                                                   |  | 14,950                              |        |              |  | (23,233      | )      |               |  | (8,687       | )       |   |  |       |        |   |  | (16,970 | )     
|Investment income                             |                                                   |  | 105                                 |        |              |  |             |        |               |  | 19           |         |   |  |       |        |   |  | 124     |       
|Other income (expense), net                   |                                                   |  | (334                                | )      |              |  | 201          |        |               |  | 213          |         |   |  |       |        |   |  | 80      |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Earnings (loss) before income taxes               |  |                                     | 10,872 |              |  |              | 12,750 |               |  |              | (3,182  | ) |  |        |       |   |  |         | 20,440 |  
|Income taxes                                  |                                                   |  | 1,361                               |        |              |  | 5,100        |        |               |  | 1,306        |         |   |  |       |        |   |  | 7,767   |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Net earnings (loss) before equity
in subsidiaries |  |                                     | 9,511  |              |  |              | 7,650  |               |  |              | (4,488  | ) |  |        |       |   |  |         | 12,673 |  
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|Equity in subsidiaries                        |                                                   |  | 3,162                               |        |              |  |             |        |               |  |             |         |   |  | (3,162 | )      |   |  |        |       
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Net earnings (loss)                               |  |                                     | 12,673 |              |  |              | 7,650  |               |  |              | (4,488  | ) |  |        | (3,162 | ) |  |         | 12,673 |  
|                                              | Other comprehensive income (loss),
net            |  |                                     | (8,154 | )            |  |              | 1,310  |               |  |              | (9,051  | ) |  |        | 7,741  |   |  |         | (8,154 | )
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       
|                                              | Comprehensive income (loss)                       |  | $                                   | 4,519  |              |  | $            | 8,960  |               |  | $            | (13,539 | ) |  | $      | 4,579  |   |  | $       | 4,519  |  
|                                              |                                                   |  |                                     |        |              |  |              |        |               |  |              |         |   |  |        |        |   |  |         |       

20



---



##### 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

|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |           |         | 
|-------------------------------------------------- | ------------------------------------------------ | ------------------------- | ---------- | ---------------- | ------ | ------------ | --------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | - | -------- | -------- | - | - | --------- | --------- | ------- | 
|                                                   |                                                  |                           |            | January 31, 2003
|                                                   |                                                  |                           |            |                 
|                                                   |                                                  |                           |            |                  |        |              |           | Guarantor    |        | Non-Guarantor |         |              |        |   |          |          |   |  
|                                                   |                                                  |                           |            | Parent           |        | Subsidiaries |           | Subsidiaries |        | Eliminations  |         | Consolidated
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |             
|ASSETS                                             |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|Current assets:                                    |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Cash and cash equivalent
investments             |                           | $          | 16,529           |        |              | $         | 185          |        |               | $       | 295          |        |   | $        |         |   |   | $         | 17,009    |        
|                                                   | Marketable securities                            |                           |            | 828              |        |              |           | 26           |        |               |         | 1,812        |        |   |          |         |   |   |           | 2,666     |        
|                                                   | Receivables, net of allowances                   |                           |            | 26,865           |        |              |           | 41,458       |        |               |         | 21,258       |        |   |          |         |   |   |           | 89,581    |        
|                                                   | Inventories                                      |                           |            | 417              |        |              |           | 34,549       |        |               |         | 8,016        |        |   |          |         |   |   |           | 42,982    |        
|                                                   | Prepaid expenses                                 |                           |            | 806              |        |              |           | 1,296        |        |               |         | 97           |        |   |          |         |   |   |           | 2,199     |        
|                                                   | Deferred income taxes, net                       |                           |            | 618              |        |              |           | 702          |        |               |         |             |        |   |          |         |   |   |           | 1,320     |        
|                                                   | Assets held for sale                             |                           |            |                 |        |              |           | 4,916        |        |               |         | 565          |        |   |          |         |   |   |           | 5,481     |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | Total current assets      |            |                  | 46,063 |              |           |              | 83,132 |               |         |              | 32,043 |   |          |          |  |   |           |           | 161,238 | 
|Receivables due beyond one year, net of
allowances |                                                  |                           | 200        |                  |        |              | 51,160    |              |        |               | 24,771  |              |        |   |         |          |   |   | 76,131    |          
|Prearranged receivables, net                       |                                                  |                           |           |                  |        |              | 1,177,263 |              |        |               | 18,610  |              |        |   |         |          |   |   | 1,195,873 |          
|Goodwill                                           |                                                  |                           |           |                  |        |              | 451,656   |              |        |               | 39,667  |              |        |   |         |          |   |   | 491,323   |          
|Deferred charges                                   |                                                  |                           | 8,299      |                  |        |              | 224,549   |              |        |               | 19,571  |              |        |   |         |          |   |   | 252,419   |          
|Cemetery property, at cost                         |                                                  |                           |           |                  |        |              | 364,725   |              |        |               | 23,235  |              |        |   |         |          |   |   | 387,960   |          
|Property and equipment, at cost                    |                                                  |                           | 29,300     |                  |        |              | 432,977   |              |        |               | 41,605  |              |        |   |         |          |   |   | 503,882   |          
|                                                   | Less accumulated depreciation                    |                           |            | 14,279           |        |              |           | 147,297      |        |               |         | 11,577       |        |   |          |         |   |   |           | 173,153   |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Net property and equipment                       |                           |            | 15,021           |        |              |           | 285,680      |        |               |         | 30,028       |        |   |          |         |   |   |           | 330,729   |        
|Deferred income taxes, net                         |                                                  |                           | 30,173     |                  |        |              | 59,574    |              |        |               | 241     |              |        |   |         |          |   |   | 89,988    |          
|Investment in subsidiaries                         |                                                  |                           | 157,430    |                  |        |              |          |              |        |               |        |              |        |   | (157,430 | )        |   |   |          |          
|Other assets                                       |                                                  |                           | 2,133      |                  |        |              | 917       |              |        |               |        |              |        |   |         |          |   |   | 3,050     |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | $                         | 259,319    |                  |        | $            | 2,698,656 |              |        | $             | 188,166 |              |        | $ | (157,430 | )        |   | $ | 2,988,711 |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY               |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |  
|Current liabilities:                               |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Current maturities of long-term debt             |                           | $          | 6,645            |        |              | $         |             |        |               | $       |             |        |   | $        |         |   |   | $         | 6,645     |        
|                                                   | Accounts payable                                 |                           |            | 469              |        |              |           | 7,718        |        |               |         | 306          |        |   |          |         |   |   |           | 8,493     |        
|                                                   | Accrued expenses                                 |                           |            | 10,718           |        |              |           | 20,954       |        |               |         | 5,572        |        |   |          |         |   |   |           | 37,244    |        
|                                                   | Liabilities associated with assets held
for sale |                           |            |                 |        |              |           | 2,138        |        |               |         | 15           |        |   |          |         |   |   |           | 2,153     |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | Total current liabilities |            |                  | 17,832 |              |           |              | 30,810 |               |         |              | 5,893  |   |          |          |  |   |           |           | 54,535  | 
|Long-term debt, less current maturities            |                                                  |                           | 512,550    |                  |        |              |          |              |        |               | 30,000  |              |        |   |         |          |   |   | 542,550   |          
|Intercompany payables, net                         |                                                  |                           | (1,108,649 | )                |        |              | 1,070,286 |              |        |               | 38,363  |              |        |   |         |          |   |   |          |          
|Prearranged deferred revenue, net                  |                                                  |                           |           |                  |        |              | 1,454,810 |              |        |               | 92,669  |              |        |   |         |          |   |   | 1,547,479 |          
|Other long-term liabilities                        |                                                  |                           | 15,448     |                  |        |              | 6,561     |              |        |               |        |              |        |   |         |          |   |   | 22,009    |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Total liabilities                                |                           |            | (562,819         | )      |              |           | 2,562,467    |        |               |         | 166,925      |        |   |          |         |   |   |           | 2,166,573 |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|Common stock                                       |                                                  |                           | 108,089    |                  |        |              | 336       |              |        |               | 53      |              |        |   | (389     | )        |   |   | 108,089   |          
|Other                                              |                                                  |                           | 717,413    |                  |        |              | 135,853   |              |        |               | 21,188  |              |        |   | (157,041 | )        |   |   | 717,413   |          
|Accumulated other comprehensive loss               |                                                  |                           | (3,364     | )                |        |              |          |              |        |               |        |              |        |   |         |          |   |   | (3,364    | )        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Total shareholders equity                       |                           |            | 822,138          |        |              |           | 136,189      |        |               |         | 21,241       |        |   |          | (157,430 | ) |   |           | 822,138   |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | $                         | 259,319    |                  |        | $            | 2,698,656 |              |        | $             | 188,166 |              |        | $ | (157,430 | )        |   | $ | 2,988,711 |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          

21



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Balance Sheets

|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |           |         | 
|-------------------------------------------------- | ------------------------------------------------ | ------------------------- | ---------- | ---------------- | ------ | ------------ | --------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | - | -------- | -------- | - | - | --------- | --------- | ------- | 
|                                                   |                                                  |                           |            | October 31, 2002
|                                                   |                                                  |                           |            |                 
|                                                   |                                                  |                           |            |                  |        |              |           | Guarantor    |        | Non-Guarantor |         |              |        |   |          |          |   |  
|                                                   |                                                  |                           |            | Parent           |        | Subsidiaries |           | Subsidiaries |        | Eliminations  |         | Consolidated
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |             
|ASSETS                                             |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|Current assets:                                    |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Cash and cash equivalent
investments             |                           | $          | 24,752           |        |              | $         | 3,209        |        |               | $       | 229          |        |   | $        |         |   |   | $         | 28,190    |        
|                                                   | Marketable securities                            |                           |            | 755              |        |              |           | 26           |        |               |         | 1,807        |        |   |          |         |   |   |           | 2,588     |        
|                                                   | Receivables, net of allowances                   |                           |            | 24,340           |        |              |           | 41,131       |        |               |         | 21,356       |        |   |          |         |   |   |           | 86,827    |        
|                                                   | Inventories                                      |                           |            | 407              |        |              |           | 32,987       |        |               |         | 8,272        |        |   |          |         |   |   |           | 41,666    |        
|                                                   | Prepaid expenses                                 |                           |            | 706              |        |              |           | 2,032        |        |               |         | 77           |        |   |          |         |   |   |           | 2,815     |        
|                                                   | Deferred income taxes, net                       |                           |            | 591              |        |              |           | 757          |        |               |         |             |        |   |          |         |   |   |           | 1,348     |        
|                                                   | Assets held for sale                             |                           |            |                 |        |              |           | 8,424        |        |               |         | 542          |        |   |          |         |   |   |           | 8,966     |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | Total current assets      |            |                  | 51,551 |              |           |              | 88,566 |               |         |              | 32,283 |   |          |          |  |   |           |           | 172,400 | 
|Receivables due beyond one year, net of
allowances |                                                  |                           |           |                  |        |              | 52,020    |              |        |               | 24,633  |              |        |   |         |          |   |   | 76,653    |          
|Prearranged receivables, net                       |                                                  |                           |           |                  |        |              | 1,181,775 |              |        |               | 19,139  |              |        |   |         |          |   |   | 1,200,914 |          
|Goodwill                                           |                                                  |                           |           |                  |        |              | 451,656   |              |        |               | 39,667  |              |        |   |         |          |   |   | 491,323   |          
|Deferred charges                                   |                                                  |                           | 8,716      |                  |        |              | 224,959   |              |        |               | 19,408  |              |        |   |         |          |   |   | 253,083   |          
|Cemetery property, at cost                         |                                                  |                           |           |                  |        |              | 364,830   |              |        |               | 23,235  |              |        |   |         |          |   |   | 388,065   |          
|Property and equipment, at cost                    |                                                  |                           | 29,028     |                  |        |              | 432,492   |              |        |               | 41,396  |              |        |   |         |          |   |   | 502,916   |          
|                                                   | Less accumulated depreciation                    |                           |            | 13,385           |        |              |           | 144,059      |        |               |         | 11,156       |        |   |          |         |   |   |           | 168,600   |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Net property and equipment                       |                           |            | 15,643           |        |              |           | 288,433      |        |               |         | 30,240       |        |   |          |         |   |   |           | 334,316   |        
|Deferred income taxes, net                         |                                                  |                           | 30,794     |                  |        |              | 63,980    |              |        |               | 1,020   |              |        |   |         |          |   |   | 95,794    |          
|Investment in subsidiaries                         |                                                  |                           | 150,555    |                  |        |              |          |              |        |               |        |              |        |   | (150,555 | )        |   |   |          |          
|Other assets                                       |                                                  |                           | 1,981      |                  |        |              | 1,055     |              |        |               |        |              |        |   |         |          |   |   | 3,036     |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | $                         | 259,240    |                  |        | $            | 2,717,274 |              |        | $             | 189,625 |              |        | $ | (150,555 | )        |   | $ | 3,015,584 |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY               |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|Current liabilities:                               |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Current maturities of long-term debt             |                           | $          | 6,689            |        |              | $         |             |        |               | $       |             |        |   | $        |         |   |   | $         | 6,689     |        
|                                                   | Accounts payable                                 |                           |            | 880              |        |              |           | 9,836        |        |               |         | 397          |        |   |          |         |   |   |           | 11,113    |        
|                                                   | Accrued expenses                                 |                           |            | 21,247           |        |              |           | 27,744       |        |               |         | 5,296        |        |   |          |         |   |   |           | 54,287    |        
|                                                   | Liabilities associated with assets held
for sale |                           |            |                 |        |              |           | 2,896        |        |               |         | 15           |        |   |          |         |   |   |           | 2,911     |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | Total current liabilities |            |                  | 28,816 |              |           |              | 40,476 |               |         |              | 5,708  |   |          |          |  |   |           |           | 75,000  | 
|Long-term debt, less current maturities            |                                                  |                           | 515,255    |                  |        |              |          |              |        |               | 30,000  |              |        |   |         |          |   |   | 545,255   |          
|Intercompany payables, net                         |                                                  |                           | (1,112,077 | )                |        |              | 1,071,567 |              |        |               | 40,510  |              |        |   |         |          |   |   |          |          
|Prearranged deferred revenue, net                  |                                                  |                           |           |                  |        |              | 1,469,680 |              |        |               | 91,853  |              |        |   |         |          |   |   | 1,561,533 |          
|Other long-term liabilities                        |                                                  |                           | 14,983     |                  |        |              | 6,550     |              |        |               |        |              |        |   |         |          |   |   | 21,533    |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Total liabilities                                |                           |            | (553,023         | )      |              |           | 2,588,273    |        |               |         | 168,071      |        |   |          |         |   |   |           | 2,203,321 |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|Common stock                                       |                                                  |                           | 108,025    |                  |        |              | 336       |              |        |               | 53      |              |        |   | (389     | )        |   |   | 108,025   |          
|Other                                              |                                                  |                           | 707,691    |                  |        |              | 128,665   |              |        |               | 21,501  |              |        |   | (150,166 | )        |   |   | 707,691   |          
|Accumulated other comprehensive loss               |                                                  |                           | (3,453     | )                |        |              |          |              |        |               |        |              |        |   |         |          |   |   | (3,453    | )        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   | Total shareholders equity                       |                           |            | 812,263          |        |              |           | 129,001      |        |               |         | 21,554       |        |   |          | (150,555 | ) |   |           | 812,263   |        
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          
|                                                   |                                                  | $                         | 259,240    |                  |        | $            | 2,717,274 |              |        | $             | 189,625 |              |        | $ | (150,555 | )        |   | $ | 3,015,584 |          
|                                                   |                                                  |                           |            |                  |        |              |           |              |        |               |         |              |        |   |          |          |   |   |           |          

22



---



##### 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

|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |        |        |  
|--------------------------------------------------- | ----------------------------------- | --------------------------------------------------- | ------ | ----------------------------------- | ----- | ------------ | ------ | ------------ | ------ | ------------- | ----- | ------------ | ------ | - | - | - | - | - | ------- | ------ | ------ | -
|                                                    |                                     |                                                     |        | Three Months Ended January 31, 2003
|                                                    |                                     |                                                     |        |                                    
|                                                    |                                     |                                                     |        |                                     |       |              |        | Guarantor    |        | Non-Guarantor |       |              |        |   |   |   |   |  
|                                                    |                                     |                                                     |        | Parent                              |       | Subsidiaries |        | Subsidiaries |        | Eliminations  |       | Consolidated
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |             
|Net cash provided by (used in) operating
activities |                                     | $                                                   | (8,301 | )                                   |       | $            | (1,791 | )            |        | $             | 2,408 |              |        | $ |  |   |   | $ | (7,684  | )     
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|Cash flows from investing activities:               |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|                                                    | Proceeds from sale of assets, net   |                                                     |        | (705                                | )     |              |        | 2,535        |        |               |       |             |        |   |   |  |   |   |         | 1,830  |       
|                                                    | Additions to property and
equipment |                                                     |        | (276                                | )     |              |        | (2,586       | )      |               |       | (190         | )      |   |   |  |   |   |         | (3,052 | )     
|                                                    | Other                               |                                                     |        |                                    |       |              |        | 99           |        |               |       | (5           | )      |   |   |  |   |   |         | 94     |       
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|                                                    |                                     | Net cash provided by (used in)
investing activities |        |                                     | (981  | )            |        |              | 48     |               |       |              | (195   | ) |   |   |  |   |         |        | (1,128 | )
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|Cash flows from financing activities:               |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|                                                    | Repayments of long-term debt        |                                                     |        | (2,682                              | )     |              |        |             |        |               |       |             |        |   |   |  |   |   |         | (2,682 | )     
|                                                    | Intercompany receivables
(payables) |                                                     |        | 3,428                               |       |              |        | (1,281       | )      |               |       | (2,147       | )      |   |   |  |   |   |         |       |       
|                                                    | Issuance of common stock            |                                                     |        | 313                                 |       |              |        |             |        |               |       |             |        |   |   |  |   |   |         | 313    |       
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|                                                    |                                     | Net cash provided by (used in)
financing activities |        |                                     | 1,059 |              |        |              | (1,281 | )             |       |              | (2,147 | ) |   |   |  |   |         |        | (2,369 | )
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|Net increase (decrease) in cash                     |                                     |                                                     | (8,223 | )                                   |       |              | (3,024 | )            |        |               | 66    |              |        |   |  |   |   |   | (11,181 | )     
|Cash and cash equivalents, beginning of
period      |                                     |                                                     | 24,752 |                                     |       |              | 3,209  |              |        |               | 229   |              |        |   |  |   |   |   | 28,190  |       
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       
|Cash and cash equivalents, end of
period            |                                     | $                                                   | 16,529 |                                     |       | $            | 185    |              |        | $             | 295   |              |        | $ |  |   |   | $ | 17,009  |       
|                                                    |                                     |                                                     |        |                                     |       |              |        |              |        |               |       |              |        |   |   |   |   |   |         |       

23



---



##### 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

|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |        |        |  
|----------------------------------------------------- | ----------------------------------- | --------------------------------------------------- | ------- | ----------------------------------- | ------ | ------------ | ------ | ------------ | ----- | ------------- | ----- | ------------ | ---- | - | - | - | - | - | ------ | ------ | ------ | -
|                                                      |                                     |                                                     |         | Three Months Ended January 31, 2002
|                                                      |                                     |                                                     |         |                                    
|                                                      |                                     |                                                     |         |                                     |        |              |        | Guarantor    |       | Non-Guarantor |       |              |      |   |   |   |   |  
|                                                      |                                     |                                                     |         | Parent                              |        | Subsidiaries |        | Subsidiaries |       | Eliminations  |       | Consolidated
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |             
|Net cash provided by (used in)
operating activities   |                                     | $                                                   | (2,357  | )                                   |        | $            | (339   | )            |       | $             | 653   |              |      | $ |  |   |   | $ | (2,043 | )     
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|Cash flows from investing activities:                 |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|                                                      | Proceeds from sale of assets, net   |                                                     |         |                                    |        |              |        | 1,794        |       |               |       |             |      |   |   |  |   |   |        | 1,794  |       
|                                                      | Additions to property and
equipment |                                                     |         |                                    |        |              |        | (2,342       | )     |               |       | (240         | )    |   |   |  |   |   |        | (2,582 | )     
|                                                      | Other                               |                                                     |         | (153                                | )      |              |        | (81          | )     |               |       | (25          | )    |   |   |  |   |   |        | (259   | )     
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|                                                      |                                     | Net cash used in investing
activities               |         |                                     | (153   | )            |        |              | (629  | )             |       |              | (265 | ) |   |   |  |   |        |        | (1,047 | )
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|Cash flows from financing activities:                 |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|                                                      | Repayments of long-term debt        |                                                     |         | (3,475                              | )      |              |        |             |       |               |       |             |      |   |   |  |   |   |        | (3,475 | )     
|                                                      | Intercompany receivables
(payables) |                                                     |         | (4,865                              | )      |              |        | 4,081        |       |               |       | 784          |      |   |   |  |   |   |        |       |       
|                                                      | Issuance of common stock            |                                                     |         | 336                                 |        |              |        |             |       |               |       |             |      |   |   |  |   |   |        | 336    |       
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|                                                      |                                     | Net cash provided by (used in)
financing activities |         |                                     | (8,004 | )            |        |              | 4,081 |               |       |              | 784  |   |   |   |  |   |        |        | (3,139 | )
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|Effect of exchange rates on cash and
cash equivalents |                                     |                                                     |        |                                     |        |              |       |              |       |               | (599  | )            |      |   |  |   |   |   | (599   | )     
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|Net increase (decrease) in cash                       |                                     |                                                     | (10,514 | )                                   |        |              | 3,113  |              |       |               | 573   |              |      |   |  |   |   |   | (6,828 | )     
|Cash and cash equivalents, beginning
of period        |                                     |                                                     | 22,537  |                                     |        |              | (5,636 | )            |       |               | 6,222 |              |      |   |  |   |   |   | 23,123 |       
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       
|Cash and cash equivalents, end of
period              |                                     | $                                                   | 12,023  |                                     |        | $            | (2,523 | )            |       | $             | 6,795 |              |      | $ |  |   |   | $ | 16,295 |       
|                                                      |                                     |                                                     |         |                                     |        |              |        |              |       |               |       |              |      |   |   |   |   |   |        |       

24



---



##### 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 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 then current
offers 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 portion of the charge to equity in the third quarter of fiscal year
2001 that related to foreign operations was equal to the entire foreign-related
after-tax charge to earnings of $187,329. However, the Company had already
reduced equity for the cumulative foreign translation adjustment incurred in
each period that it had owned these businesses. Therefore, in the periods in
which the sale of each of the foreign operations was consummated, the
cumulative foreign translation adjustment relating to the operation sold was
reversed and included in comprehensive income, resulting in a corresponding
increase in equity. During the fourth quarter of fiscal year 2001, the Company
sold its Mexican, Australian, New Zealand, Belgian and Dutch operations and
realized comprehensive income and an increase in shareholders equity for the
cumulative foreign currency translation related to these operations, which
equaled $74,754. During fiscal year 2002, the Company sold its operations in
Spain, Portugal, France, Canada and Argentina and realized comprehensive income
and an increase in shareholders equity for the cumulative foreign translation
adjustments related to these operations, which amounted to $35,902.

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 January 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 January 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 domestic assets, primarily funeral home
real estate.

25



---



##### 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)

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

|                                     |                                                  |                  |       |                  |  |   |       |       |  | 
|------------------------------------ | ------------------------------------------------ | ---------------- | ----- | ---------------- |  | - | ----- | ----- |  | 
|Assets                               |                                                  | January 31, 2003 |       | October 31, 2002
|                                     |                                                  |                  |       |                 
|Receivables, net of allowances       |                                                  | $                | 401   |                  |  | $ | 590   |      
|Inventories and other current assets |                                                  |                  | 778   |                  |  |   | 876   |      
|Net property and equipment           |                                                  |                  | 1,015 |                  |  |   | 2,384 |      
|Prearranged receivables, net         |                                                  |                  | 1,418 |                  |  |   | 2,460 |      
|Deferred charges and other assets    |                                                  |                  | 1,044 |                  |  |   | 1,831 |      
|Cemetery property                    |                                                  |                  | 825   |                  |  |   | 825   |      
|                                     |                                                  |                  |       |                  |  |   |       |      
|                                     | Assets held for sale                             |                  | $     | 5,481            |  |   | $     | 8,966 | 
|                                     |                                                  |                  |       |                  |  |   |       |      
|Liabilities                          |                                                  |                  |       |                  |  |   |       |      
|Current liabilities                  |                                                  | $                | 157   |                  |  | $ | 561   |      
|Deferred income taxes, net           |                                                  |                  | 2     |                  |  |   | 299   |      
|Prearranged deferred revenue, net    |                                                  |                  | 1,994 |                  |  |   | 2,051 |      
|                                     |                                                  |                  |       |                  |  |   |       |      
|                                     | Liabilities associated with assets held for sale |                  | $     | 2,153            |  |   | $     | 2,911 | 
|                                     |                                                  |                  |       |                  |  |   |       |      

The operating results of assets sold and held for sale included in the
consolidated statements of earnings for the three months ended January 31,
2003 and 2002 were as follows:

|                          |  |                    |       |      |  |   |        | 
|------------------------- |  | ------------------ | ----- | ---- |  | - | ------ | 
|                          |  | Three Months Ended
|                          |  | January 31,       
|                          |  |                   
|                          |  | 2003               |       | 2002
|                          |  |                    |       |     
|Revenues                  |  | $                  | 1,008 |      |  | $ | 18,762 | 
|                          |  |                    |       |      |  |   |        | 
|Operating earnings (loss) |  | $                  | (104  | )    |  | $ | 2,326  | 
|                          |  |                    |       |      |  |   |        | 

26



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(8) Funeral and Cemetery Trust Funds and Escrow Accounts

Amounts due from preneed funeral and preneed cemetery merchandise trust
and escrow accounts are included in the prearranged receivables line in the
Companys consolidated balance sheet. As discussed in Note 1(f), the Company
recorded a valuation allowance of $20,000 as of October 31, 2002 and an
additional valuation allowance of $2,000 as of January 31, 2003 related to the
prearranged receivable from its trust funds, which resulted in a reduction in
prearranged receivables and prearranged deferred revenue. 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
January 31, 2003 and October 31, 2002.

|                            |  |             |          |                      |  |                |          |             |  |             |         |             |  |   |         |   |  |   |         |   |  |   |         |  
|--------------------------- |  | ----------- | -------- | -------------------- |  | -------------- | -------- | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                            |  | Funeral     |          | Cemetery Merchandise |  | Perpetual Care
|                            |  |             |          |                      |  |               
|                            |  | January 31, |          | October 31,          |  | January 31,    |          | October 31, |  | January 31, |         | October 31,
|                            |  | 2003        |          | 2002                 |  | 2003           |          | 2002        |  | 2003        |         | 2002       
|                            |  |             |          |                      |  |                |          |             |  |             |         |            
|Total value at cost         |  | $           | 536,975  |                      |  | $              | 538,180  |             |  | $           | 228,310 |             |  | $ | 227,588 |   |  | $ | 218,591 |   |  | $ | 217,174 |  
|Net unrealized depreciation |  |             | (120,167 | )                    |  |                | (116,760 | )           |  |             | (60,783 | )           |  |   | (60,010 | ) |  |   | (37,280 | ) |  |   | (38,007 | )
|                            |  |             |          |                      |  |                |          |             |  |             |         |             |  |   |         |   |  |   |         |   |  |   |         |  
|Total value at market       |  | $           | 416,808  |                      |  | $              | 421,420  |             |  | $           | 167,527 |             |  | $ | 167,578 |   |  | $ | 181,311 |   |  | $ | 179,167 |  
|                            |  |             |          |                      |  |                |          |             |  |             |         |             |  |   |         |   |  |   |         |   |  |   |         |  

(9) Consolidated Comprehensive Income

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

|                                   |                                                                                                                                         |   |                                |     |      |   |        |        |  
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------ | --- | ---- | - | ------ | ------ | -
|                                   |                                                                                                                                         |   | Three Months Ended January 31,
|                                   |                                                                                                                                         |   |                               
|                                   |                                                                                                                                         |   | 2003                           |     | 2002
|                                   |                                                                                                                                         |   |                                |     |     
|Net earnings                       |                                                                                                                                         | $ | 9,473                          |     |      | $ | 12,673 |       
|Other comprehensive income (loss): |                                                                                                                                         |   |                                |     |      |   |        |       
|                                   | Foreign translation adjustment                                                                                                          |   |                                |    |      |   |        | (9,051 | )
|                                   | Unrealized appreciation of investments                                                                                                  |   |                                | 72  |      |   |        | 622    |  
|                                   | Deferred income tax expense on unrealized appreciation of
investments                                                                   |   |                                | (28 | )    |   |        | (208   | )
|                                   | Unrealized appreciation on derivative instrument
designated and qualifying as a cash flow hedging instrument                            |   |                                | 73  |      |   |        | 688    |  
|                                   | Net deferred income tax on unrealized appreciation on derivative
instrument designated and qualifying as a cash flow hedging
instrument |   |                                | (28 | )    |   |        | (205   | )
|                                   |                                                                                                                                         |   |                                |     |      |   |        |       
|                                   | Total other comprehensive income (loss)                                                                                                 |   |                                | 89  |      |   |        | (8,154 | )
|                                   |                                                                                                                                         |   |                                |     |      |   |        |       
|Total comprehensive income         |                                                                                                                                         | $ | 9,562                          |     |      | $ | 4,519  |       
|                                   |                                                                                                                                         |   |                                |     |      |   |        |       

27



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(10) Guarantees

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

All obligations under the senior secured credit facility, including the
guarantees and any interest rate protection and other hedging agreements with
any lender or its affiliates, are secured equally and ratably with the 6.70
percent Notes and 6.40 percent ROARS 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 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 that are in excess of the coverage provided
by any such insurance, provided that the director or executive officer meets
certain standards of conduct.

As of January 31, 2003, the Company has guaranteed long-term debt of its
subsidiaries of approximately $4,551 that represents notes the subsidiaries
issued as part of the purchase price of acquired businesses or debt the
subsidiaries assumed in connection with acquisitions.

28



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES




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

General

We are the third largest provider of funeral and cemetery products and
services in the death care industry in the United States. As of March 5, 2003,
we owned and operated 301 funeral homes and 149 cemeteries in 29 states within
the United States and Puerto Rico.

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

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

From 1991 through 1999 we achieved an overall annual return of 8.0 percent
to 9.0 percent in our trust funds. However, the average return on our domestic
trust funds was 5.8 percent, 6.3 percent and 4.3 percent, for fiscal years
2000, 2001 and 2002, 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 returns recently realized 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.

As disclosed in Note 8 to the consolidated financial statements, our
preneed funeral and preneed cemetery merchandise trust funds and escrow
accounts had net unrealized depreciation of $120.2 million and $60.8 million,
respectively, as of January 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 our revenues, margins, earnings and cash flow would be negatively
affected by the reduced revenue we would realize when we deliver the underlying
products and services. We project that with approximately 3.0 percent to 5.0
percent annualized returns in the funds over the estimated lives of the
associated preneed contracts, we would recover the net unrealized depreciation
currently in the funds by the time the underlying products and services are
delivered. As discussed in Note 8 to the consolidated financial statements,
our perpetual care trust fund accounts had net unrealized depreciation of $37.3
million as of January 31, 2003. Unrealized gains and losses

29



---



##### Table of Contents



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. For a more detailed discussion of our
accounting for our preneed trust and escrow
account earnings, see our Annual Report on Form 10-K for the fiscal year ended
October 31, 2002.

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

Overview of 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 of our significant accounting policies
(discussed in Note 2 to the consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended October 31, 2002), the following
are both most important to the portrayal of our financial condition and results
of operations and require managements most difficult, subjective or complex
judgment.

Allowance for Doubtful Accounts

Management must make estimates of the uncollectability of our accounts
receivable. A reserve is established based on a range of percentages applied
to accounts receivable aging categories. These percentages are based on our
historical collection and write-off experience. If circumstances change, our
estimates of the recoverability of amounts due to us could change by a material
amount.

Depreciation of Long-Lived Assets

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. These estimates
of the useful lives may be affected by such factors as changes in regulatory
requirements or changing market conditions.

Valuation of Long-Lived Assets

We periodically review for continued appropriateness the carrying value of
our long-lived assets including our prearranged receivables, cemetery property
and property, plant and equipment. This review is based on our projections of
anticipated undiscounted future cash flows. If indicators of impairment were
present, we would evaluate the undiscounted cash flows estimated to be
generated by those assets compared to the carrying amount of those items. The
net carrying value of assets not recoverable would be reduced to fair value.
While we believe that our estimates of undiscounted future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations. During the first quarter of fiscal year 2003, we
recorded an additional valuation allowance of $2.0 million related to our
prearranged receivables from our trust funds, which resulted in a reduction in
prearranged receivables and prearranged deferred revenue.

Valuation of Long-Lived Intangible Assets and Goodwill

In June 2001, the 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, we implemented it in the first quarter of fiscal
year 2002. See Note 2 to the consolidated financial statements for a
discussion of SFAS No. 142 and its impact on our financial condition and
results of operations.

30



---



##### Table of Contents



Our evaluation of goodwill for our operations is performed at the funeral
and cemetery segment levels, which constitute our reporting units. With the
adoption of SFAS No. 142, goodwill of a reporting unit must be tested for
impairment on at least an annual basis. Impairment losses are recognized when
the estimated fair value of goodwill is less than its carrying value.

In addition to an annual review, we assess the impairment of goodwill and
other intangible assets whenever
events or changes in circumstances indicate that the carrying value may be
greater than fair value. Factors that we consider important which could
trigger an impairment review include the following:



| |  | significant underperformance relative to historical or projected future operating results;              
|- |  | --------------------------------------------------------------------------------------------------------
| 
| |  | significant changes in the manner of the use of our assets or the strategy for our overall business; and
| 
| |  | significant negative industry or economic trends.                                                       

We evaluated our goodwill for impairment at October 31, 2002. We
determined the fair value to be greater than the carrying value. Since that
time, management has revised our forecast for fiscal year 2003 as discussed in
our Forward-Looking Statements included in Part II, Item 5, and our stock
price has declined significantly. We believe that many of the factors
contributing to the revised forecast may be temporary and that an impairment
review has not been triggered. We will continue to monitor these factors and
if conditions deteriorate significantly, we will perform an interim review.

When we determine that the carrying value of goodwill and other intangible
assets may be greater than fair value, we measure any impairment based on our
estimates of current fair value compared to the carrying value of the assets.
If these estimates or their related assumptions change in the future, we may be
required to record impairment charges for these assets. Goodwill amounted to
$491.3 million as of January 31, 2003 and October 31, 2002.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements,
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our actual current tax
expense together with assessing temporary differences resulting from the
different treatment of items, such as deferred revenue, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheets. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income, and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent that we establish a
valuation allowance or increase this allowance in a period, we must include an
expense within the tax provision in the statement of earnings.

Significant management judgment is required in determining our provision
for income taxes, deferred tax assets and liabilities and any valuation
allowance recorded against net deferred tax assets. We have not recorded a
valuation allowance as of January 31, 2003 based on our estimates of taxable
income in each jurisdiction in which we operate and the period over which our
deferred tax assets will be recoverable. In the event that actual results
differ from these estimates or we adjust these estimates in future periods, we
may need to establish a valuation allowance, which could materially impact our
financial condition and results of operations.

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).

31



---



##### Table of Contents



Closed and Held for Sale Operations consist of
those that have been sold or closed during this fiscal year or last and the
businesses that are currently being offered for sale.

Three Months Ended January 31, 2003 Compared to Three Months Ended January 31, 2002

Funeral Segment

|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|--------------------------------------------- |  | ------------------ | ---- | -------- |  | ---------- | ---- |  |  | - | ----- | -
|                                              |  | Three Months Ended |      |          |  |           
|                                              |  | January 31,        |      |          |  |           
|                                              |  |                    |      | Increase
|                                              |  | 2003               |      | 2002     |  | (Decrease)
|                                              |  |                    |      |          |  |           
|                                              |  | (In millions)     
|FUNERAL  OPERATIONS TO BE RETAINED           |  |                    |      |          |  |            |      |  |  |   |       |  
|Revenue                                       |  |                    |      |          |  |            |      |  |  |   |       |  
|Existing operations                           |  | $                  | 75.9 |          |  | $          | 77.7 |  |  | $ | (1.8  | )
|Opened operations                             |  |                    | .1   |          |  |            | .1   |  |  |   |      |  
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|                                              |  | $                  | 76.0 |          |  | $          | 77.8 |  |  | $ | (1.8  | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|Costs                                         |  |                    |      |          |  |            |      |  |  |   |       |  
|Existing operations                           |  | $                  | 56.6 |          |  | $          | 54.0 |  |  | $ | 2.6   |  
|Opened operations                             |  |                    | .1   |          |  |            | .1   |  |  |   |      |  
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|                                              |  | $                  | 56.7 |          |  | $          | 54.1 |  |  | $ | 2.6   |  
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|Gross
Profit                                  |  |                    |      |          |  |            |      |  |  |   |       |  
|Existing operations                           |  | $                  | 19.3 |          |  | $          | 23.7 |  |  | $ | (4.4  | )
|Opened operations                             |  |                    |     |          |  |            |     |  |  |   |      |  
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|                                              |  | $                  | 19.3 |          |  | $          | 23.7 |  |  | $ | (4.4  | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|FUNERAL  CLOSED AND HELD FOR SALE OPERATIONS |  |                    |      |          |  |            |      |  |  |   |       |  
|Revenue                                       |  | $                  | .7   |          |  | $          | 17.3 |  |  | $ | (16.6 | )
|Costs                                         |  |                    | .9   |          |  |            | 14.5 |  |  |   | (13.6 | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|Gross Profit                                  |  | $                  | (.2  | )        |  | $          | 2.8  |  |  | $ | (3.0  | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|Total Funeral Revenue                         |  | $                  | 76.7 |          |  | $          | 95.1 |  |  | $ | (18.4 | )
|Total Funeral Costs                           |  |                    | 57.6 |          |  |            | 68.6 |  |  |   | (11.0 | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  
|Total Funeral Gross Profit                    |  | $                  | 19.1 |          |  | $          | 26.5 |  |  | $ | (7.4  | )
|                                              |  |                    |      |          |  |            |      |  |  |   |       |  

Total funeral revenue decreased $18.4 million in the first quarter of 2003
compared to the corresponding period in 2002 primarily due to a decrease in
revenue from Closed and Held for Sale Operations. This decline in revenue
resulted primarily from the sale of our operations in Spain, Portugal, France,
Canada and Argentina, which occurred after the first quarter of fiscal year
2002. The decline in total funeral revenue is also due to a decrease in the
number of funeral services performed by Existing Operations coupled with the
increase in the proportion of cremations performed compared to traditional
funerals, and reduced trust earnings recognized upon the delivery of preneed
funerals resulting from lower returns realized in our preneed funeral trust
funds over the last few years.

Funeral revenue from Operations to be Retained decreased $1.8 million, or
2 percent, for the three months ended January 31, 2003, compared to the
corresponding period in 2002. There was a 1.6 percent decrease (301 events) in
the number of funeral services performed, partially offset by a 1.1 percent
increase in average revenue per funeral service performed by these businesses.
The 1.6 percent decrease in events was consistent with the 1.9 percent decrease
in deaths nationwide for the same period as reported by the Centers for Disease
Control and Prevention. We experienced a $1.8 million, or 2 percent, decrease
in funeral revenue from Existing Operations primarily due to a 1.8 percent
decrease (340 events) in the number of funeral services performed by these
businesses, partially offset by a 1.2 percent increase in the average revenue
per funeral service performed. The increases in average revenue per funeral
service performed were reduced due to the increase in the proportion of
cremations performed compared to

32



---



##### Table of Contents



traditional funerals, the unexpected decline
in overall deaths in the first quarter of 2003 and the reduced trust earnings
recognized upon the delivery of preneed funerals.

The increase in funeral costs from Existing Operations is due to an
increase in insurance costs and an increase in other costs.

Funeral gross profit margin from Existing Operations decreased from 30.5
percent in the first quarter of fiscal year 2002 to 25.4 percent in the first
quarter of fiscal year 2003 due to the decrease in revenue and increase in
costs, resulting primarily from the factors discussed above.

Cemetery Segment

|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|---------------------------------------------- |  | ------------------ | ---- | -------- |  | ---------- | ---- | - |  | - | ---- | -
|                                               |  | Three Months Ended |      |          |  |           
|                                               |  | January 31,        |      |          |  |           
|                                               |  |                    |      | Increase
|                                               |  | 2003               |      | 2002     |  | (Decrease)
|                                               |  |                    |      |          |  |           
|                                               |  | (In millions)     
|CEMETERY  OPERATIONS TO BE RETAINED           |  |                    |      |          |  |            |      |   |  |   |      |  
|Revenue                                        |  |                    |      |          |  |            |      |   |  |   |      |  
|Existing operations                            |  | $                  | 54.2 |          |  | $          | 57.0 |   |  | $ | (2.8 | )
|Opened operations                              |  |                    |     |          |  |            |     |   |  |   |     |  
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|                                               |  | $                  | 54.2 |          |  | $          | 57.0 |   |  | $ | (2.8 | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|Costs                                          |  |                    |      |          |  |            |      |   |  |   |      |  
|Existing operations                            |  | $                  | 42.0 |          |  | $          | 42.1 |   |  | $ | (.1  | )
|Opened operations                              |  |                    |     |          |  |            |     |   |  |   |     |  
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|                                               |  | $                  | 42.0 |          |  | $          | 42.1 |   |  | $ | (.1  | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|Gross
Profit                                   |  |                    |      |          |  |            |      |   |  |   |      |  
|Existing operations                            |  | $                  | 12.2 |          |  | $          | 14.9 |   |  | $ | (2.7 | )
|Opened operations                              |  |                    |     |          |  |            |     |   |  |   |     |  
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|                                               |  | $                  | 12.2 |          |  | $          | 14.9 |   |  | $ | (2.7 | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|CEMETERY  CLOSED AND HELD FOR SALE OPERATIONS |  |                    |      |          |  |            |      |   |  |   |      |  
|Revenue                                        |  | $                  | .3   |          |  | $          | 1.5  |   |  | $ | (1.2 | )
|Costs                                          |  |                    | .2   |          |  |            | 1.9  |   |  |   | (1.7 | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|Gross Profit                                   |  | $                  | .1   |          |  | $          | (.4  | ) |  | $ | .5   |  
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|Total Cemetery Revenue                         |  | $                  | 54.5 |          |  | $          | 58.5 |   |  | $ | (4.0 | )
|Total Cemetery Costs                           |  |                    | 42.2 |          |  |            | 44.0 |   |  |   | (1.8 | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  
|Total Cemetery Gross Profit                    |  | $                  | 12.3 |          |  | $          | 14.5 |   |  | $ | (2.2 | )
|                                               |  |                    |      |          |  |            |      |   |  |   |      |  

Total cemetery revenue decreased $4.0 million, or 7 percent, for the three
months ended January 31, 2003, compared to the corresponding period in 2002.
We experienced a $2.8 million, or 5 percent, decrease in revenue from
Operations to be Retained primarily due to reduced perpetual care trust
earnings and reduced preneed cemetery property sales. We experienced an
annualized average return of 4.2 percent in our perpetual care trust funds in
the first quarter of 2003 resulting in revenue of $1.9 million, compared to 8.7
percent in the first quarter of 2002 resulting in revenue of $4.2 million.

Cemetery gross profit margin from Existing Operations decreased from 26.1
percent in the first quarter of 2002 to 22.5 percent in the first quarter of
2003. The decline was principally due to the reduction in perpetual care trust
earnings and preneed cemetery property sales coupled with increased insurance
costs and increased other costs.

33



---



##### Table of Contents



Other

Corporate general and administrative expenses for the first quarter of
2003 increased $.5 million compared to the same period in 2002 primarily due to
the adoption of the Stewart Enterprises, Inc. Supplemental Executive Retirement
Plan (the Plan). The Plan, which became effective April 1, 2002, provides
retirement benefits to certain executive officers, which are intended to
supplement the benefits available under our 401(k) Plan and in part replace
other benefits previously available under the executive officers employment
agreements. Adoption of the Plan resulted in a charge to corporate general and
administrative expenses of $.5 million for the three months ended January 31,
2003 and will result in a charge of approximately $.5 million per quarter
thereafter.

Depreciation and amortization was $13.4 million for the three months ended
January 31, 2003 and 2002.

EBITDA (defined as earnings before interest expense, income taxes,
depreciation and amortization) was $42.3 million, or 32.2 percent of revenue
for the first quarter of fiscal year 2003 compared to $50.8 million, or 33.1
percent of revenue for the same period in 2002. Domestic EBITDA, which is
fairly representative of Operations to be Retained, was $42.3 million, or 32.2
percent of domestic revenue for the first quarter of fiscal year 2003 compared
to $47.7 million, or 35.0 percent of domestic revenue for the same period in
2002. The decrease in domestic EBITDA is primarily due to the decline in
operating earnings. EBITDA is frequently used by security analysts and is
presented here to provide additional information about our operations. EBITDA
should not be considered as an alternative to net earnings, as an indicator of
our operating performance or as an alternative to cash flows as a better
measure of liquidity. EBITDA is a non-GAAP measure and may not be comparable
as calculated by us to EBITDA as calculated by other companies.

Interest expense decreased $3.4 million to $13.6 million for the three
months ended January 31, 2003 compared to $17.0 million for the same period in
2002. The decrease is due to a $141.2 million decrease in the average debt
outstanding during the quarter ended January 31, 2003.

Other income, net, increased approximately $1.6 million during the first
quarter of fiscal year 2003 compared to the same period in 2002 principally due
to net gains on the sales of a few small domestic funeral homes in the first
quarter of 2003. We have approximately $5.5 million of assets held for sale,
consisting primarily of domestic funeral homes, and we may elect to sell other
small domestic properties from time to time. Any future sales may generate
gains or losses that would be reflected in other income in future periods.

As of January 31, 2003, our outstanding debt totaled $549.2 million. Of
the total amount outstanding, including the portion subject to the interest
rate swap agreements in effect as of January 31, 2003, approximately 94 percent
was fixed-rate debt, with the remaining 6 percent subject to short-term
variable interest rates averaging approximately 5.1 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 March 5, 2003, the effective rate of the debt hedged by the
interest rate swaps was 6.775 percent and 7.39 percent on each $50.0 million
swapped.

34



---



##### Table of Contents



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 $37.2 million in preneed sales to our funeral and
cemetery merchandise and service backlog during the three months ended January
31, 2003 to be recognized in the future, net of cancellations, as these prepaid
products and services are delivered, compared to $36.9 million for the
corresponding period in 2002. Deliveries out of our preneed funeral and
cemetery merchandise and service backlog, including accumulated trust fund
earnings related to these preneed deliveries, amounted to $41.5 million for the
three months ended January 31, 2003, compared to $41.1 million for the
corresponding period in 2002.

Liquidity and Capital Resources

Introduction

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

In the first quarter of 2003, several external factors adversely impacted
our business. There were decreased deaths nationwide according to data
published by the Centers for Disease Control and Prevention. Weak financial
markets reduced our perpetual care trust earnings, and low levels of consumer
confidence negatively affected our ability to increase preneed sales. Based on
these factors, we revised our outlook for 2003. We believe that most of the
external factors adversely impacting our business are temporary, but while they
continue, we will remain focused on improving operational performance,
generating cash and reducing debt. We will evaluate how to best deploy our
cash flow as opportunities arise. We will consider acquiring high-quality
cemeteries and funeral homes that are priced within our guidelines and that fit
our new business model, opening new funeral homes or entering into agreements
to construct funeral homes in third-party cemeteries. At certain levels, we
believe our stock represents a better investment at lower risk than other
external growth opportunities, and we would recommend that course of action to
our Board of Directors if we determined that the stock repurchase represents
the best return on our investment, although we would need waivers of
restrictive covenants in our senior secured credit facility to do so. Based
on the results of our analysis, we may also consider reducing debt below our
goal of $500 million.

Contractual Obligations and Commercial Commitments

The following table details our known future cash payments (in millions)
related to various contractual obligations as of January 31, 2003.

|                                         |  |                        |       |      |  |             |       |              |  |              |      |  |  |   |      |  |  |   |       | 
|---------------------------------------- |  | ---------------------- | ----- | ---- |  | ----------- | ----- | ------------ |  | ------------ | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                         |  | Payments Due by Period
|                                         |  |                       
|                                         |  |                        |       |      |  | Fiscal Year |       | Fiscal Years |  | Fiscal Years |      |  |  |  
|Contractual Obligations                  |  | Total                  |       | 2003 |  | 2004 - 2005 |       | 2006 - 2007  |  | Thereafter  
|                                         |  |                        |       |      |  |             |       |              |  |             
|Current maturities of long-term debt (1) |  | $                      | 6.7   |      |  | $           | 5.0   |              |  | $            | 1.7  |  |  | $ |     |  |  | $ |      | 
|Long-term debt (1)                       |  |                        | 540.9 |      |  |             | 99.9  | (1)          |  |              | 72.3 |  |  |   | 65.7 |  |  |   | 303.0 | 
|Operating lease agreements (2)           |  |                        | 41.6  |      |  |             | 4.0   |              |  |              | 8.3  |  |  |   | 5.9  |  |  |   | 23.4  | 
|Non-competition agreements (3)           |  |                        | 17.1  |      |  |             | 4.2   |              |  |              | 7.3  |  |  |   | 3.5  |  |  |   | 2.1   | 
|                                         |  |                        |       |      |  |             |       |              |  |              |      |  |  |   |      |  |  |   |       | 
|                                         |  | $                      | 606.3 |      |  | $           | 113.1 |              |  | $            | 89.6 |  |  | $ | 75.1 |  |  | $ | 328.5 | 
|                                         |  |                        |       |      |  |             |       |              |  |              |      |  |  |   |      |  |  |   |       | 

35



---



##### Table of Contents





---

|(1) |  | These amounts exclude the unamortized option premium relating to the
ROARS of $1.6 million as of January 31, 2003. See below for a breakdown
of our future scheduled principal payments and maturities of our long-term
debt as of January 31, 2003.                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our noncancellable operating leases are primarily for land and buildings
and expire over the next 1 to 17 years, except for six leases that expire
between 2032 and 2039. Our future minimum lease payments as of January
31, 2003 are $4.0 million, $4.6 million, $3.7 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 and key
employees 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.                                                               

Long-term debt as of January 31, 2003 was $549.2 million and as of March
5, 2003 was $545.5 million, which included $1.6 million of the unamortized
option premium related to the ROARS. The following table reflects future
scheduled principal payments and maturities of our long-term debt (in millions)
as of January 31, 2003.

|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  |             |      |  |  |   |       | 
|------------------------------------------------ |  | ------ | ----- | ------------ |  | ------------ | ----- | ------------ |  | ---------- | ----- | ----- |  | ------------ | -- |  |  | ----------- | ---- |  |  | - | ----- | 
|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  | Other,      |      |  |  |  
|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  | Principally |      |  |  |  
|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  | Seller      |      |  |  |  
|Fiscal                                           |  |        |       |              |  | Senior       |       | 6.40%        |  |            |       |       |  | Financing of |    |  |  |            
|Year Ending                                      |  | Term   |       | Subordinated |  | Public Notes |       | 6.70%        |  | Acquired   |       |       |  |             
|October 31,                                      |  | Loan B |       | Notes        |  | (ROARS)      |       | Public Notes |  | Operations |       | Total
|                                                 |  |        |       |              |  |              |       |              |  |            |       |      
|2003                                             |  | $      | 1.9   |              |  | $            |      |              |  | $          | 99.9  | (1)   |  | $            |   |  |  | $           | 3.1  |  |  | $ | 104.9 | 
|2004                                             |  |        | 2.5   |              |  |              |      |              |  |            |      |       |  |              | .1 |  |  |             | 3.9  |  |  |   | 6.5   | 
|2005                                             |  |        | 65.6  |              |  |              |      |              |  |            |      |       |  |              |   |  |  |             | 1.9  |  |  |   | 67.5  | 
|2006                                             |  |        | 64.1  |              |  |              |      |              |  |            |      |       |  |              |   |  |  |             | .9   |  |  |   | 65.0  | 
|2007                                             |  |        |      |              |  |              |      |              |  |            |      |       |  |              |   |  |  |             | .7   |  |  |   | .7    | 
|Thereafter                                       |  |        |      |              |  |              | 300.0 |              |  |            |      |       |  |              |   |  |  |             | 3.0  |  |  |   | 303.0 | 
|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  |             |      |  |  |   |       | 
|Subtotal                                         |  | $      | 134.1 |              |  | $            | 300.0 |              |  | $          | 99.9  |       |  | $            | .1 |  |  | $           | 13.5 |  |  |   | 547.6 | 
|                                                 |  |        |       |              |  |              |       |              |  |            |       |       |  |              |    |  |  |             |      |  |  |   |       | 
|Unamortized option premium relating to the ROARS |  |        |       |              |  |              |       |              |  |            | 1.6   |      
|                                                 |  |        |       |              |  |              |       |              |  |            |       |      
|Total long-term debt                             |  |        |       |              |  |              |       |              |  | $          | 549.2 |      
|                                                 |  |        |       |              |  |              |       |              |  |            |       |      



---

|(1) |  | We may redeem the ROARS on May 1, 2003 to prevent having the debt
remarketed, which will depend primarily upon prevailing market conditions
at that time. As of March 5, 2003, we had sufficient availability under
our revolver to redeem the ROARS and pay the remarketing dealer an amount
equal to the contractually specified value of the remarketing right, and
after giving effect to the redemption and the payment of the remarketing
right, we expect to have Available Liquidity, as defined in the senior
secured credit facility, of no less than $25 million. Accordingly, we
have classified the ROARS as long-term debt.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also have $14.2 million of outstanding letters of credit as of January
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 January 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.

36



---



##### Table of Contents



Under our senior secured credit facility, as long as any of the 6.70
percent Notes or ROARS are outstanding, we must maintain a required reserve
consisting of (1) availability under the revolving credit facility and/or (2)
domestic cash, cash equivalents and marketable securities, the access to which
is restricted on terms satisfactory to the collateral agent. The required
reserve is an amount equal to the lesser of (1) the amount by which the net
cash
proceeds from asset sales (calculated on a cumulative basis from the completion
of the refinancing transactions) exceeds $75.0 million and (2) the outstanding
principal amount of the 6.70 percent Notes and ROARS. Notwithstanding the
foregoing, the required reserve cannot be less than the following percentages
of the outstanding principal amount of the 6.70 percent Notes and ROARS: 50
percent through January 31, 2003, 75 percent thereafter through April 30, 2003
and 100 percent thereafter. If the ROARS are remarketed, which would occur, if
at all, on May 1, 2003, they would not be considered outstanding for purposes
of the requirement to maintain the required reserve, and the required reserve
for the ROARS would therefore be eliminated. In that case, the portion of the
revolver restricted for purposes of the required reserve would then become
available to us. As of January 31, 2003 and March 5, 2003, our required
reserve was $100.0 million.

In order for us to purchase or otherwise retire any of the remaining 6.70
percent Notes or ROARS prior to maturity, we must provide evidence
satisfactory to the administrative agent under the senior secured credit
facility that, immediately after giving effect to the transaction, we will have
Available Liquidity, as defined in the senior secured credit facility, of no
less than $25 million. As of January 31, 2003 and March 5, 2003, there were no
amounts drawn on our $175.0 million revolving credit facility, and our
availability under the revolver, after giving consideration to the
aforementioned letters of credit, bond obligation and required reserve, was
$19.8 million. As of March 5, 2003, $119.7 million was available under the
revolver to redeem the ROARS and pay the remarketing dealer the contractually
specified value of the remarketing right, and after giving effect to the
redemption and the payment of the remarketing right, we expect to have
Available Liquidity, as defined in the senior secured credit facility, of no
less than $25 million. Accordingly, we have classified the ROARS as long-term
debt.

As of January 31, 2003, we had outstanding $99.9 million 6.40 percent
ROARS due May 1, 2013 (remarketing date May 1, 2003). Outstanding ROARS must be
redeemed by us or remarketed by the remarketing dealer on May 1, 2003. If the
remarketing dealer does not elect to remarket the ROARS, we must redeem them on
May 1, 2003 for 100 percent of their principal amount plus accrued interest.
If the remarketing dealer elects to remarket the ROARS, we may override that
election by choosing to redeem them on May 1, 2003 for 100 percent of their
principal amount plus accrued interest, in which case we will be obligated to
pay the remarketing dealer the value of the remarketing right, which was $14.8
million as of March 5, 2003.

Our senior secured credit facility contains financial covenants including
a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum
interest coverage ratio. The covenants are calculated quarterly on a
consolidated basis for the four quarter period ending on the date of
computation after giving pro forma effect to permitted asset dispositions and
acquisitions. Because payment of the value of the remarketing right would
cause us to be in violation of these covenants, we would be required to obtain
a waiver of these covenants prior to making the payment.

If the ROARS are remarketed, holders immediately prior to May 1, 2003 must
tender them to the remarketing dealer for purchase on May 1, 2003 for a
purchase price of 100 percent of their principal amount plus accrued interest.
If remarketed, the ROARS will become due May 1, 2013, and the coupon for the
remaining term will be 5.44 percent (which was the 10-year United States
Treasury rate at the time of initial issuance) plus our then current credit
spread. For additional discussion regarding the impact of the potential
redemption of the ROARS, see Forward-Looking Statements included in Part II,
Item 5.

37



---



##### Table of Contents



Cash Flow

Our operations used cash of $7.7 million for the three months ended
January 31, 2003, compared to using cash of $2.0 million for the corresponding
period in 2002. The decrease in operating cash flow is due primarily to a
reduction in net earnings and other working capital changes. Our cash flow
does not come in evenly throughout the year. Due to the timing of vendor
payments, interest payments and cash used in our preneed business, historically
we have had negative to slightly positive cash flow in our first fiscal quarter
while generating greater amounts of cash in later quarters.

Our investing activities resulted in a net cash outflow of $1.1 million
for the three months ended January 31, 2003, compared to a net cash outflow of
$1.0 million for the comparable period in 2002. For the three months ended
January 31, 2003, capital expenditures amounted to $3.1 million, which included
$2.9 million for maintenance capital expenditures and $.2 million for new
growth initiatives.

Our financing activities resulted in a net cash outflow of $2.4 million
for the three months ended January 31, 2003, compared to a net cash outflow of
$3.1 million for the comparable period in 2002. The change from the first
quarter of 2002 to the first quarter of 2003 is due principally to repayments
of long-term debt of $2.7 million in the three months ended January 31, 2003,
compared to $3.5 million in the comparable period of 2002.

Ratio of Earnings to Fixed Charges

The Companys ratio of earnings to fixed charges was as follows:

|                        |  |             |      |      |  |      |      |      |  |      |   |        |  |  |      |     |  |              |      | 
|----------------------- |  | ----------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | - | ------ |  |  | ---- | --- |  | ------------ | ---- | 
|                        |  |             |      |      |  |      |      |      |  |      |   |        |  |  |      |     |  | Three Months
|                        |  |             |      |      |  |      |      |      |  |      |   |        |  |  |      |     |  | Ended       
|Years Ended October 31, |  | January 31,
|                        |  |            
|1998                    |  | 1999        |      | 2000 |  | 2001 |      | 2002 |  | 2003
|                        |  |             |      |      |  |      |      |      |  |     
|2.38(1)                 |  |             | 3.43 | (2)  |  |      | 2.57 |      |  |      |  | (2)(3) |  |  | 1.75 | (4) |  |              | 2.08 | 



---

|(1) |  | Pretax earnings for fiscal year 1998 include a nonrecurring, noncash
charge of $76.8 million in connection with the vesting of
performance-based stock options. Excluding the charge, our ratio of
earnings to fixed charges for fiscal year 1998 would have been 4.01.                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes the cumulative effect of change in accounting principles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Pretax earnings for fiscal year 2001 include a noncash charge of $269.2
million in connection with the writedown of assets held for sale and other
charges. As a result of this charge, our earnings for the fiscal year
ended October 31, 2001 were insufficient to cover our fixed charges, and
an additional $187.8 million in pretax earnings would have been required
to eliminate the coverage deficiency. Excluding the charge, the early
extinguishment of debt and the cumulative effect of the change in
accounting principles, our ratio of earnings to fixed charges for fiscal
year 2001 would have been 2.21.
|   
|(4) |  | Pretax earnings for fiscal year 2002 include a noncash charge of $18.5
million in connection with the writedown of assets held for sale.
Excluding the charge, our ratio of earnings to fixed charges for fiscal
year 2002 would have been 2.04.                                                                                                                                                                                                                                                                                                                                                                           

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 three months ended January 31, 2003 and
fiscal year 2002 reflect the adoption of

38



---



##### Table of Contents



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 in 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.

39



---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES




Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

Interest

We have entered into various fixed- and variable-rate debt obligations,
which are detailed in Note 12 to our consolidated financial statements included
in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002.

In order to hedge a portion of the interest rate risk associated with our
variable-rate debt, during the first quarter of 1999, we entered into a
three-year interest rate swap agreement involving a notional amount of $200.0
million. This agreement, which became effective March 4, 1999, effectively
converted $200.0 million of variable-rate debt bearing interest based on
three-month LIBOR to a fixed rate based on the swap rate of 4.915 percent.
This swap expired on March 4, 2002. Effective March 11, 2002, we entered into
two interest rate swap agreements, each involving a notional amount of $50.0
million. The first agreement effectively converts $50.0 million of
variable-rate debt bearing interest based on three-month LIBOR to a fixed rate
based on the swap rate of 3.65 percent and expires on March 11, 2004. The
second agreement effectively converts $50.0 million of variable-rate debt
bearing interest based on three-month LIBOR to a fixed rate based on the swap
rate of 4.265 percent and expires on March 11, 2005. The estimated fair value
of the interest rate swaps based on quoted market prices was ($3.9) million and
($4.0) million as of January 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 a change of approximately $1.5 million and $1.8
million in the fair value of these instruments as of January 31, 2003 and
October 31, 2002, respectively.

As of January 31, 2003 and October 31, 2002, the carrying values of our
Term Loan B, including accrued interest, were $134.1 million and $135.7
million, respectively, compared to fair values of $135.0 million and $136.5
million, respectively. Of the $134.1 million outstanding under Term Loan B on
January 31, 2003, $34.1 million was not hedged by the interest rate swaps and
was subject to short-term variable interest rates. Each approximate 10
percent, or 65 basis point, change in the average interest rate applicable to
this debt would result in a change of approximately $.2 million in our pretax
earnings. Fair value was determined using quoted market prices. 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.

40



---



##### Table of Contents



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 January 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 on the preneed
funeral and cemetery merchandise and perpetual care trust funds, based on the
January 31, 2003 balances, would result in an approximate $1.9 million increase
or decrease per year in our revenues associated with the delivery of
prearranged products and services and earnings from the perpetual care trust
funds in fiscal year 2003, approximate $2.3 million in 2004, approximate $3.5
million in 2005 and approximate $5.0 million in 2006.

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

Item 4. Controls and Procedures

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

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

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

41



---



##### Table of Contents






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, we do 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, we believe 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 and (5) our long-term
growth plan, including our ability to find attractive acquisition opportunities
at prices we are willing to pay.

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

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

One of our goals is to reduce our outstanding debt to $500 million. During
fiscal year 2002, we completed the sale of all of our foreign operations within
our targeted timeframe, resulting in cash proceeds in our estimated range. Our
goal was to sell our foreign operations and receive proceeds including tax
benefits in the range of $200 million to $250 million. Now that all sales are
completed, we expect to ultimately receive total proceeds of approximately $245
million. We have received $203 million of the proceeds and expect to realize
the majority of the remaining
proceeds

42



---



##### Table of Contents



of approximately $42 million of income tax benefits during 2003 and
2004. As of March 5, 2003, our remaining outstanding debt was approximately
$545 million. With the future tax proceeds that we expect to realize, we will
need about $10 million of our cash flow to achieve our debt target during
fiscal 2003 or 2004, depending on the timing of the realization of our tax
benefits.

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

We recently revised our fiscal year 2003 forecasts. We project that
earnings will be between $0.30 and $0.35 per share for fiscal year 2003,
excluding any impact from potential acquisitions and excluding any impact from
the potential redemption of the ROARS as discussed below. Excluding any impact
from potential acquisitions and the potential redemption of the ROARS, we
expect cash flow from operations to be between $50 million and $60 million and
expect free cash flow (cash flow from operations less maintenance capital
expenditures) to be between $40 million and $45 million. Free cash flow is
frequently used by security analysts and is presented here to provide
additional information about our operations. Free cash flow should not be
considered as an alternative to cash flow from operations as a better measure
of liquidity. Free cash flow is a non-GAAP measure and may not be comparable
as calculated by us to free cash flow as calculated by other companies.

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

Reduced Preneed Property Sales

The significant decline in consumer confidence in the national economy and
reduced discretionary spending has placed significant downward pressure on
preneed property sales. We had originally projected preneed property sales to
increase over the prior year, but based on lower consumer confidence, have
lowered our expectations for preneed property sales to be less than last year.

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 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. Our insurance costs are expected to
increase materially in 2003.

Lower Returns on Trust Funds

From 1991 through 1999 we achieved an overall annual return of 8.0 percent
to 9.0 percent in our trust funds. However, the average return on our domestic
trust funds was 5.8 percent, 6.3 percent and 4.3 percent, for fiscal years
2000, 2001 and 2002, 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

43



---



##### Table of Contents



cemetery merchandise trust funds until the underlying products and
services are delivered. Consequently, the lower returns recently realized 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.

Fewer Deaths in the Short-Term

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

Reduced Interest Costs

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

Elimination of earnings contribution from foreign operations

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

Potential redemption of the ROARS in May 2003

Management is currently considering recommending to the Board of Directors
that we redeem the ROARS as an alternative to allowing them to be remarketed on
May 1, 2003. The forecasts above do not include any impact from the potential
redemption of the ROARS in May 2003. If they are redeemed, we must pay the
remarketing dealer an amount equal to the contractually specified value of the
remarketing right (the Calculation Amount). The Calculation Amount on March
5, 2003 (calculated as if the ROARS were redeemed on March 5, 2003) was $14.8
million. The Calculation Amount on May 1, 2003 will vary based on the then
applicable 10-year Treasury rate (which was 3.62 percent at March 5, 2003) as
follows:

|              |  |                            |  | 
|------------- |  | -------------------------- |  | 
|10-year       |  | Value of Remarketing Right
|Treasury Rate |  | ("Calculation Amount")    
|              |  |                           
|5.44%         |  | $  0                       |  | 
|5.00          |  | 3.4 million               
|4.50          |  | 7.5 million               
|4.00          |  | 11.8 million              
|3.50          |  | 16.2 million              
|3.00          |  | 20.9 million              

If we redeem the ROARS and are required to pay the Calculation Amount,
interest expense would be increased for fiscal year 2003 by the Calculation
Amount, and we would incur a net cash outflow for the after-tax effect of the
Calculation Amount.

44



---



##### Table of Contents



As indicated above, the Calculation Amount could be substantial; however,
we received approximately $2.9 million from the remarketing dealer at the time
of issuance for the remaining $99.9 million of ROARS for the right to remarket
them, and we have had the use of these funds since that time.

As of January 31, 2003, we had $1.6 million of unamortized ROARS option
premium primarily representing the unamortized portion of the approximate $2.9
million payment we received from the remarketing dealer. If we
redeem the ROARS, interest expense for fiscal year 2003 would be reduced by the
unamortized premium on May 1, 2003 of approximately $1.5 million.

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

If the remarketing dealer elects to remarket our $99.9 million outstanding 6.40
percent ROARS on May 1, 2003, and we elect to prevent that by redeeming the
ROARS, we would be required to pay the remarketing dealer the value of the
remarketing right at that time, which could have a material adverse effect on
our fiscal year 2003 interest expense, earnings and cash flow.

We are currently considering redeeming the ROARS as an alternative to
allowing them to be remarketed on May 1, 2003. If they are redeemed, we must
pay the remarketing dealer an amount equal to the contractually specified value
of the remarketing right (the Calculation Amount). The Calculation Amount
will depend largely on the then applicable 10-year Treasury rate. If we redeem
the ROARS and are required to pay the Calculation Amount, interest expense
would be increased for fiscal year 2003 by the amount of the Calculation
Amount, and we would incur a net cash outflow equal to the after-tax effect of
the Calculation Amount. We have not included any impact from the potential
redemption of the ROARS in fiscal year 2003 forecasts. For additional
information, see Forward-Looking Statements.

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

45



---



##### Table of Contents



the estimated costs to deliver the underlying products and
services. If that were to occur, we would record a charge to earnings to
reduce the investment value to the expected cost to deliver. Over time, gains
and losses realized in the funds are allocated to underlying preneed contracts
and affect the amount of the trust fund earnings we record when we deliver the
underlying product or service. Accordingly, if current market conditions do
not improve, the funds may eventually realize losses, and our revenues,
margins, earnings and cash flow would be negatively affected by the reduced
revenue when we deliver the underlying products and services. We project that
with approximately 3.0 percent to 5.0 percent annualized returns in the funds
over the estimated lives of the associated preneed contracts, our trust and
escrow funds would recover the net unrealized depreciation currently in
the funds by the time the underlying products and services are delivered.
Unrealized gains and losses in the perpetual care trust fund do not affect
earnings but could limit the capital gains available to us and could result in
lower returns and lower current revenues than we have historically achieved.

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

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

We expect insurance costs, in particular, to increase substantially in
2003. The terrorist attacks in the United States on September 11, 2001 and
related subsequent events have resulted in higher insurance premiums. The
volume of claims made in such a short span of time resulted in liquidity
challenges that many insurers have passed on to their policyholders.
Additionally, insurers have increased premiums to offset losses in equity
markets due to recent economic conditions. While our insurance costs are
expected to increase materially, the actual increase in insurance costs cannot
be predicted.

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

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

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

Our ability to achieve our debt reduction targets in the time frame
projected by us depends upon our ability to generate sufficient cash from two
main sources: (1) income tax proceeds associated with the foreign asset sales
and (2) our ongoing operations. We expect to generate capital gains against
which the foreign asset sale capital losses may be offset. There can be no
assurance that we will receive the tax benefits within our expected timeframe.
Our ability

46



---



##### Table of Contents



to receive the expected income tax benefits within our expected
timeframe depends upon, among other things, the timing of our filing for
capital loss carrybacks to apply against previously-taxed capital gains and the
rate at which we realize additional capital gains. Our tax planning strategy
is to produce these capital gains in our trust funds. Our ability to generate
capital gains could be affected by a decline in market conditions. Our ability
to generate cash flow from operations depends upon, among other things, the
number of deaths in our markets, competition, the level of preneed sales and
their maturities, our ability to control our costs, stock and bond market
conditions, and general economic, financial and regulatory factors, most of
which are beyond our control.

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

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

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

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

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

In recent years, marketing through television, radio and print
advertising, direct mailings and personal sales calls has increased with
respect to the sales of preneed funeral services. 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 March 5, 2003, $131.1 million of our long-term debt was subject to
variable interest rates, although $100 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.

47



---



##### Table of Contents



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

Our senior secured credit facility and the indenture governing the senior
subordinated notes contain, among other things, covenants that restrict us and
our subsidiary guarantors ability to finance future operations or capital
needs or to engage in other business activities. They limit, among other
things, our and our subsidiary guarantors ability to: borrow money; pay
dividends or distributions; purchase or redeem stock; make investments; engage
in transactions with affiliates; engage in sale leaseback transactions;
consummate specified asset sales; effect a consolidation or merger or sell,
transfer, lease, or otherwise dispose of all or substantially all assets; and
create liens on assets. In addition, the senior secured credit facility
contains specific limits on capital expenditures as well as a requirement that
we maintain a liquidity reserve that increases over time as long as any of the
6.70 percent Notes or 6.40 percent ROARS are outstanding. Furthermore, the
senior secured credit facility requires us to maintain specified financial
ratios and satisfy financial condition tests and prohibits payment of the 6.70
percent Notes and the 6.40 percent ROARS unless thereafter our Available
Liquidity, as defined in the senior secured credit facility, is
no less than $25 million.

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 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.
For example, data obtained from the Centers for Disease Control and Prevention
(CDC) indicate a decrease in deaths in the United States of 1.9 percent
during our first quarter of fiscal year 2003, compared to the same period in
the prior year. In addition, changes in the number of deaths can vary among
local markets and from quarter to quarter, and variations in the number of
deaths in our markets or from quarter to quarter are not predictable. These
variations can cause revenues to fluctuate.

Our comparisons of the change in the number of families served to the
change in the number of deaths reported by the CDC from time to time may not
necessarily be meaningful. The CDC receives weekly mortality reports from 122
cities and metropolitan areas in the United States within two to three weeks
from the date of death and reports the

48



---



##### Table of Contents



total number of deaths occurring in
these areas each week based on the reports received from state health
departments. The comparability of our funeral calls to the CDC data is
limited, as reports from the state health departments are often delayed, and
the 122 cities reporting to the CDC are not necessarily comparable with the
markets in which we operate. Nonetheless, we believe that the CDC data is the
most comprehensive data of this kind available.

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

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

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

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

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

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

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

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

In addition, from time to time, governments and agencies propose to amend
or add regulations, which could increase costs or decrease cash flows. For
example, federal, state, local and other regulatory agencies have considered
and may enact additional legislation or regulations that could affect the death
care industry. In November 2002, the Federal Death Care Inspection and
Disclosure Act was introduced in the Senate, which, if adopted, would more
heavily regulate the death care industry and could result in an increase in our
costs. Several states and regulatory

49



---



##### Table of Contents



agencies have considered or are
considering regulations that could require more liberal refund and cancellation
policies for preneed sales of products and services, limit or eliminate our
ability to use surety bonding, increase trust requirements and prohibit the
common ownership of funeral homes and cemeteries in the same market. If
adopted by the regulatory authorities of the jurisdictions in which we operate,
these and other possible proposals could have a material adverse effect on us,
our financial condition, our results of operations and our future prospects.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|3.1 |  | Amended and Restated Articles of Incorporation of the Company, as amended
and restated as of November 5, 1999 (incorporated by reference to Exhibit
3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended
October 31, 1999 (the 1999 10-K))                                                                                                                                                                                                                                                                          
|   
|3.2 |  | By-laws of the Company, as amended and restated as of December 19, 2002
(incorporated by reference to Exhibit 3.2 to the Companys Annual Report
on Form 10-K for the fiscal year ended October 31, 2002)                                                                                                                                                                                                                                                                                                                                  
|   
|4.1 |  | See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and
Restated Articles of Incorporation, as amended, and By-laws, as amended,
defining the rights of holders of Class A and Class B common stock                                                                                                                                                                                                                                                                                                                           
|   
|4.2 |  | Specimen of Class A common stock certificate (incorporated by reference
to Exhibit 4.2 to Amendment No. 3 to the Companys Registration Statement
on Form S-1 (Registration No. 33-42336) filed with the Commission on
October 7, 1991)                                                                                                                                                                                                                                                                                                    
|   
|4.3 |  | Indenture dated as of December 1, 1996 by and between the Company and
Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K dated December 5, 1996) and
Supplemental Indenture dated April 24, 1998 (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K dated April 21,
1998) and Second Supplemental Indenture dated June 29, 2001 (incorporated
by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
dated June 29, 2001)
|   
|4.4 |  | Form of 6.70 percent Note due 2003 (incorporated by reference to Exhibit
4.6 to the Companys Form S-4 dated August 14, 2001)                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|4.5 |  | Form of 6.40 percent Remarketable Or Redeemable Securities (ROARS) due
May 1, 2013 (Remarketing date May 1, 2003) (incorporated by reference to
Exhibit 4.7 to the Companys Form S-4 dated August 14, 2001)                                                                                                                                                                                                                                                                                                                               
|   
|4.6 |  | 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)                                                                                                                                                                                                                                                                                                   
|   
|4.7 |  | 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)                                                    
|   
|4.8 |  | 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)                                                                                                                                                                                                                                                                                                                             

50



---



##### Table of Contents





|4.9  |  | 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)                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|4.10 |  | Remarketing Agreement dated April 24, 1998 between the Company and
NationsBanc Montgomery Securities LLC (incorporated by reference to
Exhibit 1.2 to the Companys Form 8-K dated April 21, 1998) and Amendment
to Remarketing Agreement dated May 15, 2001 between the Company and Bank
of America Securities LLC (which has changed its name from NationsBanc
Montgomery Securities LLC) (incorporated by reference to Exhibit 4.10 to
the Companys Annual Report on Form 10-K for the fiscal year ended October
31, 2002)



---



|12  |  | Calculation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                
|   
|    |  | We filed a Form 8-K dated December 17, 2002, reporting under Item 5.
Other Events, the earnings release for the quarter ended October 31, 2002
and under Item 9. Regulation FD Disclosures, our forecasts for fiscal
year 2003.

51



---



##### Table of Contents



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                                    
|               |  |                                                             
|March 14, 2003 |  | /s/ KENNETH C. BUDDE                                        
|               |  |                                                             
|               |  | Kenneth C. Budde                                            
|               |  | Executive Vice President
Chief Financial Officer            
|               |  |                                                             
|March 14, 2003 |  | /s/ MICHAEL G. HYMEL                                        
|               |  |                                                             
|               |  | Michael G. Hymel                                            
|               |  | Vice President
Corporate Controller
Chief Accounting Officer

52



---



##### Table of Contents






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

I, William E. Rowe, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Stewart Enterprises,
Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



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



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



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

Date: March 14, 2003

/s/ WILLIAM E. ROWE

---

53



---



##### Table of Contents






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

I, Kenneth C. Budde, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Stewart
Enterprises, Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



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



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



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

Date: March 14, 2003

/s/ KENNETH C. BUDDE

---

54