Stewart Enterprises 10Q 2002 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended April 30, 2002
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 (State or other jurisdiction of incorporation or organization)		72-0693290 (I.R.S. Employer Identification No.)

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

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

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

The number of shares of the Registrant’s Class A common stock, no par value per share, and Class B common stock, no par value per share, outstanding as of June 5, 2002, was 104,379,955 and 3,555,020, respectively.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

INDEX


		Page
Part I	Financial Information

	Item 1. Financial Statements (Unaudited)

	Consolidated Statements of Earnings — Three Months Ended April 30, 2002 and 2001		3

	Consolidated Statements of Earnings — Six Months Ended April 30, 2002 and 2001		4

	Consolidated Balance Sheets — April 30, 2002 and October 31, 2001		5

	Consolidated Statement of Shareholders’ Equity — Six Months Ended April 30, 2002		7

	Consolidated Statements of Cash Flows — Six Months Ended April 30, 2002 and 2001		8

	Notes to Consolidated Financial Statements		10

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		43

Part II.	Other Information

	Item 1. Legal Proceedings		45

	Item 4. Submission of Matters to a Vote of Security Holders		45

	Item 5. Other Information		45

	Item 6. Exhibits and Reports on Form 8-K		52

	Signatures		54

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-10.1 Employment Agrmt Amendment-W. Rowe
EX-10.2 Employment Agrmt Amendment-B. Marlowe
EX-10.3 Employment Agrmt Amendment-K. Budde
EX-10.4 Employment Agrmt Amendment-L. Hawkins
EX-10.5 Employment Agrmt Amendment-B. Heffron
EX-10.6 Employment Agrmt Amendment-R. Stricklin
EX-10.7 Employment Agrmt Supplement-G. Stephens Jr
EX-10.8 Employment Agrmt Amendment-M. Crane
EX-10.9 Employment Agrmt Supplement-M. Crane
EX-10.10 Employment Agrmt Amendment-E. Kendrick
EX-10.11 Amended/Restated 2000 Directors' Plan
EX-10.12 Supplemental Executive Retirement Plan
EX-12 Ratio of Earnings to Fixed Charges

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Three Months Ended April 30,

		2002			2001

Revenues:
	Funeral	$	90,848		$	107,958
	Cemetery		60,141			62,981

			150,989			170,939

Costs and expenses:
	Funeral		65,573			82,366
	Cemetery		45,277			47,358

			110,850			129,724

	Gross profit		40,139			41,215
Corporate general and administrative expenses			4,115			4,905

	Operating earnings		36,024			36,310
Interest expense			(15,859	)		(14,071	)
Investment income			98			1,567
Other income, net			510			2,349

	Earnings before income taxes		20,773			26,155
Income taxes			7,894			9,547

	Net earnings	$	12,879		$	16,608

Net earnings per common share:
	Basic	$	.12		$	.15

	Diluted	$	.12		$	.15

Weighted average common shares outstanding (in thousands):
	Basic		107,822			107,306

	Diluted		108,337			107,320

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Six Months Ended April 30,

		2002			2001

Revenues:
	Funeral	$	185,931		$	215,307
	Cemetery		118,627			132,322

			304,558			347,629

Costs and expenses:
	Funeral		134,198			164,972
	Cemetery		89,245			98,357

			223,443			263,329

	Gross profit		81,115			84,300
Corporate general and administrative expenses			7,885			9,066

	Operating earnings		73,230			75,234
Interest expense			(32,829	)		(29,421	)
Investment income			222			3,638
Other income, net			590			3,184

	Earnings before income taxes and cumulative effect of change in accounting principles		41,213			52,635
Income taxes			15,661			19,212

	Earnings before cumulative effect of change in accounting principles		25,552			33,423
Cumulative effect of change in accounting principles, net of a $166,669 income tax benefit (Note 2)			—			(250,004	)

	Net earnings (loss)	$	25,552		$	(216,581	)

Basic earnings per common share:
	Earnings before cumulative effect of change in accounting principles	$	.24		$	.31
	Cumulative effect of change in accounting principles		—			(2.33	)

	Net earnings (loss)	$	.24		$	(2.02	)

Diluted earnings per common share:
	Earnings before cumulative effect of change in accounting principles	$	.24		$	.31
	Cumulative effect of change in accounting principles		—			(2.33	)

	Net earnings (loss)	$	.24		$	(2.02	)

Weighted average common shares outstanding (in thousands):
	Basic		107,729			107,131

	Diluted		108,289			107,136

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


			April 30,		October 31,
ASSETS			2002		2001

Current assets:
	Cash and cash equivalent investments		$	34,819	$	23,123
	Marketable securities			2,735		2,614
	Receivables, net of allowances			72,228		75,822
	Inventories			49,350		47,068
	Prepaid expenses			2,588		2,208
	Deferred income taxes			19,112		13,935
	Assets held for sale (Note 7)			135,786		164,511

		Total current assets		316,618		329,281
Receivables due beyond one year, net of allowances				79,268		80,767
Prearranged receivables				1,198,971		1,198,744
Goodwill				491,122		491,122
Deferred charges				255,429		257,131
Cemetery property, at cost				386,588		386,002
Property and equipment, at cost:
	Land			45,167		45,232
	Buildings			301,631		299,085
	Equipment and other			149,522		145,614

				496,320		489,931
	Less accumulated depreciation			157,835		146,477

	Net property and equipment			338,485		343,454
Deferred income taxes				115,266		132,004
Other assets				3,067		2,902

			$	3,184,814	$	3,221,407

					(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


			April 30,			October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY			2002			2001

Current liabilities:
	Current maturities of long-term debt		$	6,854		$	6,828
	Accounts payable			8,823			6,073
	Accrued payroll			11,614			16,212
	Accrued insurance			16,095			16,992
	Accrued interest			15,086			16,276
	Accrued other			7,789			9,406
	Liabilities associated with assets held for sale (Note 7)			90,362			103,568

		Total current liabilities		156,623			175,355
Long-term debt, less current maturities				654,853			684,036
Prearranged deferred revenue				1,576,077			1,589,533
Other long-term liabilities				18,118			20,423

		Total liabilities		2,405,671			2,469,347

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 104,379,955 and 104,071,027 shares at April 30, 2002 and October 31, 2001, respectively		104,380			104,071
		Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at April 30, 2002 and October 31, 2001; 10 votes per share; convertible into an equal number of Class A shares		3,555			3,555
	Additional paid-in capital			676,719			675,310
	Retained earnings (accumulated deficit)			24,290			(1,262	)
	Cumulative foreign translation adjustment			(28,421	)		(26,957	)
	Unrealized depreciation of investments			(919	)		(1,310	)
	Derivative financial instrument losses			(461	)		(1,347	)

		Total shareholders’ equity		779,143			752,060

			$	3,184,814		$	3,221,407

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


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

Balance October 31, 2001			$	107,626	$	675,310	$	(1,262	)	$	(26,957	)	$	(1,310	)	$	(1,347	)	$	752,060
Comprehensive income:
	Net earnings							25,552												25,552
	Other comprehensive income (loss):
		Foreign translation adjustment related to operations sold									8,900									8,900
		Foreign translation adjustment									(10,364	)								(10,364	)
		Unrealized appreciation of investments												587						587
		Deferred income tax expense on unrealized appreciation of investments												(196	)					(196	)
		Expiration of derivative instrument designated and qualifying as a cash flow hedging instrument															2,128			2,128
		Unrealized depreciation on derivative instrument designated and qualifying as a cash flow hedging instrument															(742	)		(742	)
		Net deferred income tax on unrealized change on derivative instrument designated and qualifying as a cash flow hedging instrument															(500	)		(500	)

		Total other comprehensive income (loss)		—		—		—			(1,464	)		391			886			(187	)

	Total comprehensive income (loss)			—		—		25,552			(1,464	)		391			886			25,365
Issuance of common stock				309		1,409														1,718

Balance April 30, 2002			$	107,935	$	676,719	$	24,290		$	(28,421	)	$	(919	)	$	(461	)	$	779,143

⁽¹⁾

Amount includes shares of common stock with a stated value of $1 per share and includes 3,555 shares (in thousands) of Class B
common stock.

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


				Six Months Ended April 30,

				2002			2001

Cash flows from operating activities:
	Net earnings (loss)			$	25,552		$	(216,581	)
	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
		Depreciation and amortization			27,979			39,143
		Provision for doubtful accounts			5,180			9,148
		Cumulative effect of change in accounting principles			—			250,004
		Net loss realized on marketable securities			485			—
		Net (gains) losses on sale of assets			(273	)		776
		Provision for deferred income taxes			9,551			1,280
		Changes in assets and liabilities:
			Increase in other receivables		(23	)		(2,023	)
			(Increase) decrease in other deferred charges and intangible assets		2,358			(720	)
			(Increase) decrease in inventories and cemetery property		(2,250	)		1,329
			Increase (decrease) in accounts payable and accrued expenses		(5,677	)		215
			Change in prearranged activity		(13,844	)		(8,333	)
			Prearranged acquisition costs		(15,262	)		(16,114	)
			Decrease in other		(1,657	)		(832	)

			Net cash provided by operating activities		32,119			57,292

Cash flows from investing activities:
	Proceeds from sales of marketable securities and long-term investments				169			4,474
	Purchases of marketable securities and long-term investments				(19	)		(511	)
	Proceeds from sale of assets, net				15,676			2,881
	Additions to property and equipment				(7,651	)		(11,246	)
	Other				549			1,227

		Net cash provided by (used in) investing activities			8,724			(3,175	)

							(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


				Six Months Ended April 30,

				2002			2001

Cash flows from financing activities:
	Funeral trust withdrawal			$	—		$	40,000
	Repayments of long-term debt				(29,077	)		(83,483	)
	Issuance of common stock				400			610

		Net cash used in financing activities			(28,677	)		(42,873	)

Effect of exchange rates on cash and cash equivalents					(470	)		882

Net increase in cash					11,696			12,126
Cash and cash equivalents, beginning of period					23,123			91,595

Cash and cash equivalents, end of period				$	34,819		$	103,721

Supplemental cash flow information:
	Cash paid during the period for:
		Income taxes		$	400		$	1,100
		Interest		$	30,600		$	29,900
		Noncash investing and financing activities:
			Issuance of common stock to fund employee benefit plan	$	1,318		$	1,267

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation

(a) The Company

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

As of April 30, 2002, the Company owned and operated 312 funeral homes and 150 cemeteries in 29 states within the United States and Puerto Rico and had operations in Portugal, Argentina, Canada and France. For the six months ended April 30, 2002, foreign operations contributed approximately 9 percent of total revenue and, as of April 30, 2002, represented approximately 4 percent of total assets. 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. During the second quarter of 2002, the Company sold its operations in Spain and agreed to sell its operations in Portugal subject to regulatory approval. As discussed in Note 9, subsequent to the second quarter of 2002, the Company agreed to sell its operations in Canada subject to regulatory approval, which the Company expects to receive by the end of its third fiscal quarter and signed a letter of intent for the sale of its operations in France.

(b) Principles of Consolidation

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

The information as of April 30, 2002, and for the three and six months ended April 30, 2002 and 2001, 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, 2001.

The results of operations for the three and six months ended April 30, 2002 are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2002.

(d) Foreign Currency Translation

All assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period, and revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of shareholders’ equity. Additionally, as discussed in Note 7, the Company will realize comprehensive income and an increase to equity for the cumulative foreign currency translation upon completion of the sale of the Company’s respective foreign operations.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation—(Continued)

In the first quarter of 2002, the Company recorded a 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 current economic conditions existing in Argentina, the Argentine peso has significantly devalued which necessitated the need for an adjustment.

(e) 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(f) Reclassifications

Certain reclassifications have been made to the 2001 consolidated statements of earnings. These reclassifications had no effect on net earnings (loss) or shareholders’ equity. Interest expense and investment income are presented as individual line items in the consolidated statements of earnings. In 2001, interest expense and investment income were netted together and presented as one line item in the consolidated statements of earnings. For comparative purposes, a reclassification has been made to the consolidated statements of earnings for the three and six months ended April 30, 2001.

(2) Change in Accounting Principles and New Accounting Principles to be Adopted

(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. There was no impairment of asset values recorded upon implementation of SFAS No. 142.

SFAS No. 142 addresses financial accounting and reporting for goodwill and other intangible assets. SFAS No. 142 states that goodwill will no longer be amortized, but will be tested for impairment in a manner different from how other assets are tested for impairment. SFAS No. 142 requires that goodwill be separately tested for impairment using a fair value approach rather than an undiscounted cash flow approach. Goodwill will be tested for impairment at a level referred to as a reporting unit, generally a level lower than that of the total entity. 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. 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.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(2) Change in Accounting Principles and New Accounting Principles to be Adopted—(Continued)

As a result of the adoption of SFAS No. 142, the Company no longer amortizes goodwill, effective November 1, 2001. The following is a reconciliation of net earnings (loss) and net earnings (loss) per share for the three and six months ended April 30, 2002 and 2001 adjusted for the elimination of goodwill amortization required by SFAS No. 142.


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

		2002		2001		2002		2001

Earnings before cumulative effect of change in accounting principles		$	12,879	$	16,608	$	25,552	$	33,423
Goodwill amortization (net of tax)			—		4,348		—		8,725

Adjusted earnings before cumulative effect of change in accounting principles			12,879		20,956		25,552		42,148
Cumulative effect of change in accounting principles			—		—		—		(250,004	)

Adjusted net earnings (loss)		$	12,879	$	20,956	$	25,552	$	(207,856	)

Basic earnings per common share:
	Earnings before cumulative effect of change in accounting principles	$	.12	$	.15	$	.24	$	.31
	Goodwill amortization (net of tax)		—		.04		—		.08

	Adjusted earnings before cumulative effect of change in accounting principles		.12		.19		.24		.39
	Cumulative effect of change in accounting principles		—		—		—		(2.33	)

	Adjusted net earnings (loss)	$	.12	$	.19	$	.24	$	(1.94	)

Diluted earnings per common share:
	Earnings before cumulative effect of change in accounting principles	$	.12	$	.15	$	.24	$	.31
	Goodwill amortization (net of tax)		—		.04		—		.08

	Adjusted earnings before cumulative effect of change in accounting principles		.12		.19		.24		.39
	Cumulative effect of change in accounting principles		—		—		—		(2.33	)

	Adjusted net earnings (loss)	$	.12	$	.19	$	.24	$	(1.94	)

The carrying amount of goodwill at both April 30, 2002 and October 31, 2001 amounted to $491,122.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(2) Change in Accounting Principles and New Accounting Principles to be Adopted—(Continued)

(b) SAB No. 101

The Company implemented the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (“SAB No. 101”) — “Revenue Recognition in Financial Statements” in the first quarter of 2001. The accounting for the Company’s preneed sales activities was affected as described in Note 3 to the Company’s consolidated financial statements included in its Form 10-K for the fiscal year ended October 31, 2001. The cumulative effect of these changes on prior years resulted in a decrease in net earnings for the six months ended April 30, 2001 of $250,004 (net of a $166,669 income tax benefit), or $2.33 per share.

Effective November 1, 2000, the Company adopted 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,” are amendments to the accounting and reporting standards of SFAS No. 133 and were adopted by the Company concurrently with SFAS No. 133. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. The adoption of SFAS No. 133 on November 1, 2000 did not have an impact on results of operations and resulted in $4,693 being recognized in other comprehensive income for the cumulative effect of a change in accounting for a derivative financial instrument.

In 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125.” SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The implementation of SFAS No. 140 had no impact on the Company’s financial condition or results of operations.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” which prohibits the use of the pooling method of accounting for business combinations. The provisions of SFAS No. 141 are effective for fiscal years beginning after December 15, 2001. The Company adopted this statement in the first quarter of 2002, and it had no impact on the Company’s financial condition or results of operations.

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(2) Change in Accounting Principles and New Accounting Principles to be Adopted—(Continued)

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 Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. 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 Company believes that the adoption of SFAS No. 144 in fiscal year 2003 will have no impact on its 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 changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company believes that the adoption of SFAS No. 145 will have no impact on its financial condition or results of operations.

(3) Contingencies

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3) Contingencies—(Continued)

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

(4) Reconciliation of Basic and Diluted Per Share Data


		Earnings		Shares		Per Share
		(Numerator)		(Denominator)		Data

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

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

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

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


		Earnings		Shares		Per Share
		(Numerator)		(Denominator)		Data

Three Months Ended April 30, 2001
Net earnings		$	16,608

Basic earnings per common share:
	Earnings available to common shareholders	$	16,608		107,306	$	.15

Effect of dilutive securities:
	Time-vest stock options assumed exercised		—		14

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised	$	16,608		107,320	$	.15

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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


		Earnings		Shares		Per Share
		(Numerator)		(Denominator)		Data

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

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

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

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


		Earnings		Shares		Per Share
		(Numerator)		(Denominator)		Data

Six Months Ended April 30, 2001
Earnings before cumulative effect of change in accounting principles		$	33,423

Basic earnings per common share:
	Earnings available to common shareholders	$	33,423		107,131	$	.31

Effect of dilutive securities:
	Time-vest stock options assumed exercised		—		5

Diluted earnings per common share:
	Earnings available to common shareholders plus time-vest stock options assumed exercised	$	33,423		107,136	$	.31

Options to purchase 1,290,433 and 1,211,032 shares of common stock at prices ranging from $5.90 to $27.25 per share and $5.97 to $27.25 per share were outstanding during the three and six months ended April 30, 2002, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares. The options expire between July 31, 2004 and April 12, 2005.

Options to purchase 8,005,594 and 8,161,911 shares of common stock at prices ranging from $4.28 to $27.25 per share and $3.44 to $27.25 per share were outstanding during the three and six months ended April 30, 2001, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(5) Segment Data

The Company’s reportable segment information is as follows:


							Consolidated
			Funeral		Cemetery		Totals

Revenues from external customers:
	Three months ended April 30,
		2002	$	90,848		60,141	$	150,989
		2001	$	107,958		62,981	$	170,939
	Six months ended April 30,
		2002	$	185,931		118,627	$	304,558
		2001	$	215,307		132,322	$	347,629

Gross profit:
	Three months ended April 30,
		2002	$	25,275		14,864	$	40,139
		2001	$	25,592		15,623	$	41,215
	Six months ended April 30,
		2002	$	51,733		29,382	$	81,115
		2001	$	50,335		33,965	$	84,300

Goodwill:
	April 30, 2002		$	341,145		149,977	$	491,122
	October 31, 2001		$	341,145		149,977	$	491,122

A reconciliation of total segment gross profit to total earnings before income taxes and cumulative effect of change in accounting principles for the three and six months ended April 30, 2002 and 2001, is as follows:


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

		2002			2001			2002			2001

Gross profit for reportable segments		$	40,139		$	41,215		$	81,115		$	84,300
Corporate general and administrative expenses			(4,115	)		(4,905	)		(7,885	)		(9,066	)
Interest expense			(15,859	)		(14,071	)		(32,829	)		(29,421	)
Investment income			98			1,567			222			3,638
Other income, net			510			2,349			590			3,184

	Earnings before income taxes and cumulative effect of change in accounting principles	$	20,773		$	26,155		$	41,213		$	52,635

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

The following tables present the condensed consolidating historical financial statements as of April 30, 2002 and October 31, 2001 and for the three and six months ended April 30, 2002 and 2001, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the senior subordinated notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Puerto Rican subsidiaries, all other non-domestic subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries which are either intended to be used for foreign tax planning purposes or are prohibited by law from guaranteeing the senior subordinated notes.

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Three Months Ended April 30, 2002

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

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

			—			129,365			21,624			—			150,989

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

			—			92,943			17,907			—			110,850

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

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

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

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

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

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

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Three Months Ended April 30, 2001

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	73,586		$	34,372		$	—		$	107,958
	Cemetery		—			53,807			9,174			—			62,981

			—			127,393			43,546			—			170,939

Costs and expenses:
	Funeral		—			55,388			26,978			—			82,366
	Cemetery		—			39,379			7,949			30			47,358

			—			94,767			34,927			30			129,724

	Gross profit		—			32,626			8,619			(30	)		41,215
Corporate general and administrative expenses			5,072			(159	)		(2	)		(6	)		4,905

	Operating earnings (loss)		(5,072	)		32,785			8,621			(24	)		36,310
Interest income (expense)			20,137			(22,221	)		(11,987	)		—			(14,071	)
Investment income			685			—			882			—			1,567
Other income, net			1,687			331			331			—			2,349

	Earnings (loss) before income taxes		17,437			10,895			(2,153	)		(24	)		26,155
Income tax expense (benefit)			6,364			4,158			(963	)		(12	)		9,547

	Net earnings (loss) before equity in subsidiaries		11,073			6,737			(1,190	)		(12	)		16,608

Equity in subsidiaries			5,535			—			—			(5,535	)		—

	Net earnings (loss)		16,608			6,737			(1,190	)		(5,547	)		16,608
	Other comprehensive income (loss), net		(8,927	)		164			(7,031	)		6,867			(8,927	)

	Comprehensive income (loss)	$	7,681		$	6,901		$	(8,221	)	$	1,320		$	7,681

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(6)

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

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Six Months Ended April 30, 2002

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

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

			—			254,384			50,174			—			304,558

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

			—			182,259			41,184			—			223,443

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

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

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

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

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

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

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


		Six Months Ended April 30, 2001

					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues:
	Funeral	$	—		$	145,107		$	70,200		$	—		$	215,307
	Cemetery		—			115,994			16,328			—			132,322

			—			261,101			86,528			—			347,629

Costs and expenses:
	Funeral		—			110,282			54,690			—			164,972
	Cemetery		—			82,865			15,480			12			98,357

			—			193,147			70,170			12			263,329

	Gross profit		—			67,954			16,358			(12	)		84,300
Corporate general and administrative expenses			9,345			(279	)		—			—			9,066

	Operating earnings (loss)		(9,345	)		68,233			16,358			(12	)		75,234
Interest income (expense)			40,557			(46,039	)		(23,939	)		—			(29,421	)
Investment income			1,772			—			1,866			—			3,638
Other income, net			1,731			935			518			—			3,184

	Earnings (loss) before income taxes and cumulative effect of change in accounting principles		34,715			23,129			(5,197	)		(12	)		52,635
Income tax expense (benefit)			12,671			8,789			(2,242	)		(6	)		19,212

	Earnings (loss) before cumulative effect of change in accounting principles		22,044			14,340			(2,955	)		(6	)		33,423
Cumulative effect of change in accounting principles			—			(214,356	)		(35,648	)		—			(250,004	)

	Net earnings (loss) before equity loss in subsidiaries		22,044			(200,016	)		(38,603	)		(6	)		(216,581	)

Equity loss in subsidiaries			(238,625	)		—			—			238,625			—

	Net loss		(216,581	)		(200,016	)		(38,603	)		238,619			(216,581	)
	Other comprehensive income, net		12,977			8,640			5,153			(13,793	)		12,977

	Comprehensive loss	$	(203,604	)	$	(191,376	)	$	(33,450	)	$	224,826		$	(203,604	)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Balance Sheets


			April 30, 2002

						Guarantor		Non-Guarantor
			Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated

ASSETS
Current assets:
	Cash and cash equivalent investments		$	25,346		$	2,247	$	7,226		$	—		$	34,819
	Marketable securities			829			115		1,791			—			2,735
	Receivables, net of allowances			1,715			56,373		14,140			—			72,228
	Inventories			390			40,228		8,732			—			49,350
	Prepaid expenses			792			1,600		196			—			2,588
	Deferred income taxes			17,612			1,500		—			—			19,112
	Assets held for sale			—			9,105		126,681			—			135,786

		Total current assets		46,684			111,168		158,766			—			316,618
Receivables due beyond one year, net of allowances				—			46,275		32,993			—			79,268
Prearranged receivables				—			1,178,206		20,765			—			1,198,971
Goodwill				—			451,455		39,667			—			491,122
Deferred charges				8,457			227,765		19,207			—			255,429
Cemetery property, at cost				—			363,353		23,235			—			386,588
Property and equipment, at cost				27,465			427,759		41,096			—			496,320
	Less accumulated depreciation			11,619			135,918		10,298			—			157,835

	Net property and equipment			15,846			291,841		30,798			—			338,485
Deferred income taxes				41,961			61,461		11,844			—			115,266
Other assets				2,044			1,023		—			—			3,067

			$	114,992		$	2,732,547	$	337,275		$	—		$	3,184,814


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current maturities of long-term debt		$	6,854		$	—	$	—		$	—		$	6,854
	Accounts payable			(273	)		8,039		1,057			—			8,823
	Accrued expenses			19,173			26,733		4,678			—			50,584
	Liabilities associated with assets held for sale			—			2,799		87,563			—			90,362

		Total current liabilities		25,754			37,571		93,298			—			156,623
Long-term debt, less current maturities				624,853			—		30,000			—			654,853
Intercompany payables, net				(1,338,705	)		1,096,252		242,453			—			—
Prearranged deferred revenue				125			1,484,792		91,160			—			1,576,077
Other long-term liabilities				23,822			7,269		—			(12,973	)		18,118

	Total liabilities			(664,151	)		2,625,884		456,911			(12,973	)		2,405,671

Common stock				107,935			336		53			(389	)		107,935
Other				701,009			106,327		(91,268	)		(15,059	)		701,009
Accumulated other comprehensive loss				(29,801	)		—		(28,421	)		28,421			(29,801	)

	Total shareholders’ equity (deficit)			779,143			106,663		(119,636	)		12,973			779,143

			$	114,992		$	2,732,547	$	337,275		$	—		$	3,184,814

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, 2001

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

ASSETS
Current assets:
	Cash and cash equivalent investments		$	22,537		$	(5,636	)	$	6,222		$	—		$	23,123
	Marketable securities			727			115			1,772			—			2,614
	Receivables, net of allowances			9,006			50,345			16,471			—			75,822
	Inventories			281			35,062			11,725			—			47,068
	Prepaid expenses			629			1,506			73			—			2,208
	Deferred income taxes			307			(1,805	)		15,433			—			13,935
	Assets held for sale			—			17,238			147,273			—			164,511

		Total current assets		33,487			96,825			198,969			—			329,281
Receivables due beyond one year, net of allowances				—			44,402			36,365			—			80,767
Prearranged receivables				—			1,176,189			22,555			—			1,198,744
Goodwill				—			451,455			39,667			—			491,122
Deferred charges				8,519			229,495			19,117			—			257,131
Cemetery property, at cost				—			362,767			23,235			—			386,002
Property and equipment, at cost				26,512			422,370			41,049			—			489,931
	Less accumulated depreciation			9,912			127,053			9,512			—			146,477

	Net property and equipment			16,600			295,317			31,537			—			343,454
Deferred income taxes				60,847			73,219			(2,062	)		—			132,004
Other assets				1,867			1,035			—			—			2,902

			$	121,320		$	2,730,704		$	369,383		$	—		$	3,221,407


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
	Current maturities of long-term debt		$	6,828		$	—		$	—		$	—		$	6,828
	Accounts payable			(265	)		4,933			1,405			—			6,073
	Accrued expenses			20,866			33,058			4,962			—			58,886
	Liabilities associated with assets held for sale			—			7,844			95,724			—			103,568

		Total current liabilities		27,429			45,835			102,091			—			175,355
Long-term debt, less current maturities				654,036			—			30,000			—			684,036
Intercompany payables, net				(1,344,251	)		1,088,317			255,934			—			—
Prearranged deferred revenue				250			1,499,128			90,155			—			1,589,533
Other long-term liabilities				31,796			8,714			—			(20,087	)		20,423

	Total liabilities			(630,740	)		2,641,994			478,180			(20,087	)		2,469,347

Common stock				107,626			336			53			(389	)		107,626
Other				674,048			89,684			(81,893	)		(7,791	)		674,048
Accumulated other comprehensive loss				(29,614	)		(1,310	)		(26,957	)		28,267			(29,614	)

	Total shareholders’ equity (deficit)			752,060			88,710			(108,797	)		20,087			752,060

			$	121,320		$	2,730,704		$	369,383		$	—		$	3,221,407

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Statements of Cash Flows


			Six Months Ended April 30, 2002

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

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

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

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

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

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

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

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

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

Condensed Consolidating Statements of Cash Flows


			Six Months Ended April 30, 2001

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net cash provided by (used in) operating activities			$	27,065		$	27,092		$	(1,332	)	$	4,467		$	57,292

Cash flows from investing activities:
	Proceeds from sales of marketable securities and long-term investments			—			4,474			—			—			4,474
	Purchases of marketable securities and long-term investments			—			—			(511	)		—			(511	)
	Proceeds from sale of assets, net			—			2,881			—			—			2,881
	Additions to property and equipment			—			(9,900	)		(1,346	)		—			(11,246	)
	Other			—			619			608			—			1,227

		Net cash used in investing activities		—			(1,926	)		(1,249	)		—			(3,175	)

Cash flows from financing activities:
	Funeral trust withdrawal			—			40,000			—			—			40,000
	Repayments of long-term debt			(76,330	)		—			(7,153	)		—			(83,483	)
	Intercompany receivables (payables)			54,790			(66,827	)		16,504			(4,467	)		—
	Issuance of common stock			610			—			—			—			610

		Net cash provided by (used in) financing activities		(20,930	)		(26,827	)		9,351			(4,467	)		(42,873	)

Effect of exchange rates on cash and cash equivalents				—			—			882			—			882

Net increase (decrease) in cash				6,135			(1,661	)		7,652			—			12,126
Cash and cash equivalents, beginning of period				59,862			(299	)		32,032			—			91,595

Cash and cash equivalents, end of period			$	65,997		$	(1,960	)	$	39,684		$	—		$	103,721

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

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

Based on its progress at that time and management’s and the Board of Directors’ decision to proceed with the sales of its foreign operations and certain domestic assets if acceptable prices and terms could be obtained, pursuant to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,” 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 pre-tax noncash charge to earnings of $269,158 ($205,089 after-tax, of which $187,329 related to foreign operations).

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 has already reduced equity for the cumulative foreign translation adjustment incurred in each period that it has owned these businesses. Therefore, in the periods in which the sale of each of the foreign operations is consummated, the cumulative foreign translation adjustment relating to the operation sold will be reversed and included in comprehensive income, resulting in a corresponding increase in equity. The Company sold its Mexican, Australian, New Zealand, Belgian and Dutch operations in the fourth quarter of fiscal year 2001. As such, in the fourth quarter of fiscal year 2001, the Company realized comprehensive income and an increase to equity for the cumulative foreign currency translation related to these operations, which equaled $74,754. In the second quarter of 2002, the Company sold its operations in Spain and agreed to sell its operations in Portugal subject to regulatory approval. In the second quarter of 2002, the Company realized comprehensive income and an increase to equity for the cumulative foreign translation related to its operations in Spain, which amounted to $8,900. The remainder of the approximate $28,421 cumulative foreign translation adjustment as of April 30, 2002, will be reversed upon completion of the sale of the Company’s operations in Portugal, France, Argentina and Canada. As described in Note 9, subsequent to the second quarter of 2002, the Company agreed to sell its operations in Canada subject to regulatory approval, which the Company expects to receive by the end of its third fiscal quarter and signed a letter of intent for the sale of its operations in France.

In the consolidated statement of earnings for the third quarter of fiscal year 2001, the impairment charges related to these writedowns and the writedowns of the noncompetition agreements are reflected in the “loss on assets held for sale and other charges” line item. The related assets and liabilities associated with assets held for sale are shown in separate line items in the consolidated balance sheet titled “assets held for sale” and “liabilities associated with assets held for sale.” At April 30, 2002 and October 31, 2001, the assets held for sale (excluding $6,387 and $5,072 of cash and cash equivalent investments of the operations held for sale as of April 30, 2002 and October 31, 2001, respectively) and the liabilities associated with assets held for sale line items in the balance sheet represent the assets and liabilities, respectively, of all of the Company’s foreign operations and certain domestic assets, primarily funeral home real estate and excess cemetery property.

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 April 30, 2002 and October 31, 2001 is as follows:


Assets		April 30, 2002		October 31, 2001

Receivables, net of allowances		$	24,927	$	35,762
Inventories and other current assets			4,551		6,080
Net property and equipment			35,701		47,690
Prearranged receivables			41,413		43,481
Goodwill			6,404		8,719
Deferred charges and other assets			12,972		13,753
Cemetery property, at cost			9,666		8,731
Long-term investments			152		295

	Assets held for sale	$	135,786	$	164,511

Liabilities

Current liabilities		$	13,491	$	22,136
Deferred income taxes			8,141		9,362
Prearranged deferred revenue			60,111		62,376
Long-term debt			1,446		2,603
Other long-term liabilities			7,173		7,091

	Liabilities associated with assets held for sale	$	90,362	$	103,568

The operating results of assets sold and held for sale included in the consolidated statements of earnings for the three and six months ended April 30, 2002 and 2001 were as follows:


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

	2002		2001		2002		2001

Revenues	$	12,523	$	32,020	$	31,004	$	66,379

Operating earnings	$	1,830	$	3,445	$	4,107	$	8,439

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(8) Consolidated Comprehensive Income (Loss)

Consolidated comprehensive income (loss) for the six months ended April 30, 2002 and 2001 is as follows:


		Six Months Ended April 30,

		2002			2001

Net earnings (loss)		$	25,552		$	(216,581	)
Other comprehensive income (loss):
	Foreign translation adjustment related to operations sold		8,900			—
	Foreign translation adjustment		(10,364	)		5,153
	Cumulative effect of change in accounting for unrealized appreciation of investments under SAB No. 101		—			8,494
	Unrealized appreciation of investments		587			229
	Deferred income tax expense on unrealized appreciation of investments		(196	)		(83	)
	Cumulative effect of change in accounting for derivative financial instrument		—			4,693
	Expiration of derivative instrument designated and qualifying as a cash flow hedging instrument		2,128			—
	Unrealized depreciation on derivative instrument designated and qualifying as a cash flow hedging instrument		(742	)		(5,509	)
	Net deferred income tax on unrealized change on derivative instrument designated and qualifying as a cash flow hedging instrument		(500	)		—

	Total other comprehensive income (loss)		(187	)		12,977

Total comprehensive income (loss)		$	25,365		$	(203,604	)

(9) Subsequent Events

On May 21, 2002, the Company announced that it had executed a purchase agreement for the sale of its operations in Canada. The sale is subject to regulatory approval, which the Company expects to receive by the end of its third fiscal quarter. On June 11, 2002, the Company announced that it had signed a letter of intent for the sale of its operations in France. All proceeds received at the time of closing for the above transactions will be used to repay debt.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

General

The Company is the third largest provider of funeral and cemetery products and services in the death care industry in the United States. As of June 1, 2002, the Company owned and operated 312 funeral homes and 150 cemeteries in 29 states within the United States and Puerto Rico with its remaining foreign operations held for sale. For a discussion of these sales, see Note 7 to the consolidated financial statements. The Company sells cemetery property and funeral and cemetery products and services both at the time of need and on a preneed basis. The Company’s revenues in each period consist primarily of at-need sales, preneed sales delivered out of the Company’s backlog during the period, preneed cemetery property sales and other items such as perpetual care trust earnings and finance charges. For a discussion of the Company’s accounting for preneed sales and trust and escrow account earnings, see the Company’s Form 10-K for the fiscal year ended October 31, 2001.

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 the Company to make estimates and assumptions (see Note 1(e) to the consolidated financial statements). The Company believes that of its significant accounting policies (discussed in Note 2 to the consolidated financial statements in the Company’s Form 10-K for the fiscal year ended October 31, 2001), the following are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective or complex judgment.

Allowance for Doubtful Accounts

Management must make estimates of the uncollectability of the Company’s accounts receivable. A reserve is established based on a range of percentages applied to accounts receivable aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimates of the recoverability of amounts due to the Company could be reduced 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 and 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, the Company implemented it in the first quarter of fiscal year 2002. There was no impairment of asset values recorded upon implementation of SFAS No. 142.

The Company’s evaluation of goodwill for its domestic operations was performed at the funeral and cemetery segment levels, which constitute the Company’s reporting units. The Company’s foreign asset values were not affected

by the adoption of SFAS No. 142, as all of the Company’s operations held for sale have been previously marked to their estimated fair value. 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 fair value of goodwill is less than its carrying value. See Note 2 to the consolidated financial statements for further discussion of SFAS No. 142 and its impact on the Company’s financial condition and results of operations.

The Company assesses the impairment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that the Company considers 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 Company’s use of the acquired assets or the strategy for its overall business; and

•		significant negative industry or economic trends.

When the Company determines that the carrying value of goodwill and other intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on management’s estimates of current market values. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. Goodwill and other intangible assets amounted to $491.1 million as of April 30, 2002 and October 31, 2001.

Loss on Assets Held for Sale and Other Charges

As described in Note 7 to the consolidated financial statements, in connection with adopting a formal plan to sell its foreign operations and certain domestic assets, the Company was required by accounting principles generally accepted in the United States of America to estimate the fair value of and the cost to sell these assets. The Company could be required to record an additional charge or gain if the actual sales prices are lower or higher and/or costs to sell are higher or lower than the Company estimated.

Accounting for Income Taxes

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves the Company estimating its 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 the Company’s consolidated balance sheet. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, it must establish a valuation allowance. To the extent the Company establishes a valuation allowance or increases this allowance in a period, it must include an expense within the tax provision in the statement of earnings.

Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. The Company has not recorded a valuation allowance as of April 30, 2002 based on its estimates of taxable income by jurisdiction in which it operates and the period over which its deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to establish a valuation allowance which could materially impact its financial condition and results of operations.

Results of Operations

As the Company has its foreign operations and several small domestic operations held for sale, in the third quarter of 2001 it began segregating the operating results of these businesses from the operations it will retain. The following discussion segregates the financial results into two main categories in order to present the Company’s ongoing operating results and to provide more useful information for investors. The Company’s “Operations to be Retained” consist of those businesses it has owned and operated for the entire fiscal year and last and which are not for sale (“Existing Operations”) and those businesses that have been opened during this fiscal year or last (“Opened Operations”). “Closed and Held for Sale Operations” consist of those that have been sold or closed during this fiscal year or last and the businesses that are currently being sold or offered for sale.

Three Months Ended April 30, 2002 Compared to Three Months Ended April 30, 2001

Funeral Segment


	Three Months Ended
	April 30,
					Increase
	2002		2001		(Decrease)

			(In millions)
FUNERAL — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	79.0	$	77.7	$	1.3
Opened operations		.8		—		.8

	$	79.8	$	77.7	$	2.1

Costs
Existing operations	$	55.6	$	56.7	$	(1.1	)
Opened operations		.8		—		.8

	$	56.4	$	56.7	$	(.3	)

Profit
Existing operations	$	23.4	$	21.0	$	2.4
Opened operations		—		—		—

	$	23.4	$	21.0	$	2.4

FUNERAL — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	11.1	$	30.3	$	(19.2	)
Costs		9.2		25.7		(16.5	)

Profit	$	1.9	$	4.6	$	(2.7	)

Total Funeral Revenue	$	90.9	$	108.0	$	(17.1	)
Total Funeral Costs		65.6		82.4		(16.8	)

Total Funeral Profit	$	25.3	$	25.6	$	(.3	)

Total funeral revenue declined $17.1 million in the second quarter of 2002 compared to the corresponding period in 2001 primarily due to a decrease in revenue from Closed and Held for Sale Operations, which was partially offset by an increase in revenue from Operations to be Retained. The decrease in revenue from Closed and Held for Sale Operations resulted primarily from the sale of the Company’s operations in Mexico, Australia, New Zealand, Belgium and the Netherlands in the fourth quarter of 2001 and the sale of the Company’s operations in Spain in the second quarter of 2002.

Funeral revenue from Operations to be Retained increased $2.1 million, or 3 percent, for the three months ended April 30, 2002, compared to the corresponding period in 2001. The average revenue per funeral service performed by these businesses increased 3.1 percent along with a 3.6 percent increase (669 events) in the number of funeral services performed.

The Company experienced a $1.3 million, or 2 percent, increase in funeral revenue from Existing Operations primarily due to a 3.5 percent increase in the average revenue per funeral service performed. There was a corresponding 2.0 percent increase (374 events) in the number of funeral services performed by these businesses.

The Company experienced a $.8 million increase in funeral revenue and funeral costs from Opened Operations primarily due to the opening of an Archdiocese of Los Angeles facility which was not open for the entirety of both periods presented.

Funeral profit margin from Existing Operations increased from 27.0 percent in the second quarter of fiscal year 2001 to 29.6 percent in the second quarter of fiscal year 2002 primarily due to the fact that goodwill is no longer amortized with the implementation of SFAS No. 142. Funeral goodwill amortization for Existing Operations amounted to $2.2 million in the second quarter of 2001. The pro forma funeral profit margin from Existing Operations adjusted for the elimination of goodwill amortization required by SFAS No. 142 would have been 29.9 percent for the second quarter of 2001. The Company’s cremation rate for Existing Operations was 38.5 percent for the second quarter of 2002.

Cemetery Segment


	Three Months Ended
	April 30,
							Increase
	2002			2001			(Decrease)

				(In millions)
CEMETERY — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	58.7		$	61.2		$	(2.5	)
Opened operations		—			—			—

	$	58.7		$	61.2		$	(2.5	)

Costs
Existing operations	$	43.8		$	44.4		$	(.6	)
Opened operations		—			—			—

	$	43.8		$	44.4		$	(.6	)

Profit
Existing operations	$	14.9		$	16.8		$	(1.9	)
Opened operations		—			—			—

	$	14.9		$	16.8		$	(1.9	)

CEMETERY — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	1.4		$	1.8		$	(.4	)
Costs		1.5			3.0			(1.5	)

Profit	$	(.1	)	$	(1.2	)	$	1.1

Total Cemetery Revenue	$	60.1		$	63.0		$	(2.9	)
Total Cemetery Costs		45.3			47.4			(2.1	)

Total Cemetery Profit	$	14.8		$	15.6		$	(.8	)

Total cemetery revenue decreased $2.9 million, or 5 percent, for the three months ended April 30, 2002, compared to the corresponding period in 2001. The Company experienced a $2.5 million, or 4 percent, decrease in revenue from Operations to be Retained primarily due to reduced preneed cemetery property sales and reduced perpetual care trust earnings. The Company experienced an annual average yield of 4.2 percent in its perpetual care trust funds in the second quarter of 2002, compared to an annual average yield of 7.4 percent in the second quarter of 2001.

Cemetery profit margin from Existing Operations decreased from 27.5 percent in the second quarter of 2001 to 25.4 percent in the second quarter of 2002. The decline was principally due to the reduction in cemetery revenue coupled with the high fixed-cost nature of the cemetery business. The decline was moderated due to the fact that goodwill is no longer amortized because of the implementation of SFAS No. 142. Cemetery goodwill amortization for Existing Operations amounted to $1.1 million in the second quarter of 2001. The pro forma cemetery profit margin from Existing Operations adjusted for the elimination of goodwill amortization required by SFAS No. 142 would have been 29.2 percent for the second quarter of 2001.

Other

Corporate general and administrative expenses for the second quarter of 2002 decreased $.8 million compared to the same period in 2001 primarily due to a reduction in salaries and professional fees. Effective April 1, 2002, the Company adopted the Stewart Enterprises, Inc. Supplemental Executive Retirement Plan (the “Plan”) which provides retirement benefits to certain executive officers that are intended to supplement the benefits available under the Company’s 401(k) Plan and in part replace other benefits previously available under the employment agreements with the executive officers. Adoption of the Plan resulted in a charge to corporate general and administrative expenses of $.2 million for the second quarter of fiscal year 2002 and will result in a charge of approximately $.5 million per quarter thereafter. The fiscal year 2002 charge is fully reflected in the Company’s previously estimated corporate general and administrative expense of $17 million for fiscal year 2002.

Depreciation and amortization was $14.5 million for the second quarter of fiscal year 2002 compared to $17.7 million for the same period in 2001. The decline in depreciation and amortization is primarily due to the implementation of SFAS No. 142.

EBITDA (defined as earnings before interest expense, taxes, depreciation and amortization) was $51.2 million, or 33.9 percent of revenue for the second quarter of fiscal year 2002 compared to $57.9 million, or 33.9 percent of revenue for the same period in 2001. Domestic EBITDA, which is fairly representative of Operations to be Retained, was $48.9 million, or 35.0 percent of domestic revenue for the second quarter of fiscal year 2002 compared to $54.6 million, or 38.8 percent of domestic revenue for the same period in 2001. The reduction in domestic EBITDA is primarily due to decreases in cemetery revenue, other income and investment income.

Interest expense increased $1.8 million to $15.9 million for the second quarter of fiscal year 2002 compared to $14.1 million for the same period in 2001. The increase is due to a 289 basis point increase in the average interest rate resulting from higher interest costs associated with debt incurred in the Company’s debt refinancing transactions. This increase was substantially offset by a $189.5 million decrease in the average outstanding debt balance. Investment income decreased $1.5 million to $.1 million for the second quarter of 2002 compared to the same period in 2001. This decrease is due primarily to a $55.8 million decrease in the average cash and cash equivalents balance and a decrease in the average investment rate earned on the Company’s cash and cash equivalent investments from 7.4 percent to 1.4 percent. The 7.4 percent earned in the second quarter of 2001 included returns on funds in foreign jurisdictions that earned 10.6 percent. The majority of the funds in foreign jurisdictions were sold with the Company’s Mexican operations.

Other income, net, decreased approximately $1.8 million during the second quarter of fiscal year 2002 compared to the same period in 2001 principally due to the net gain on the sale of excess cemetery property during 2001.

As of April 30, 2002, the Company’s outstanding debt totaled $663.1 million, including $1.4 million of debt associated with assets held for sale. Of the total amount outstanding, including the portion subject to the interest rate swap agreements in effect as of April 30, 2002, approximately 78 percent was fixed-rate debt, with the remaining 22 percent subject to short-term variable interest rates averaging approximately 5.4 percent.

On March 5, 2002, the Company entered into two interest rate swap agreements which became effective on March 11, 2002, 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 effective rate to the Company of the debt hedged by the interest rate swaps includes the fixed swap rates of 3.65 percent and 4.265 percent plus, in each case, the applicable margin under the Company’s senior secured credit facility relative to the underlying debt, which margin is based upon the Company’s consolidated leverage ratio, as defined in the facility. As of June 5, 2002, that margin was 337.5 basis points, resulting in effective rates of 7.025 percent and 7.64 percent on each $50.0 million swapped. As of June 5, 2002, of the $660.4 million in debt outstanding, including the portion subject to the interest rate swap agreements, approximately 79 percent was fixed-rate debt, with the remaining 21 percent subject to short-term variable interest rates averaging approximately 5.4 percent.

Preneed Sales

The Company’s domestic preneed funeral and cemetery merchandise and service sales, which are deferred and are not included in the Company’s operating results above, increased from $45.1 million for the second quarter of 2001 to $47.1 million for the second quarter of 2002.

Six Months Ended April 30, 2002 Compared to Six Months Ended April 30, 2001

Funeral Segment


	Six Months Ended
	April 30,
					Increase
	2002		2001		(Decrease)

			(In millions)
FUNERAL — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	156.3	$	153.2	$	3.1
Opened operations		1.5		—		1.5

	$	157.8	$	153.2	$	4.6

Costs
Existing operations	$	109.2	$	113.6	$	(4.4	)
Opened operations		1.5		—		1.5

	$	110.7	$	113.6	$	(2.9	)

Profit
Existing operations	$	47.1	$	39.6	$	7.5
Opened operations		—		—		—

	$	47.1	$	39.6	$	7.5

FUNERAL — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	28.1	$	62.1	$	(34.0	)
Costs		23.5		51.4		(27.9	)

Profit	$	4.6	$	10.7	$	(6.1	)

Total Funeral Revenue	$	185.9	$	215.3	$	(29.4	)
Total Funeral Costs		134.2		165.0		(30.8	)

Total Funeral Profit	$	51.7	$	50.3	$	1.4

Total funeral revenue declined $29.4 million for the six months ended April 30, 2002 compared to the corresponding period in 2001 primarily due to a decrease in revenue from Closed and Held for Sale Operations, which was partially offset by an increase in revenue from Operations to be Retained. The decrease in revenue from Closed and Held for Sale Operations resulted primarily from the sale of the Company’s operations in Mexico, Australia, New Zealand, Belgium and the Netherlands in the fourth quarter of 2001 and the sale of the Company’s operations in Spain in the second quarter of 2002.

Funeral revenue from Operations to be Retained increased $4.6 million, or 3 percent, for the six months ended April 30, 2002, compared to the corresponding period in 2001. The average revenue per funeral service performed by these businesses increased 3.3 percent along with a .6 percent increase (219 events) in the number of funeral services performed.

The Company experienced a $3.1 million, or 2 percent, increase in funeral revenue from Existing Operations primarily due to a 3.6 percent increase in the average revenue per funeral service performed partially offset by a .8 percent decline (315 events) in the number of funeral services performed by these businesses.

The Company experienced a $1.5 million increase in funeral revenue and funeral costs from Opened Operations primarily due to the opening of an Archdiocese of Los Angeles facility which was not open for the entirety of both periods presented.

Funeral profit margin from Existing Operations increased from 25.8 percent for the six months ended April 30, 2001 to 30.1 percent for the corresponding period in 2002 primarily due to an increase in revenue and to the close scrutiny of funeral costs coupled with the fact that goodwill is no longer amortized with the implementation of SFAS No. 142. Funeral goodwill amortization for Existing Operations amounted to $4.7 million for the six months ended April 30, 2001. The pro forma funeral profit margin from Existing Operations adjusted for the elimination of goodwill amortization required by SFAS No. 142 would have been 28.9 percent for the six months ended April 30, 2001. The Company’s cremation rate for Existing Operations was 38.1 percent for the six months ended April 30, 2002.

Cemetery Segment


	Six Months Ended
	April 30,
							Increase
	2002			2001			(Decrease)

				(In millions)
CEMETERY — OPERATIONS TO BE RETAINED
Revenue
Existing operations	$	115.7		$	128.0		$	(12.3	)
Opened operations		—			—			—

	$	115.7		$	128.0		$	(12.3	)

Costs
Existing operations	$	85.8		$	91.8		$	(6.0	)
Opened operations		—			—			—

	$	85.8		$	91.8		$	(6.0	)

Profit
Existing operations	$	29.9		$	36.2		$	(6.3	)
Opened operations		—			—			—

	$	29.9		$	36.2		$	(6.3	)

CEMETERY — CLOSED AND HELD FOR SALE OPERATIONS
Revenue	$	2.9		$	4.3		$	(1.4	)
Costs		3.4			6.6			(3.2	)

Profit	$	(.5	)	$	(2.3	)	$	1.8

Total Cemetery Revenue	$	118.6		$	132.3		$	(13.7	)
Total Cemetery Costs		89.2			98.4			(9.2	)

Total Cemetery Profit	$	29.4		$	33.9		$	(4.5	)

Total cemetery revenue decreased $13.7 million, or 10 percent, for the six months ended April 30, 2002, compared to the corresponding period in 2001. The Company experienced a $12.3 million, or 10 percent, decrease in revenue from Operations to be Retained primarily due to a decrease in cemetery merchandise deliveries, reduced preneed cemetery property sales and reduced perpetual care trust earnings. The Company experienced an annual average yield of 6.5 percent in its perpetual care trust funds for the six months ended April 30, 2002, compared to an annual average yield of 8.5 percent for the corresponding period in 2001.

Cemetery profit margin from Existing Operations decreased from 28.3 percent for the six months ended April 30, 2001 to 25.8 percent for the corresponding period in 2002. The decline was principally due to the reduction in cemetery revenue coupled with the high fixed-cost nature of the cemetery business. The decline was moderated due to the fact that goodwill is no longer amortized because of the implementation of SFAS No. 142. Cemetery goodwill amortization for Existing Operations amounted to $2.4 million for the six months ended April 30, 2001. The pro forma cemetery profit margin from Existing Operations adjusted for the elimination of goodwill amortization required by SFAS No. 142 would have been 30.2 percent for the six months ended April 30, 2001.

Other

Corporate general and administrative expenses for the six months ended April 30, 2002 decreased $1.2 million compared to the same period in 2001 primarily due to a reduction in salaries and professional fees. Effective April 1, 2002, the Company adopted the Stewart Enterprises, Inc. Supplemental Executive Retirement Plan which provides retirement benefits to certain executive officers. This Plan and its effect on the Company’s corporate general and administrative expenses are discussed under the heading “Three Months Ended April 30, 2002 Compared to Three Months Ended April 30, 2001 — Other.”

Depreciation and amortization was $28.0 million for the six months ended April 30, 2002 compared to $39.1 million for the same period in 2001. The decline in depreciation and amortization is due to the implementation of SFAS No. 142 and the sale of certain of the Company’s foreign assets.

EBITDA (defined as earnings before interest expense, taxes, depreciation and amortization) was $102.0 million, or 33.5 percent of revenue for the six months ended April 30, 2002 compared to $121.2 million, or 34.9 percent of revenue for the same period in 2001. Domestic EBITDA, which is fairly representative of Operations to be Retained, was $96.6 million, or 35.0 percent of domestic revenue for the six months ended April 30, 2002 compared to $105.4 million, or 37.0 percent of domestic revenue for the same period in 2001. The reduction in domestic EBITDA is primarily due to decreases in cemetery revenue, other income and investment income.

Interest expense increased $3.4 million to $32.8 million for the six months ended April 30, 2002 compared to $29.4 million for the same period in 2001. The increase is due to a 287 basis point increase in the average interest rate resulting from higher interest costs associated with debt incurred in the Company’s debt refinancing transactions. This increase was substantially offset by a $201.6 million decrease in the average outstanding debt balance. Investment income decreased $3.4 million to $.2 million for the six months ended April 30, 2002 compared to the same period in 2001. This decrease is due primarily to a $64.9 million decrease in the average cash and cash equivalents balance and a decrease in the average investment rate earned on the Company’s cash and cash equivalent investments from 7.8 percent to 1.8 percent. The 7.8 percent earned for the six months ended April 30, 2001 included returns on funds in foreign jurisdictions that earned 11.1 percent. The majority of the funds in foreign jurisdictions were sold with the Company’s Mexican operations.

Other income, net, decreased approximately $2.6 million during the six months ended April 30, 2002 compared to the same period in 2001. This decrease is principally due to the net gain on the sale of excess cemetery property during 2001.

agreements are discussed under the heading “Three Months Ended April 30, 2002 Compared to Three Months Ended April 30, 2001 — Other.”

Preneed Sales

The Company’s domestic preneed funeral and cemetery merchandise and service sales, which are deferred and are not included in the Company’s operating results above, increased from $82.3 million for the six months ended April 30, 2001 to $85.1 million for the corresponding period in 2002.

Liquidity and Capital Resources

Introduction

Historically, the Company’s 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 pursuing transactions at lower prices. As the business model shifted, death care consolidators experienced diminishing access to capital. In response to these changes, the Company ceased its acquisition activity and developed strategies for improving cash flow and reducing and restructuring debt. Throughout fiscal years 2000 and 2001, the Company focused on debt reduction and cash flow. During fiscal year 2002, the Company plans to continue its focus on debt reduction and to position itself for business expansion in fiscal year 2003. The Company believes that once its debt targets are achieved, it will be in a position to expand its businesses internally and consider purchasing high-quality firms using internally generated free cash flow.

Debt Restructuring and Reduction; Asset Sales

As described in Note 14 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2001, on June 29, 2001, the Company completed several transactions that refinanced substantially all of its long-term debt. In addition, in the third quarter of fiscal year 2001, the Company decided to pursue the sale of its foreign operations in order to generate cash to reduce debt and to allow the Company to focus on its core businesses.

In the fourth quarter of fiscal year 2001, the Company sold all of its foreign operations other than those in France, Spain, Portugal, Canada and Argentina. In the second quarter of 2002, the Company sold its operations in Spain and agreed to sell its operations in Portugal subject to regulatory approval. In the third quarter of 2002, the Company executed a purchase agreement for the sale of its Canadian operations subject to regulatory approval, which the Company expects to receive by the end of its third fiscal quarter. The Company has also signed a letter of intent for the sale of its operations in France. In total, these transactions have generated or will generate proceeds, including future tax benefits, of approximately $215.0 million of the $200.0 million to $250.0 million in total proceeds the Company expects to receive from the sale of all foreign operations. The Company has received about $120.0 million in cash related to these sales and expects an additional $95.0 million in proceeds, tax benefits and amounts in escrow to be received in the future from these completed sales. The net proceeds received thus far related to the sale of foreign operations have been used to repay debt, and net proceeds received in the future from foreign asset sales will also be used to repay debt. The Company continues to have active discussions for the sale of its remaining foreign operations and expects to complete these sales during 2002.

Additionally, in fiscal year 2001, the Company realized $21.0 million in proceeds from the sale of certain domestic properties, including $13.5 million from the sale of excess cemetery property and approximately $7.5 million from the sale of funeral home real estate and small domestic operations. These proceeds were used to reduce debt.

During the six months ended April 30, 2002, the Company realized approximately $5.0 million in proceeds from the sale of certain domestic funeral homes and cemeteries, which proceeds were also used to reduce debt. The Company believes that it could realize up to another $5.0 million in fiscal year 2002 from similar sales.

As a result of these transactions combined with the application of cash flow, the Company has reduced its debt from $950.5 million at the beginning of fiscal year 2001 to $660.4 million as of June 5, 2002 including $2.1 million of the unamortized option premium relating to Remarketable Or Redeemable Securities (“ROARS”). Long-term debt as of April 30, 2002, which included $1.4 million of debt associated with assets held for sale and $2.1 million of the unamortized option premium related to ROARS, was $663.1 million.

Contractual Obligations and Commercial Commitments

The following table details the Company’s known future cash payments (in millions) related to various contractual obligations as of April 30, 2002.


			Payments Due by Period

			Fiscal Year		Fiscal Years		Fiscal Years
Contractual Obligations	Total		2002		2003 - 2004		2005 - 2006		Thereafter

Current maturities of long-term debt⁽¹⁾	$	7.8	$	4.4	$	3.4	$	—	$	—
Long-term debt⁽¹⁾		653.2		—		109.9		239.5		303.8
Operating lease agreements⁽²⁾		47.6		3.3		9.7		6.6		28.0
Non-competition agreements⁽³⁾		22.1		3.2		10.0		5.1		3.8

	$	730.7	$	10.9	$	133.0	$	251.2	$	335.6

	⁽¹⁾	These amounts exclude the unamortized option premium relating to ROARS of $2.1 million as of April 30, 2002, but include the $1.4 million of debt associated with assets held for sale. See below for a breakdown of the Company’s future scheduled principal payments and maturities of its long-term debt by type as of April 30, 2002.

	⁽²⁾	The Company’s noncancellable operating leases are primarily for land and buildings and expire over the next 1 to 18 years, except for nine leases that expire between 2032 and 2072. The Company’s domestic future minimum lease payments as of April 30, 2002 are $2.9 million, $4.9 million, $4.2 million, $3.3 million, $2.9 million and $28.0 million for the years ending October 31, 2002, 2003, 2004, 2005, 2006 and later years, respectively. The Company’s foreign future minimum lease payments are $.4 million, $.5 million, $.1 million, $.1 million, $.3 million and $0 for the years ended October 31, 2002, 2003, 2004, 2005, 2006 and later years, respectively, although the Company’s foreign operations are currently held for sale.

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

The following table reflects future scheduled principal payments and maturities of the Company’s long-term debt (in millions) as of April 30, 2002.


											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

2002		$	1.3	$	—	$	—		$	—	$	3.1	$	4.4
2003			2.5		—		99.9	⁽¹⁾		—		4.2		106.6
2004			2.5		—		—			.1		4.1		6.7
2005			65.6		—		—			—		1.9		67.5
2006			171.1		—		—			—		.9		172.0
Thereafter			—		300.0		—			—		3.8		303.8

Subtotal		$	243.0	$	300.0	$	99.9		$	.1	$	18.0		661.0

Unamortized option premium relating to ROARS														2.1

Total long-term debt														663.1
	Less debt associated with assets held for sale													1.4

Long-term debt on the Company’s consolidated balance sheet													$	661.7

⁽¹⁾

The Company could be required to redeem the ROARS on May 1, 2003 if the debt is not remarketed, which will depend primarily upon prevailing market conditions at that time. If remarketed, new notes will be issued with a maturity date of May 1, 2013, and the coupon rate for the remaining term will be 5.44 percent (10-year Treasury rate, fixed upon initial issuance of the ROARS) plus the Company’s then current credit spread.

The Company also has $12.1 million of outstanding letters of credit as of April 30, 2002, and it is required to maintain a bond to guarantee its obligations relating to funds the Company withdrew from its preneed funeral trusts in Florida. The Company substituted a bond to guarantee performance under certain preneed funeral contracts and agreed to maintain unused credit facilities in an amount that will equal or exceed the bond amount. As of April 30, 2002, the balance of the Florida bond was $33.1 million. Management believes that cash flow from operations will be sufficient to cover its estimated cost of providing the related prearranged services and products in the future.

Under the Company’s senior secured credit facility, as long as any of the 6.70 percent Notes or 6.40 percent ROARS are outstanding, the Company 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 6.40 percent 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 6.40 percent ROARS: 0 percent through June 29, 2002, 25 percent thereafter through October 31, 2002, 50 percent thereafter through January 31, 2003, 75 percent thereafter through April 30, 2003 and 100 percent thereafter. If the 6.40 percent 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 would therefore be eliminated. In that case, the portion of the revolver restricted for purposes of the required reserve would then become available to the Company. As of April 30, 2002 and June 5, 2002, the Company’s required reserve was $57.8 million and $59.4 million, respectively.

As of April 30, 2002 and June 5, 2002, there were no amounts drawn on the Company’s $175.0 million revolving credit facility. As of April 30, 2002 and June 5, 2002, the Company’s availability under the revolver, after giving consideration to the aforementioned letters of credit, bond obligation and required reserve, was $72.0 million and $70.4 million, respectively.

In order for the Company to purchase or otherwise retire any of the remaining 6.70 percent Notes or 6.40 percent ROARS, either voluntarily or at maturity, the Company must provide evidence satisfactory to the administrative agent under the senior secured credit facility that, immediately after giving effect to the transaction, the Company will have liquidity, as defined in the senior secured credit facility, of no less than $25 million.

Cash Flow

The Company’s operations provided cash of $32.1 million for the six months ended April 30, 2002, compared to providing cash of $57.3 million for the corresponding period in 2001. The decrease in operating cash flow is due primarily to a $19.0 million reduction in earnings before depreciation, amortization and the cumulative effect of the change in accounting principles, a $5.5 million increase in the change in prearranged activity and other working capital changes. The $19.0 million reduction in earnings before depreciation, amortization and the cumulative effect of the change in accounting principles is comprised of the following items. There was a $10.2 million reduction in earnings from operations held for sale due to the Company’s divestiture of certain of its foreign assets. This reduction was substantially offset by a corresponding reduction in interest expense due to the pay down of debt with the asset sale proceeds as discussed below. There was a $6.5 million decline in the nonrecurring gains related to the sale of excess cemetery property in 2001 and a lower yield on the Company’s perpetual care trust funds in 2002 as compared to 2001. Additionally, interest expense increased $3.4 million. This was due to higher interest costs associated with the refinancing that occurred in June 2001 substantially offset by the aforementioned application of the foreign asset sale proceeds used to repay debt. Finally, there was a $2.4 million decline in operating profit from the Company’s operations to be retained, primarily resulting from its cemetery segment. These items were offset by a decrease in taxes of $3.5 million resulting from lower earnings and a higher tax rate.

The Company’s investing activities resulted in a net cash inflow of $8.7 million for the six months ended April 30, 2002, compared to a net cash outflow of $3.2 million for the comparable period in 2001. The $11.9 million increase is due primarily to proceeds from the sale of foreign operations, domestic funeral home real estate and small domestic operations received by the Company from the asset sales described above under “Debt Restructuring and Reduction; Asset Sales.” For the six months ended April 30, 2002, capital expenditures amounted to $7.7 million, which included $6.4 million for maintenance capital expenditures and $1.3 million for new growth initiatives.

The Company’s financing activities resulted in a cash outflow of $28.7 million for the six months ended April 30, 2002, compared to $42.9 million for the comparable period in 2001. This decrease is due principally to repayments of long-term debt of $29.1 million in the six months ended April 30, 2002 compared to $83.5 million in the comparable period of 2001. Partially offsetting the cash outflow for the six months ended April 30, 2001 was $40.0 million that the Company withdrew from its trust funds in Florida, as described above under “Contractual Obligations and Commercial Commitments.”

Ratio of Earnings to Fixed Charges

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

Six Months

ended

Years ended October 31,

April 30,

1997

1998

1999

2000

2001

2002

3.65⁽¹⁾

2.38⁽²⁾

3.43⁽¹⁾

2.57

—⁽³⁾

2.20

	⁽¹⁾	Excludes the cumulative effect of change in accounting principles.

	⁽²⁾	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, the Company’s ratio of earnings to fixed charges for fiscal year 1998 would have been 4.01.

	⁽³⁾	Pretax earnings for fiscal year 2001 include a nonrecurring, 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, the Company’s earnings for the fiscal year ended October 31, 2001 were insufficient to cover its 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, the Company’s ratio of earnings to fixed charges for fiscal year 2001 would have been 2.21.

For purposes of computing the ratio of earnings to fixed charges, earnings consist of pretax earnings plus fixed charges (excluding interest capitalized during the period). Fixed charges consist of interest expense, capitalized interest, amortization of debt expense and discount or premium relating to any indebtedness and the portion of rental expense that management believes to be representative of the interest component of rental expense. The ratio of earnings to fixed charges for the six months ended April 30, 2002, reflects the adoption of SFAS No. 142; fiscal year 2001 reflects the 2001 change in accounting principles; fiscal years 2000 and 1999 reflect the 1999 change in accounting principle; and fiscal years 1998 and 1997 reflect the 1997 change in accounting principles.

Inflation

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

Recent Accounting Standards

(a) SFAS No. 142

SFAS No. 142, “Goodwill and Other Intangible Assets,” states that goodwill will no longer be amortized, but will be tested for impairment at the reporting unit level. Impairment losses are recognized initially as changes in accounting principle and subsequently will be included in operating income. The Company adopted SFAS No. 142 in the first quarter of fiscal year 2002. See Note 2 to the consolidated financial statements for further discussion of SFAS No. 142 and its impact on the Company’s financial condition and results of operations.

(b) Other Accounting Pronouncements

For a discussion of these accounting standards, see Note 2 to the consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosure about market risk is presented in Item 7A to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2001, filed with the Securities and Exchange Commission on January 25, 2002. 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 the Company’s 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, the Company’s market risk sensitive instruments and positions are characterized as “other than trading.” The Company’s 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. The Company’s 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, foreign currency exchange rates, interest rates and the timing of transactions.

Interest

The Company has entered into various fixed- and variable-rate debt obligations, which are detailed in Note 14 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2001.

As of April 30, 2002 and October 31, 2001, the carrying values of the Company’s long-term, fixed-rate debt, including accrued interest and the unamortized portion of the ROARS option premium, were approximately $434.1 million and $437.6 million, respectively, compared to fair values of $465.7 million and $463.0 million, respectively. Fair values were determined using quoted market prices, where applicable, or future cash flows discounted at market rates for similar types of borrowing arrangements. Each approximate 10 percent change in the average interest rates applicable to such debt, 80 basis points and 85 basis points for April 30, 2002 and October 31, 2001, respectively, would result in changes of approximately $11.6 million and $15.1 million, respectively, in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized.

In order to hedge a portion of the interest rate risk associated with its variable-rate debt, during the first quarter of 1999, the Company 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. On March 5, 2002, the Company entered into two interest rate swap agreements which became effective on March 11, 2002, 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 $50.0 million of variable-rate debt bearing interest based on three-month LIBOR to a fixed rate based on the swap rate of 4.265 percent and expires on March 11, 2005. The estimated fair value of the interest rate swaps based on quoted market prices was ($.7) million and ($2.1) million as of April 30, 2002 and October 31, 2001, respectively. A hypothetical 100 basis point increase in the average interest rates applicable to such debt would result in a change of

approximately $2.1 million and $1.0 million in the fair value of these instruments as of April 30, 2002 and October 31, 2001, respectively.

As of April 30, 2002 and October 31, 2001, the carrying values of the Company’s Term Loan B, including accrued interest, were $243.0 million and $270.0 million, respectively, compared to fair values of $246.7 million and $270.0 million, respectively. Fair value was determined using quoted market prices. Of the $243.0 million outstanding under Term Loan B on April 30, 2002, $143.0 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 $.7 million in the Company’s pre-tax earnings. Of the $270.0 million outstanding under Term Loan B on October 31, 2001, $70.0 million was not hedged by the interest rate swap in effect at that time and was subject to short-term variable interest rates. In addition, the remaining $200.0 million outstanding under Term Loan B would have been subject to short-term variable interest rates upon the expiration of the interest rate swap on March 4, 2002. 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 $1.2 million in the Company’s pre-tax earnings.

The Company monitors its 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 its variable-rate revolving credit facility with fixed-rate debt or by entering into interest rate swaps.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

The Company’s 2002 annual meeting of shareholders was held on April 8, 2002. All director nominees were elected. The voting tabulation was as follows: James W. McFarland: 122,814,359 votes for, 2,115,611 votes withheld; Kenneth C. Budde: 123,441,743 votes for, 1,488,227 votes withheld; Alden J. McDonald, Jr.: 122,600,821 votes for, 2,329,149 votes withheld. The proposal to ratify the appointment of PricewaterhouseCoopers LLP, certified public accountants, as independent auditors for the fiscal year ending October 31, 2002 was approved. The voting tabulation was as follows: 123,575,378 votes for, 1,315,897 votes against and 38,695 abstentions.

Item 5. Other Information

Forward-Looking Statements

Certain statements made herein or elsewhere by, or on behalf of, the Company 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) the Company’s plan to sell its foreign operations and certain funeral home assets and excess cemetery property, and potential effects thereof, (2) the Company’s plans to reduce debt, (3) anticipated future performance of the Company’s preneed sales program and (4) anticipated future performance of funds held in trust.

The forecast financial information included in this Form 10-Q has been prepared by, and is the responsibility of, the Company’s management. PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying forecast financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

Accuracy of the forecasts is dependent on 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 management of the Company 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 the Company’s 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 management’s principal expectations are realized. The Company cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by or on behalf of the Company.

The Company’s goal is to return to debt levels of approximately $500 million, or 2.5 times domestic EBITDA. Management projects that the Company will achieve this during 2003 by further reducing debt by approximately $95 million with the proceeds, including tax benefits and amounts in escrow, during 2002 and 2003 from the agreements it already has signed for the sale of its operations in Portugal, France and Canada plus proceeds and tax benefits from the sale of its operations in Argentina and with an additional amount of approximately $50 million to $55 million per year in free cash flow. In addition, the Company anticipates generating up to an additional $5 million in fiscal year 2002 from the sale of domestic assets. By the end of 2002, management expects to have completed the sale of all of its foreign operations, and all tax benefits are expected to be realized in fiscal years 2002 and 2003. Management expects that once the Company achieves its debt goal, it will be in a position to expand its businesses internally and to consider acquiring high-quality firms, using internally generated free cash flow.

Management expects earnings per share of $0.38 to $0.42 and cash flow from operations between $60 million and $70 million for fiscal year 2002.

Management expects the following factors to impact fiscal year 2002 financial results:

Significant Factors Affecting Earnings:

•		Management expects that the sale of its foreign operations will cause revenues, operating earnings and net earnings for fiscal year 2002 to be lower than fiscal year 2001, although the sales will have a positive impact on interest expense as proceeds are used to reduce debt.

•		The Company expects interest expense to increase due to the refinancing completed on June 29, 2001, which increased the Company’s average borrowing rate by approximately 300 basis points. The Company expects the increase in interest expense to be mitigated as it reduces debt.

•		The Company adopted SFAS No. 142 effective November 1, 2001, and therefore will benefit from the elimination of domestic goodwill amortization for fiscal year 2002. In fiscal year 2001, domestic goodwill amortization was $14 million.

•		During fiscal year 2001, the Company benefited from $5 million in nonrecurring net gains related to the sale of excess cemetery property, funeral home real estate and other assets.

•		The Company expects that the yield on assets in its perpetual care trust funds will be below the 7.1 percent yield achieved in fiscal year 2001 due to current market conditions and the mix of investments held in the trusts.

•		Management expects the Company’s tax rate to increase, due primarily to the disposition of its foreign assets, offset by the implementation of SFAS No. 142.

Significant Factors Affecting Free Cash Flow (Cash Flow From Operations Adjusted for Maintenance Capital Expenditures):

•		In fiscal year 2001, the Company realized cash benefits from several nonrecurring tax items such as a federal tax refund, a reduction in 2001 estimated tax payments, a refund of some state tax payments and repayment from the funeral trust funds for tax payments made on behalf of the trusts.

•		The Company received $13.5 million in cash proceeds in fiscal year 2001 from the sale of excess cemetery property.

•		Interest expenditures are expected to increase, as described above.

The Company’s cash flow in fiscal year 2002 will be affected by any future foreign asset sales and the timing of the receipt of any tax benefits from completed and future sales.

Cautionary Statements

The Company cautions readers that the following important factors, among others, in some cases have affected, and in the future, could affect, the Company’s actual consolidated results and could cause the Company’s 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 or on behalf of the Company.

Risks Related to the Company’s Business

The Company’s ability to achieve its debt reduction targets and to service its debt in the future depends upon the Company’s ability to generate sufficient cash, which depends on many factors, some of which are beyond the Company’s control.

The Company’s ability to achieve its debt reduction targets in the time frame projected by the Company depends upon the Company’s ability to generate sufficient cash from three main sources: (1) closing on the sale of its foreign assets in Portugal and Canada, executing its agreements and closing on the sale of assets in France and selling its assets in Argentina, (2) income tax benefits associated with the foreign asset sales and (3) its ongoing operations. The Company cannot control whether or when it will be able to complete transactions for the sale of its remaining foreign assets with buyers willing to accept terms anticipated by the Company’s forecasts. The timing of the receipt of the income tax benefits depends on the rate at which the Company can produce capital gains against which the asset sale losses can be offset and the timing of the Company’s filing for capital loss carrybacks to apply against previously-taxed capital gains. The Company’s ability to generate cash flow from operations depends upon, among other things, the number of deaths in the Company’s markets, competition, the level of preneed sales, the Company’s ability to control its costs, stock and bond market conditions, and general economic, financial and regulatory factors, much of which is beyond the Company’s control.

The Company 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 sales would reduce the Company’s backlog and revenue and could reduce its future market share.

In an effort to increase cash flow, the Company modified its 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, the Company changed the compensation structure for its preneed sales force. These changes, and the accompanying sales force attrition and adverse impact on sales force morale, caused preneed sales to decline. Although the Company does not anticipate making further significant changes in these areas, it may decide that further adjustments are advisable, which could cause additional declines in preneed sales. In addition, a weakening economy

that causes customers to have less discretionary income could cause a decline in preneed sales. Declines in preneed cemetery property sales would reduce current revenue, and declines in other preneed sales would reduce the Company’s backlog and future revenue and could reduce future market share.

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 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, the Company changed the terms and conditions of preneed sales contracts and commissions and moderated its preneed sales effort in order to reduce the initial negative impact on cash flow. Nevertheless, the Company 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 the Company’s ability to service debt could be adversely affected.

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

The Company’s funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral homes and cemetery firms. The Company has 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, the Company has had to reduce prices and thereby profit margins in order to retain or recapture market share. In addition, because of competition from these types of competitors in some key markets, in fiscal year 1999 the Company lowered its goals for increases in average revenue per funeral service performed in the future. Increased price competition in the future could further reduce revenues, profit margins and the backlog.

Increased advertising or better marketing by competitors, or increased services from Internet providers, could cause the Company to lose market share and revenues or cause the Company to incur increased costs in order to retain or recapture the Company’s 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 the Company to lose market share and revenues or cause it to increase marketing costs. In addition, competitors may change the types or mix of products or services offered. These changes may attract customers, causing the Company to lose market share and revenue or to incur costs in response to competition to vary the types or mix of products or services offered by the Company. Also, increased use of the Internet by customers to research and/or purchase products and services could cause the Company to lose market share to competitors offering to sell products or services over the Internet. The Company does not currently sell products or services over the Internet.

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.

Earnings and investment gains and losses on trust funds and escrow accounts are affected by financial market conditions that are not within the Company’s control. Earnings are also affected by the mix of fixed-income and equity securities that the Company chooses to maintain in the funds, and it may not choose the optimal mix for any particular

market condition. The size of the funds depends upon the level of preneed sales, the amount of 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 the Company’s financial condition.

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

As of June 5, 2002, $241 million of the Company’s 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 substantially increase the Company’s interest costs on its variable-rate long-term debt, which could decrease the Company’s net income and earnings per share materially.

Covenant restrictions under the Company’s senior secured credit facilities and senior subordinated note indenture limit the Company’s flexibility in operating its business.

The Company’s senior secured credit facilities and the indenture governing the senior subordinated notes contain, among other things, covenants that restrict the Company’s and the subsidiary guarantors’ ability to finance future operations or capital needs or to engage in other business activities. They limit, among other things, the Company’s and the 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 facilities contain specific limits on capital expenditures as well as a requirement that the Company 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 facilities require the Company to maintain specified financial ratios and satisfy financial condition tests and prohibit payment of the 6.70 percent Notes and the 6.40 percent ROARS unless thereafter the Company will have liquidity no less than $25 million, as defined.

These covenants may require the Company to act in a manner contrary to its business objectives. In addition, events beyond the Company’s control, including changes in general economic and business conditions, may affect its ability to satisfy these covenants. A breach of any of these covenants could result in a default allowing the lenders to declare all amounts immediately due and payable. The Company believes that the completion of the sale of its remaining foreign operations will not violate these covenants.

The Company’s foreign operations are subject to political, economic, currency and other risks that could adversely impact its financial condition, operating results or cash flow.

The Company’s foreign operations are subject to risks inherent in doing business in foreign countries. Risks associated with operating internationally include political, social and economic instability, increased operating costs, expropriation and complex and changing government regulations, all of which are beyond the Company’s control. To the extent the Company makes investments in foreign assets or receives revenues in currencies other than U.S. dollars, the value of assets and income could be, and have in the past been, adversely affected by fluctuations in the value of local currencies.

Risks Related to the Death Care Industry

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

Declines in the number of deaths could cause at-need sales of funeral and cemetery services, property and merchandise to decline, which could decrease revenues. Although the United States Bureau of the Census estimates that the number of deaths in the United States will increase by approximately 1 percent per year from 2000 to 2010, longer lifespans could reduce the rate of deaths. 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 the Company’s markets or from quarter to quarter are not predictable. These variations can cause revenues to fluctuate. The Company’s comparisons of the change in the number of families served to the change in the number of deaths reported by the Centers for Disease Control and Prevention (“CDC”) from time to time may not necessarily be meaningful. The CDC receives weekly mortality reports from 122 cities and metropolitan areas in the United States within two to three weeks from the date of death and reports the total number of deaths occurring in these areas each week based on the reports received from state health departments. The comparability of the Company’s funeral calls to the CDC data is limited, as reports from the state health departments are often delayed, and the 122 cities reported on by the CDC are not necessarily comparable with the markets in which the Company operates. Nonetheless, the Company believes 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 the Company 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, profit margins than traditional funerals.

The Company’s 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 40 percent of the United States burial market by the year 2010, compared to 25 percent in 1999. The trend 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 the Company is not able to respond effectively to changing consumer preferences, the Company’s market share, revenues and profitability could decrease.

Future market share, revenues and profits will depend in part on the Company’s ability to anticipate, identify and respond to changing consumer preferences. During fiscal year 2000, the Company began to implement strategies based on a proprietary, extensive study of consumer preferences it commissioned in 1999. However, the Company may not correctly anticipate or identify trends in consumer preferences, or it may identify them later than its competitors do. In addition, any strategies the Company 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, the Company 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 the Company cannot decrease these costs significantly or rapidly when it experiences 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 the Company’s 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 and the laws of foreign jurisdictions where it operates. 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 on the Company, and it is 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, foreign, federal, state, local and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the death care industry. Several states and regulatory agencies have considered or are considering regulations that could require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate the ability of the Company 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 the Company operates, these and other possible proposals could have a material adverse effect on the Company, its financial condition, its results of operations and its 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 June 23, 2000 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2000)

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)

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)

Management Contracts and Compensatory Plans or Arrangements


10.1		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and William E. Rowe

10.2		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Brian J. Marlowe

10.3		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Kenneth C. Budde

10.4		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Lawrence B. Hawkins

10.5		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Brent F. Heffron

10.6		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Randall L. Stricklin

10.7		First Supplement to Appendix A to the Employment Agreement dated April 12, 2002, between the Company and G. Kenneth Stephens, Jr.

10.8		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Michael K. Crane

10.9		First Supplement to Appendix A to the Employment Agreement dated April 12, 2002, between the Company and Michael K. Crane

10.10		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Everett N. Kendrick

10.11		Amended and Restated Stewart Enterprises, Inc. 2000 Directors’ Stock Option Plan

10.12		Stewart Enterprises, Inc. Supplemental Executive Retirement Plan


12		Calculation of Ratio of Earnings to Fixed Charges

(b)		Reports on Form 8-K

		The Company filed a Form 8-K dated March 12, 2002, reporting under “Item 5. Other Events,” the earnings release for the quarter ended January 31, 2002 and under “Item 9. Regulation FD Disclosures,” the Company’s forecasts for fiscal year 2002.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

SIGNATURES

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


		STEWART ENTERPRISES, INC.

June 13, 2002		/s/ KENNETH C. BUDDE
		Kenneth C. Budde Executive Vice President Chief Financial Officer


June 13, 2002		/s/ MICHAEL G. HYMEL
		Michael G. Hymel Vice President Corporate Controller Chief Accounting Officer

INDEX TO EXHIBITS


EXHIBIT
NUMBER		DESCRIPTION

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 June 23, 2000 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2000)

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)

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)

Management Contracts and Compensatory Plans or Arrangements


10.1		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and William E. Rowe

10.2		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Brian J. Marlowe

10.3		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Kenneth C. Budde

10.4		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Lawrence B. Hawkins

10.5		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Brent F. Heffron

10.6		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Randall L. Stricklin

10.7		First Supplement to Appendix A to the Employment Agreement dated April 12, 2002, between the Company and G. Kenneth Stephens, Jr.

10.8		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Michael K. Crane

10.9		First Supplement to Appendix A to the Employment Agreement dated April 12, 2002, between the Company and Michael K. Crane

10.10		Amendment No. 1 to Employment Agreement dated April 1, 2002, between the Company and Everett N. Kendrick

10.11		Amended and Restated Stewart Enterprises, Inc. 2000 Directors’ Stock Option Plan

10.12		Stewart Enterprises, Inc. Supplemental Executive Retirement Plan

12		Calculation of Ratio of Earnings to Fixed Charges

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Stewart Enterprises (STEI) Inactive 10-Q2002 Q2 Quarterly report

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