10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2008

or

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

For the transition period from                      to                     

Commission File Number: 1-15449

STEWART ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

LOUISIANA (State or other jurisdiction of incorporation or organization)	72-0693290 (I.R.S. Employer Identification No.)
1333 South Clearview Parkway
Jefferson, Louisiana (Address of principal executive offices)	70121 (Zip Code)

Registrant’s telephone number, including area code: (504) 729-1400

     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 þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act.) Yes o No þ

     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 August 31, 2008, was 88,691,827 and 3,555,020, respectively.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

INDEX

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Earnings — Three Months Ended July 31, 2008 and 2007			3
	Condensed Consolidated Statements of Earnings— Nine Months Ended July 31, 2008 and 2007			4
	Condensed Consolidated Balance Sheets — July 31, 2008 and October 31, 2007			5
	Condensed Consolidated Statement of Shareholders’ Equity — Nine Months Ended July 31, 2008			7
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended July 31, 2008 and 2007			8
	Notes to Condensed Consolidated Financial Statements			9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		52
	Item 4.	Controls and Procedures		52
Part II.	Other Information
	Item 1.	Legal Proceedings		52
	Item 1A.	Risk Factors		53
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		54
	Item 5.	Other Information		54
	Item 6.	Exhibits		55
	Signatures			57

2

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

	Three Months Ended July 31,
	2008			2007
Revenues:
Funeral	$	68,558		$	66,914
Cemetery		61,870			60,665
		130,428			127,579
Costs and expenses:
Funeral		53,524			52,589
Cemetery		48,906			48,481
		102,430			101,070
Gross profit		27,998			26,509
Corporate general and administrative expenses		(8,188	)		(8,343	)
Hurricane related charges, net		(341	)		(210	)
Separation charges		—			(48	)
Gains on dispositions and impairment (losses), net		25			(46	)
Other operating income, net		407			290
Operating earnings		19,901			18,152
Interest expense		(6,000	)		(6,222	)
Loss on early extinguishment of debt		—			(677	)
Investment and other income, net		593			810
Earnings from continuing operations before income taxes		14,494			12,063
Income taxes		5,365			3,853
Earnings from continuing operations		9,129			8,210
Discontinued operations:
Loss from discontinued operations before income taxes		—			(138	)
Income tax benefit		—			(51	)
Loss from discontinued operations		—			(87	)
Net earnings	$	9,129		$	8,123
Basic earnings per common share:
Earnings from continuing operations	$	.10		$	.08
Earnings from discontinued operations		—			—
Net earnings	$	.10		$	.08
Diluted earnings per common share:
Earnings from continuing operations	$	.10		$	.08
Earnings from discontinued operations		—			—
Net earnings	$	.10		$	.08
Weighted average common shares outstanding (in thousands):
Basic		92,203			102,479
Diluted		92,414			102,714
Dividends declared per common share	$	.025		$	.025

See accompanying notes to condensed consolidated financial statements.

3

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

	Nine Months Ended July 31,
	2008			2007
Revenues:
Funeral	$	218,862		$	212,410
Cemetery		178,658			184,043
		397,520			396,453
Costs and expenses:
Funeral		163,260			160,415
Cemetery		143,558			145,757
		306,818			306,172
Gross profit		90,702			90,281
Corporate general and administrative expenses		(24,226	)		(23,129	)
Hurricane related charges, net		(351	)		(2,343	)
Separation charges		—			(580	)
Gains on dispositions and impairment (losses), net		153			44
Other operating income, net		753			1,441
Operating earnings		67,031			65,714
Interest expense		(17,981	)		(19,274	)
Loss on early extinguishment of debt		—			(677	)
Investment and other income, net		1,670			2,427
Earnings from continuing operations before income taxes		50,720			48,190
Income taxes		18,766			14,191
Earnings from continuing operations		31,954			33,999
Discontinued operations:
Loss from discontinued operations before income taxes		—			(519	)
Income tax benefit		—			(198	)
Loss from discontinued operations		—			(321	)
Net earnings	$	31,954		$	33,678
Basic earnings per common share:
Earnings from continuing operations	$	.34		$	.32
Earnings from discontinued operations		—			—
Net earnings	$	.34		$	.32
Diluted earnings per common share:
Earnings from continuing operations		.34			.32
Earnings from discontinued operations		—			—
Net earnings		.34			.32
Weighted average common shares outstanding (in thousands):
Basic		94,504			104,215
Diluted		94,676			104,384
Dividends declared per common share	$	.075		$	.075

See accompanying notes to condensed consolidated financial statements.

4

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

	July 31,		October 31,
	2008		2007
ASSETS
Current assets:
Cash and cash equivalents	$	48,693	$	71,545
Marketable securities		38		262
Receivables, net of allowances		78,248		60,615
Inventories		35,900		36,061
Prepaid expenses		8,927		6,355
Deferred income taxes, net		8,479		8,621
Total current assets		180,285		183,459
Receivables due beyond one year, net of allowances		69,802		83,608
Preneed funeral receivables and trust investments		439,821		515,053
Preneed cemetery receivables and trust investments		223,293		255,679
Goodwill		273,188		273,286
Cemetery property, at cost		377,137		374,800
Property and equipment, at cost:
Land		43,767		43,767
Buildings		317,035		310,968
Equipment and other		175,919		164,246
		536,721		518,981
Less accumulated depreciation		230,580		213,063
Net property and equipment		306,141		305,918
Deferred income taxes, net		181,060		192,859
Cemetery perpetual care trust investments		207,425		236,503
Other assets		17,302		17,809
Total assets	$	2,275,454	$	2,438,974

(continued)

5

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

	July 31,			October 31,
	2008			2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	27		$	198
Accounts payable		23,286			26,606
Accrued payroll and other benefits		16,376			16,316
Accrued insurance		21,939			21,252
Accrued interest		6,589			5,576
Other current liabilities		15,461			17,958
Income taxes payable		1,131			4,177
Total current liabilities		84,809			92,083
Long-term debt, less current maturities		450,097			450,115
Deferred preneed funeral revenue		250,482			256,603
Deferred preneed cemetery revenue		279,855			284,507
Non-controlling interest in funeral and cemetery trusts		581,686			683,052
Other long-term liabilities		19,749			13,869
Total liabilities		1,666,678			1,780,229
Commitments and contingencies
Non-controlling interest in perpetual care trusts		205,636			235,427
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 200,000,000 shares; issued and outstanding 88,681,765 and 94,865,387 shares at July 31, 2008 and October 31, 2007, respectively		88,682			94,865
Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at July 31, 2008 and October 31, 2007; 10 votes per share convertible into an equal number of Class A shares		3,555			3,555
Additional paid-in capital		538,778			583,789
Accumulated deficit		(227,903	)		(258,902	)
Accumulated other comprehensive income:
Unrealized appreciation of investments		28			11
Total accumulated other comprehensive income		28			11
Total shareholders’ equity		403,140			423,318
Total liabilities and shareholders’ equity	$	2,275,454		$	2,438,974

See accompanying notes to condensed consolidated financial statements.

6

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

				Additional						Unrealized		Total
	Common			Paid-In			Accumulated			Appreciation of		Shareholders’
	Stock (1)			Capital			Deficit			Investments		Equity
Balance October 31, 2007	$	98,420		$	583,789		$	(258,902	)	$	11	$	423,318
Comprehensive income:
Net earnings		—			—			31,954			—		31,954
Other comprehensive income:
Unrealized appreciation of investments, net of deferred tax expense of ($9)		—			—			—			17		17
Total other comprehensive income		—			—			—			17		17
Total comprehensive income		—			—			31,954			17		31,971
Cumulative effect of adoption of FIN 48		—			—			(955	)		—		(955	)
Restricted stock activity		28			332			—			—		360
Issuance of common stock		160			1,013			—			—		1,173
Stock options exercised		247			1,162			—			—		1,409
Share-based compensation		—			1,431			—			—		1,431
Tax benefit associated with stock options exercised		—			127			—			—		127
Purchase and retirement of common stock		(6,618	)		(42,009	)		—			—		(48,627	)
Dividends ($.075 per share)		—			(7,067	)		—			—		(7,067	)
Balance July 31, 2008	$	92,237		$	538,778		$	(227,903	)	$	28	$	403,140

⁽¹⁾ Amount includes 88,682 and 94,865 shares (in thousands) of Class A common stock with a stated value of $1 per share as of July 31, 2008 and October 31, 2007, respectively, and includes 3,555 shares (in thousands) of Class B common stock.

See accompanying notes to condensed consolidated financial statements.

7

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

	Nine Months Ended July 31,
	2008			2007
Cash flows from operating activities:
Net earnings	$	31,954		$	33,678
Adjustments to reconcile net earnings to net cash provided by operating activities:
(Gains) on dispositions and impairment losses, net		(153	)		514
Depreciation and amortization		21,188			20,033
Provision for doubtful accounts		5,742			6,934
Share-based compensation		1,431			1,146
Loss on early extinguishment of debt		—			677
Excess tax benefits from share-based payment arrangements		(171	)		(108	)
Provision for deferred income taxes		5,844			5,062
Other		973			1,160
Changes in assets and liabilities:
(Increase) decrease in receivables		(3,902	)		1,652
Increase in prepaid expenses		(2,574	)		(3,193	)
Increase in inventories and cemetery property		(2,072	)		(2,261	)
Decrease in accounts payable and accrued expenses		(477	)		(6,545	)
Net effect of preneed funeral production and maturities:
(Increase) decrease in preneed funeral receivables and trust investments		7,711			(665	)
Decrease in deferred preneed funeral revenue		(5,767	)		(5,260	)
Increase (decrease) in funeral non-controlling interest		(5,395	)		3,247
Net effect of preneed cemetery production and deliveries:
Increase in preneed cemetery receivables and trust investments		(52	)		(2,710	)
Decrease in deferred preneed cemetery revenue		(4,652	)		(7,884	)
Increase in cemetery non-controlling interest		3,712			9,238
Increase (decrease) in other		(1,087	)		84
Net cash provided by operating activities		52,253			54,799
Cash flows from investing activities:
Proceeds from sales of marketable securities		20,219			—
Purchases of marketable securities		(19,955	)		(148	)
Proceeds from sale of assets, net		358			1,645
Purchase of subsidiaries and other investments, net of cash acquired		(1,378	)		(6,134	)
Insurance proceeds related to hurricane damaged properties		—			1,400
Additions to property and equipment		(20,370	)		(23,120	)
Other		75			56
Net cash used in investing activities		(21,051	)		(26,301	)
Cash flows from financing activities:
Proceeds from long-term debt		—			250,000
Repayments of long-term debt		(190	)		(176,461	)
Debt issue costs		—			(5,572	)
Proceeds from sale of common stock warrants		—			43,850
Issuance of common stock		1,659			2,521
Purchase of call options		—			(60,000	)
Purchase and retirement of common stock		(48,627	)		(64,201	)
Dividends		(7,067	)		(7,724	)
Excess tax benefits from share-based payment arrangements		171			108
Net cash used in financing activities		(54,054	)		(17,479	)
Net increase (decrease) in cash		(22,852	)		11,019
Cash and cash equivalents, beginning of period		71,545			43,870
Cash and cash equivalents, end of period	$	48,693		$	54,889
Supplemental cash flow information:
Cash paid during the period for:
Income taxes, net	$	11,767		$	9,044
Interest	$	15,799		$	18,096
Non-cash investing and financing activities:
Issuance of common stock to executive officers and directors	$	923		$	1,028
Issuance of restricted stock, net of forfeitures	$	260		$	4,186

See accompanying notes to condensed consolidated financial statements.

8

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation

(a) The Company

     Stewart Enterprises, Inc. (the “Company”) is a provider of funeral and cemetery products and services in the death care industry in the United States. Through its subsidiaries, the Company offers a complete line of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a preneed basis. As of July 31, 2008, the Company owned and operated 221 funeral homes and 139 cemeteries in 24 states within the United States and Puerto Rico. The Company has five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of two geographic areas: Eastern and Western.

(b) Principles of Consolidation

     The accompanying condensed consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

(c) Interim Disclosures

     The information as of July 31, 2008, and for the three and nine months ended July 31, 2008 and 2007, 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 condensed 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, 2007 (the “2007 Form 10-K”).

     The October 31, 2007 condensed consolidated balance sheet data was derived from audited financial statements in the Company’s 2007 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America, which are presented in the Company’s 2007 Form 10-K.

     The results of operations for the three and nine months ended July 31, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2008.

(d) Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. The Company’s significant estimates are disclosed in Note 2 in the Company’s 2007 Form 10-K.

(e) Share-Based Compensation

     The Company has share-based compensation plans, which are described in more detail in Note 18 to the consolidated financial statements in the Company’s 2007 Form 10-K. Net earnings for the three months ended July 31, 2008 and 2007 include $481 and $455, respectively, of share-based compensation costs. Net earnings for the nine months ended July 31, 2008 and 2007 include $1,431 and $1,146, respectively, of share-based compensation costs all of which are included in corporate general and administrative expenses in the condensed consolidated statements of earnings. As of July 31, 2008, there was $3,017 of total unrecognized compensation costs related to nonvested share-based compensation that is expected to be recognized over a weighted-average period of 2.53 years of which $1,819 of total share-based compensation is expected for fiscal year 2008. The expense related to restricted stock is reflected in earnings and amounted to $187 and $354 for the three months ended July 31, 2008

9

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation—(Continued)

and 2007, respectively, and $557 and $501 for the nine months ended July 31, 2008 and 2007, respectively.

     On January 17, 2008, the Company issued a total of 72,000 shares of Class A common stock to the independent directors of the Company. The expense related to this stock amounted to $531 and was recorded in corporate general and administrative expenses during the first quarter of 2008. Each independent director must hold at least 75 percent of the shares received until completion of service as a member of the Board of Directors.

     The table below presents all stock options and restricted stock granted to employees during the nine months ended July 31, 2008:

			Weighted Average
	Number of Shares		Exercise Price per
Grant Type	Granted		Share		Vesting Period	Vesting Condition
Stock Options		403,750	$	8.12	Primarily equal one-fourth portions over 4 years	Service condition
Stock Options		157,500	$	8.34	Primarily equal one-third portions over 3 years	Market condition
Restricted Stock		55,000	$	8.31	Primarily equal one-third portions over 3 years	Performance condition

     The fair value of the Company’s service based stock options is the estimated present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions for the service based stock options granted during the nine months ended July 31, 2008: expected dividend yield of 1.2 percent; expected volatility of 37.5 percent; risk-free interest rate of 3.6 percent; and an expected term of 6.9 years. The Company also issued stock options in the first and third quarters of fiscal year 2008 with market conditions based on reaching certain target stock prices in fiscal years 2008, 2009 and 2010. The Company records this expense over the requisite service period. The fair value of the Company’s market based stock options is the estimated present value at the grant date using the Monte Carlo lattice model approach with the following weighted average assumptions for the market based stock options granted during the nine months ended July 31, 2008: expected dividend yield of 1.2 percent; expected volatility of 31.0 percent; risk-free interest rate of 3.4 percent; and an expected term of 2.8 years.

(f) Reclassifications

     Certain reclassifications have been made to the 2007 condensed consolidated statements of earnings and cash flows in order for these periods to be comparable. Businesses sold in fiscal year 2007 that met the criteria for discontinued operations have been classified as discontinued operations for all periods presented. These reclassifications had no effect on net earnings or operating cash flows.

(2) New Accounting Principles

Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”)

     In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for uncertain tax positions in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” This interpretation requires companies to use a prescribed model for assessing the financial statement recognition and measurement of all tax positions taken or expected to be taken in tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure

10

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(2) New Accounting Principles—(Continued)

and transition. This interpretation was adopted by the Company on November 1, 2007. The Company has reviewed its income tax positions and identified certain tax deductions or revenue deferrals that are not certain. As a result of the adoption, the Company recognized a charge of $955 to the November 1, 2007 accumulated deficit balance. As of the adoption date, the Company had gross tax affected unrecognized tax benefits of $3,615 of which $551, if recognized, would affect the effective tax rate. Also, as of the adoption date, we had accrued interest and penalties related to the unrecognized tax benefits of $733. The Company’s policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively.

     With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 2002. During the nine months ended July 31, 2008, we recognized an additional $178 in potential interest associated with uncertain tax positions. To the extent tax, interest and penalties are not assessed with respect to uncertain tax positions in the future, amounts accrued will be reduced and reflected as a reduction of tax expense, interest expense or “other” expense.

Other, not yet adopted

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for measuring fair value in accordance with generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. This statement is effective for financial assets and liabilities as well as for any assets and liabilities that are carried at fair value on a recurring basis in financial statements as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, which corresponds to the Company’s fiscal year beginning November 1, 2008. In February 2008, the FASB issued a one-year deferral for non-financial assets and liabilities to comply with SFAS No. 157. The Company is currently evaluating the impact the adoption of SFAS No. 157 will have on its consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This statement permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007, which corresponds to the Company’s fiscal year beginning November 1, 2008. The Company is currently evaluating the impact the adoption of SFAS No. 159 will have on its consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations (SFAS 141(R))” (“SFAS No. 141R”). SFAS No. 141R states that all business combinations, whether full, partial, or step acquisitions, will result in all assets and liabilities of an acquired business being recorded at their fair values at the acquisition date. In subsequent periods, contingent liabilities will be measured at the higher of their acquisition date fair value or the estimated amounts to be realized. SFAS No. 141R applies to all transactions or other events in which an entity obtains control of one or more businesses. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009. This statement will apply to any future business combinations as of that date.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statement—amendments of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. This statement is effective as of the beginning of an entity’s

11

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(2)     New Accounting Principles—(Continued)

first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009. The Company is currently evaluating the impact the adoption of SFAS No. 160 will have on its consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (1) the ways in which an entity uses derivatives, (2) the accounting for derivatives and hedging activities, and (3) the impact that derivatives have (or could have) on an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements of fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 161 will have on its consolidated financial statements.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). This statement identifies sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with GAAP in the United States. SFAS No. 162 moves the hierarchy of GAAP sources for non-governmental entities from the auditing literature to the accounting literature. This statement will become effective 60 days following approval by the Securities and Exchange Commission (“SEC”) of amendments made by the Public Company Accounting Oversight Board to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” Any effect of applying SFAS No. 162 should be reported as a change in accounting principle. The Company does not expect this statement to have any impact on its consolidated financial statements.

     In May 2008, FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”) was issued. FSP No. APB 14-1 states that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14 and that issuers of such instruments should account separately for the liability and equity components of the instruments in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This opinion is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009, and must be applied retrospectively to all periods presented. The Company is currently evaluating the impact the adoption of FSP No. APB 14-1 will have on its consolidated financial statements, but expects to record higher interest expense related to its senior convertible notes beginning in fiscal year 2010.

(3) Preneed Funeral Activities

     The Company maintains three types of trust and escrow accounts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual care, the activity of which is detailed below and in Notes 4 and 5. The Company marks its trust portfolio to market value each quarter. Changes in the market value of the trusts are recorded by increasing or decreasing trust assets included in the preneed funeral and cemetery receivables and trust investments line items in the condensed consolidated balance sheet, with a corresponding increase or decrease in the deferred preneed revenue and non-controlling interest line items in the condensed consolidated balance sheet. Therefore, there is no effect on current period net income.

     The Company determines whether or not the investment portfolio has an other than temporary impairment on a security-by-security basis. A loss is considered other than temporary if the security has a reduction in market value compared with its cost basis of 20 percent or more for a period of six months or longer. In addition, the Company periodically reviews its investment portfolio to determine if any of the temporarily impaired assets should

12

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3)     Preneed Funeral Activities—(Continued)

be designated as other than temporarily impaired due to changes in market conditions or concerns specific to the issuer of the securities. If a loss is other than temporary, the cost basis of the security is adjusted downward to its market value, which is allocated to the non-controlling interests in the trusts. This affects the Company’s footnote disclosure but does not have an effect on its financial statements, since the trust portfolio is already marked to market value each quarter. Realized earnings on the trust assets flow into and out of the statement of earnings through investment and other income, net with no net effect on revenue or net earnings.

Preneed Funeral Receivables and Trust Investments

     Preneed funeral receivables and trust investments represent trust assets and customer receivables related to unperformed, price-guaranteed trust-funded preneed funeral contracts. An allowance for cancellations is estimated based on historical experience. The components of preneed funeral receivables and trust investments in the condensed consolidated balance sheets at July 31, 2008 and October 31, 2007 are as follows:

	July 31, 2008			October 31, 2007
Trust assets	$	404,603		$	477,335
Receivables from customers		45,975			48,488
		450,578			525,823
Allowance for cancellations		(10,757	)		(10,770	)
Preneed funeral receivables and trust investments	$	439,821		$	515,053

     The cost and market values associated with preneed funeral merchandise and services trust assets as of July 31, 2008 are detailed below. The adjusted cost basis of the funeral merchandise and services trust assets below reflects an other than temporary decline in the trust assets of approximately $95,560 as of July 31, 2008 from their original cost basis. The Company believes the unrealized losses reflected below of $44,134 related to trust investments are temporary in nature.

	July 31, 2008
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	32,672	$	—	$	—		$	32,672
U.S. Government, agencies and municipalities		12,584		268		(1	)		12,851
Corporate bonds		57,636		454		(4,470	)		53,620
Preferred stocks		72,954		100		(13,017	)		60,037
Common stocks		198,901		17,391		(23,995	)		192,297
Mutual funds		34,464		336		(2,651	)		32,149
Insurance contracts and other long- term investments		19,629		104		—			19,733
Trust investments	$	428,840	$	18,653	$	(44,134	)		403,359
Market value as a percentage of cost										94.1	%
Accrued investment income									1,244
Trust assets								$	404,603

13

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3)     Preneed Funeral Activities—(Continued)

     The estimated maturities and market values of debt securities included above are as follows:

	July 31, 2008
Due in one year or less	$	5,146
Due in one to five years		32,810
Due in five to ten years		28,459
Thereafter		56
	$	66,471

     Activity related to preneed funeral trust investments is as follows:

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Purchases	$	10,153		$	14,337		$	19,009		$	96,423
Sales		7,743			15,128			20,517			92,546
Realized gains on sales		1,087			1,020			2,825			6,782
Realized losses on sales		(309	)		(57	)		(620	)		(977	)
Impairment losses on other than temporarily impaired trust assets		(10,614	)		—			(21,876	)		(371	)
Deposits		8,129			8,250			24,111			24,364
Withdrawals		11,362			11,137			35,499			33,943

     Cash flows from preneed funeral contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.

(4)     Preneed Cemetery Merchandise and Service Activities

Preneed Cemetery Receivables and Trust Investments

     Preneed cemetery receivables and trust investments represent trust assets and customer receivables for contracts sold in advance of when the merchandise or services are needed. An allowance for cancellations is estimated based on historical experience. The receivables related to the sale of preneed property interment rights are included in the Company’s current and long-term receivables. The components of preneed cemetery receivables and trust investments in the condensed consolidated balance sheets as of July 31, 2008 and October 31, 2007 are as follows:

	July 31, 2008			October 31, 2007
Trust assets	$	186,846		$	215,541
Receivables from customers		41,333			46,906
		228,179			262,447
Allowance for cancellations		(4,886	)		(6,768	)
Preneed cemetery receivables and trust investments	$	223,293		$	255,679

     The cost and market values associated with the preneed cemetery merchandise and services trust assets as of July 31, 2008 are detailed below. The adjusted cost basis of the cemetery merchandise and services trust assets below reflects an other than temporary decline in the trust assets of approximately $49,728 as of July 31, 2008 from their original cost basis. The Company believes the unrealized losses reflected below of $23,570 related to trust investments are temporary in nature.

14

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(4)     Preneed Cemetery Merchandise and Service Activities—(Continued)

	July 31, 2008
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	15,496	$	—	$	—		$	15,496
U.S. Government, agencies and municipalities		13,908		550		(3	)		14,455
Corporate bonds		12,187		158		(868	)		11,477
Preferred stocks		26,054		20		(4,878	)		21,196
Common stocks		103,321		7,806		(12,968	)		98,159
Mutual funds		30,002		117		(4,853	)		25,266
Insurance contracts and other long-term investments		298		—		—			298
Trust investments	$	201,266	$	8,651	$	(23,570	)		186,347
Market value as a percentage of cost										92.6	%
Accrued investment income									499
Trust assets								$	186,846

     The estimated maturities and market values of debt securities included above are as follows:

	July 31, 2008
Due in one year or less	$	3,700
Due in one to five years		14,334
Due in five to ten years		7,692
Thereafter		206
	$	25,932

     Activity related to preneed cemetery merchandise and services trust investments is as follows:

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Purchases	$	7,302		$	38,419		$	13,933		$	182,756
Sales		3,356			36,162			10,014			174,969
Realized gains on sales		577			2,634			1,650			9,372
Realized losses on sales		(89	)		(20	)		(285	)		(193	)
Impairment losses on other than temporarily impaired trust assets		(3,259	)		(4	)		(9,178	)		(549	)
Deposits		4,815			4,622			13,432			13,551
Withdrawals		4,327			4,926			14,897			14,329

     Cash flows from preneed cemetery merchandise and services contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.

(5)     Cemetery Interment Rights and Perpetual Care Trusts

     Earnings realized from cemetery perpetual care trust investments that the Company is legally permitted to withdraw are recognized in current cemetery revenues and are used to defray cemetery maintenance costs which are expensed as incurred. Recognized earnings related to these cemetery perpetual care trust investments were $2,635

15

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(5)     Cemetery Interment Rights and Perpetual Care Trusts—(Continued)

and $2,498 for the three months ended July 31, 2008 and 2007, respectively, and $8,040 and $7,323 for the nine months ended July 31, 2008 and 2007, respectively.

     The cost and market values of the trust investments held by the cemetery perpetual care trusts as of July 31, 2008 are detailed below. The adjusted cost basis of the cemetery perpetual care trusts below reflects an other than temporary decline in the trust assets of $40,118 as of July 31, 2008 from their original cost basis. The Company believes the unrealized losses reflected below of $26,610 related to trust investments are temporary in nature.

	July 31, 2008
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	12,174	$	—	$	—		$	12,174
U.S. Government, agencies and municipalities		8,934		300		(61	)		9,173
Corporate bonds		45,078		830		(2,076	)		43,832
Preferred stocks		68,749		13		(14,451	)		54,311
Common stocks		77,315		9,258		(9,413	)		77,160
Mutual funds		9,581		162		(609	)		9,134
Insurance contracts and other long-term investments		708		80		—			788
Trust investments	$	222,539	$	10,643	$	(26,610	)		206,572
Market value as a percentage of cost										92.8	%
Accrued investment income									853
Trust assets								$	207,425

     The estimated maturities and market values of debt securities included above are as follows:

	July 31, 2008
Due in one year or less	$	535
Due in one to five years		31,483
Due in five to ten years		20,383
Thereafter		604
	$	53,005

     Activity related to preneed cemetery perpetual care trust investments is as follows:

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Purchases	$	16,376		$	23,564		$	46,640		$	56,330
Sales		17,841			14,331			42,899			47,104
Realized gains on sales		1,287			1,749			4,334			4,136
Realized losses on sales		—			(35	)		(7	)		(325	)
Impairment losses on other than temporarily impaired trust assets		(5,032	)		—			(8,577	)		(770	)
Deposits		2,186			2,153			6,147			6,066
Withdrawals		2,350			2,357			7,351			7,778

     During the three months ended July 31, 2008 and 2007, cemetery revenues were $61,870 and $60,665, respectively, of which $2,210 and $2,677, respectively, were required to be placed into perpetual care trusts and

16

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(5)     Cemetery Interment Rights and Perpetual Care Trusts—(Continued)

were recorded as revenues and expenses. During the nine months ended July 31, 2008 and 2007, cemetery revenues were $178,658 and $184,043, respectively, of which $6,800 and $7,628, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses.

     Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.

(6)     Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts

     The components of non-controlling interest in funeral and cemetery trusts and non-controlling interest in perpetual care trusts at July 31, 2008 are as follows:

										Non-controlling
	Non-controlling Interest									Interest in
	Preneed			Preneed						Perpetual
	Funeral			Cemetery			Total			Care Trusts
Trust assets at market value	$	404,603		$	186,846		$	591,449		$	207,425
Less:
Pending withdrawals		(9,090	)		(4,214	)		(13,304	)		(2,570	)
Pending deposits		2,238			1,303			3,541			781
Non-controlling interest	$	397,751		$	183,935		$	581,686		$	205,636

Investment and other income, net

     The components of investment and other income, net in the condensed consolidated statements of earnings for the three and nine months ended July 31, 2008 and 2007 are detailed below.

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Non-controlling interest:
Realized gains	$	2,951		$	5,403		$	8,809		$	20,290
Realized losses		(398	)		(112	)		(912	)		(1,495	)
Impairment losses on other than temporarily impaired trust assets		(18,905	)		(4	)		(39,631	)		(1,690	)
Interest income, dividend and other ordinary income		7,876			7,644			23,257			20,878
Trust expenses and income taxes		(2,639	)		(3,135	)		(8,380	)		(8,571	)
Net trust investment income		(11,115	)		9,796			(16,857	)		29,412
Non-controlling interest in funeral and cemetery trust investment income		9,182			(6,690	)		18,140			(21,755	)
Non-controlling interest in perpetual care trust investment income		1,933			(3,106	)		(1,283	)		(7,657	)
Total non-controlling interest		—			—			—			—
Investment and other income, net (1)		593			810			1,670			2,427
Total investment and other income, net	$	593		$	810		$	1,670		$	2,427

⁽¹⁾ Investment and other income, net consists of interest income primarily on the Company’s cash, cash equivalents and marketable securities not held in trust.

17

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(7)     Commitments and Contingencies

Litigation

     Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated and the General Public v. Stewart Enterprises, Inc., et al.; No. BC328961, on the docket of the Superior Court for the State of California for the County of Los Angeles, Central District. This purported class action was filed on February 17, 2005 on behalf of a nationwide class defined to include all persons who purchased funeral goods and/or services in the United States from defendants at any time on or after February 17, 2001. The suit named the Company and several of its Southern California affiliates as defendants and also sought to assert claims against a class of all entities located anywhere in the United States whose ultimate parent corporation has been the Company at any time on or after February 17, 2001.

     In May 2005, the court ruled that this case was related to similar actions against Service Corporation International (“SCI”) and Alderwoods Group, Inc., and designated the SCI case as the lead case. The case against the Company effectively has been held in abeyance while the court tests plaintiff’s legal theories in the lead case. Rulings on legal issues in the lead case will apply equally in the case against the Company, and the court has allowed the Company to participate in hearings and briefings in the lead case.

     As a result of demurrers, the plaintiff in the lead case amended her case twice. On January 31, 2006, however, the court overruled SCI’s demurrer to the third amended complaint and established a schedule leading to a hearing on a motion for summary judgment to test the viability of the named plaintiff’s claim against SCI. The third amended complaint in the lead case alleges that the SCI defendants violated the “Funeral Rule” promulgated by the Federal Trade Commission by failing to disclose that the prices charged to the plaintiffs for certain goods and services the SCI defendants obtained from third parties specifically on the plaintiff’s behalf exceeded what the defendants paid for them. The plaintiff alleges that by failing to comply with the Funeral Rule, defendants (i) breached contracts with the plaintiffs, (ii) were unjustly enriched, and (iii) engaged in unfair, unlawful and fraudulent business practices in violation of a provision of California’s Business and Professions Code. The plaintiff seeks restitution damages, disgorgement, interest, costs and attorneys’ fees.

     In September and October 2006, the court granted the motion for summary judgment filed by the SCI affiliate with whom the plaintiff had contracted and entered a judgment of dismissal in favor of that SCI affiliate. On December 8, 2006, the plaintiff noticed an appeal of this judgment.

     Because the matter is being appealed, the likelihood of liability and the extent of any damages cannot be reasonably assessed at this time. The Company intends to aggressively defend itself in this matter. The Company has not recorded a liability related to this litigation given that it does not believe that a loss is probable and estimatable.

     Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co., number H-05-3394 on the docket of the United States District Court for the Southern District of Texas. This purported class action was originally filed on May 2, 2005, in the United States District Court for the Northern District of California, on behalf of a nationwide class defined to include all consumers who purchased a Batesville casket from the funeral home defendants at any time. The court consolidated it with five subsequently filed, substantially similar cases (the “Consolidated Consumer Cases”).

     The Consolidated Consumer Cases allege that the defendants acted jointly to reduce competition from independent casket discounters and fix and maintain prices on caskets in violation of the federal antitrust laws and California’s Business and Professions Code. The plaintiffs seek treble damages, restitution, injunctive relief, interest, costs and attorneys’ fees.

18

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(7)     Commitments and Contingencies—(Continued)

     At the defendants’ request, in late September 2005, the court transferred the Consolidated Consumer Cases to the United States District Court for the Southern District of Texas. The transferred Consolidated Consumer Cases have been consolidated before a single judge in the Southern District of Texas.

     On November 10, 2006, after the court denied Defendants’ motions to dismiss, the Company answered the first amended consolidated class action complaint, denying liability and asserting various affirmative defenses. The court conducted a hearing on plaintiffs’ motion for class certification on December 4-7, 2006 and has taken the motion under advisement. Fact discovery has been completed, and expert discovery is ongoing.

     In April 2007, the plaintiffs filed an expert report indicating that the damages sought from all defendants would be in the range of approximately $950 million to approximately $1.5 billion, before trebling. A successful plaintiff in an anti-trust case may elect to enforce any judgment against any or all of the co-defendants, who have no right of contribution against one another. Accordingly, any adverse judgment could have a material adverse effect on the Company’s financial condition and results of operations. The Company believes it has meritorious defenses to the substantive allegations asserted, to class certification, and to the plaintiffs’ damage theories and calculations, and the Company intends to aggressively defend itself in these proceedings. The Company has not recorded a liability related to this litigation given that it does not believe that a loss is probable and estimatable.

     Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co., number H-05-3399 (“Pioneer Valley Case”). This purported class action was filed on July 8, 2005, in the Northern District of California on behalf of a nationwide class of independent casket retailers. The casket retailers make allegations similar to those made in the Consolidated Consumer Cases reported above and seek treble damages, injunctive relief, interest, costs and attorneys’ fees.

     Like the Consolidated Consumer Cases, in late September 2005, this matter was transferred to the United States District Court for the Southern District of Texas. The Pioneer Valley Case has been consolidated with the Consolidated Consumer Cases for purposes of discovery only.

     On November 14, 2006, after the court denied Defendants’ motions to dismiss, the Company answered the first amended complaint, denying liability and asserting various defenses. The court conducted a hearing on plaintiffs’ motion for class certification on December 8, 2006 and has taken the motion under advisement. Fact discovery has been completed, and expert discovery is ongoing.

     In April 2007, the plaintiffs filed an expert report indicating that the damages sought from all defendants would be approximately $99.0 million, before trebling. A successful plaintiff in an anti-trust case may elect to enforce any judgment against any or all of the co-defendants, who have no right of contribution against one another. Accordingly, any adverse judgment could have a material adverse effect on the Company’s financial condition and results of operations. The Company believes it has meritorious defenses to the substantive allegations asserted, to class certification, and to the plaintiffs’ damage theories and calculations, and the Company intends to aggressively defend itself in these proceedings. The Company has not recorded a liability related to this litigation given that it does not believe that a loss is probable and estimatable.

     In Re: State Attorney General Civil Investigative Demands - On August 4, 2005, the Attorney General for the State of Maryland issued a civil investigative demand to the Company seeking documents and information relating to funeral and cemetery goods and services. Subsequently, the Attorneys General for the States of Florida and Connecticut issued a similar civil investigative demand to the Company. The Company has entered into arrangements allowing the Maryland and Florida Attorneys General to share in information provided by the Company with the attorneys general of certain other states. The Company has provided documents and information to the attorneys general, and they have not sought any additional documents or information since 2006. The

19

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(7)     Commitments and Contingencies—(Continued)

Company will continue to cooperate with the attorneys general in their investigation if it is called upon to do so.

Other Litigation

     The Company is a defendant in a variety of other litigation matters that have arisen in the ordinary course of business, which are covered by insurance or otherwise not considered to be material. The Company carries insurance with coverages and coverage limits that it believes to be adequate.

Securities and Exchange Commission Investigation

     In November 2006, the Company received a subpoena from the SEC, issued pursuant to a formal order of investigation, seeking documents and information related to the Company’s previously disclosed and completed deferred revenue project. In response to both the initial and subsequent related subpoenas, the Company has provided to the SEC documents and other information. The Company is cooperating fully with the investigation and is in discussions with the SEC in an effort to resolve the matters raised by the inquiry. At this time, the Company is unable to predict the timing or ultimate outcome of these discussions.

Employee Retention Plan

     The Board of Directors adopted a retention plan on June 18, 2008 and amended it on August 1, 2008. The retention plan, as amended, is designed to encourage the continued employment of key management personnel, including the executive officers, in the event of an impending change of control of the Company and to alleviate concerns about the possible loss of employment upon a change of control. The total cost, if all participants were to be terminated is approximately $16,500.

Other

     From time to time, unrecorded contracts are presented to the Company relating to contracts sold prior to the Company acquiring certain businesses. In addition, from time to time, the Company has identified in its backlog, related to such businesses, certain contracts in which services or merchandise have already been performed. Using historical trends, and statistical analysis, the Company has recorded an estimated liability for these items of approximately $7 million.

20

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(8)     Reconciliation of Basic and Diluted Per Share Data

	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Three Months Ended July 31, 2008
Earnings from continuing operations	$	9,129
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	9,129		92,203	$	.10
Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				211
Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	9,129		92,414	$	.10

	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Three Months Ended July 31, 2007
Earnings from continuing operations	$	8,210
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	8,210		102,479	$	.08
Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				235
Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	8,210		102,714	$	.08

	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Nine Months Ended July 31, 2008
Earnings from continuing operations	$	31,954
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	31,954		94,504	$	.34
Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				172
Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	31,954		94,676	$	.34

21

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

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

	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Nine Months Ended July 31, 2007
Earnings from continuing operations	$	33,999
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	33,999		104,215	$	.32
Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				169
Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	33,999		104,384	$	.32

     Options to purchase 829,759 and 773,719 shares of common stock at prices ranging from $5.84 to $8.24 per share were antidilutive during the three and nine months ended July 31, 2008, respectively. These options expire between May 15, 2013 and June 17, 2015.

     There were no antidilutive options for the three months ended July 31, 2007. Options to purchase 2,753 shares of common stock at a price of $7.31 per share were outstanding during the nine months ended July 31, 2007, 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.

     For the three and nine months ended July 31, 2008, 697,500 market based stock options and 415,000 market and performance based shares of restricted stock were not dilutive. For the three and nine months ended July 31, 2007, 540,000 market based stock options and 360,000 market and performance based shares of restricted stock were not dilutive. The market based stock options and the market and performance based restricted stock were not dilutive because the market conditions or performance conditions for the respective grants were not achieved during any of periods presented.

     For the three and nine months ended July 31, 2008 and 2007, a maximum of 25,000,000 shares of the Company’s Class A common stock related to the senior convertible notes and a maximum of 20,000,000 shares of Class A common stock under the common stock warrants associated with the June 2007 senior convertible debt transaction were also not dilutive, as the average price of the Company’s stock for the three and nine months ended July 31, 2008 and 2007 was less than the conversion price of the senior convertible notes and strike price of the warrants.

     The Company includes Class A and Class B common stock in its diluted shares calculation. As of July 31, 2008, the Company’s Chairman, Frank B. Stewart, Jr., was the record holder of all of the Company’s shares of Class B common stock. The Company’s Class A and B common stock are substantially identical, except that holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to 10 votes per share. Each share of Class B common stock is automatically converted into one share of Class A common stock upon transfer to persons other than certain affiliates of Frank B. Stewart, Jr.

(9)     Segment Data

     The Company has five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of two geographic areas: Eastern and Western. The

22

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(9)     Segment Data—(Continued)

Company does not aggregate its operating segments. Therefore, its operating and reportable segments are the same. The table below presents information about reported segments for the Company’s continuing operations.

	Funeral Revenue				Cemetery Revenue (1)				Total Revenue
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	28,105	$	27,671	$	32,839	$	34,344	$	60,944	$	62,015
Western Division		35,843		34,666		26,738		23,855		62,581		58,521
Corporate Trust Management (2)		4,610		4,577		2,293		2,466		6,903		7,043
Total	$	68,558	$	66,914	$	61,870	$	60,665	$	130,428	$	127,579

	Funeral Revenue				Cemetery Revenue (1)				Total Revenue
	Nine Months		Nine Months		Nine Months		Nine Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	89,987	$	89,059	$	98,001	$	108,519	$	187,988	$	197,578
Western Division		114,760		109,446		73,665		68,382		188,425		177,828
Corporate Trust Management (2)		14,115		13,905		6,992		7,142		21,107		21,047
Total	$	218,862	$	212,410	$	178,658	$	184,043	$	397,520	$	396,453

	Funeral Gross Profit				Cemetery Gross Profit (1)				Total Gross Profit
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	3,914	$	3,059	$	4,434	$	4,735	$	8,348	$	7,794
Western Division		6,718		6,915		6,468		5,115		13,186		12,030
Corporate Trust Management (2)		4,402		4,351		2,062		2,334		6,464		6,685
Total	$	15,034	$	14,325	$	12,964	$	12,184	$	27,998	$	26,509

	Funeral Gross Profit				Cemetery Gross Profit (1)				Total Gross Profit
	Nine Months		Nine Months		Nine Months		Nine Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	16,211	$	15,378	$	12,059	$	17,581	$	28,270	$	32,959
Western Division		25,924		23,263		16,796		13,984		42,720		37,247
Corporate Trust Management (2)		13,467		13,354		6,245		6,721		19,712		20,075
Total	$	55,602	$	51,995	$	35,100	$	38,286	$	90,702	$	90,281

	Net Preneed Funeral				Net Preneed Cemetery				Net Total Preneed
	Merchandise and				Merchandise and				Merchandise and
	Service Sales (3)				Service Sales (3)				Service Sales (3)
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	11,288	$	11,219	$	9,679	$	9,852	$	20,967	$	21,071
Western Division		14,716		13,417		4,565		4,565		19,281		17,982
Total	$	26,004	$	24,636	$	14,244	$	14,417	$	40,248	$	39,053

23

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(9)     Segment Data—(Continued)

	Net Preneed Funeral				Net Preneed Cemetery				Net Total Preneed
	Merchandise				Merchandise and				Merchandise and
	and Service Sales (3)				Service Sales (3)				Service Sales (3)
	Nine Months		Nine Months		Nine Months		Nine Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended		Ended		Ended
	July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007		July 31, 2008		July 31, 2007
Eastern Division	$	31,501	$	33,652	$	27,867	$	29,174	$	59,368	$	62,826
Western Division		41,462		42,006		12,700		12,546		54,162		54,552
Total	$	72,963	$	75,658	$	40,567	$	41,720	$	113,530	$	117,378

(1)	Perpetual care trust earnings are included in the revenues and gross profit of the related geographic segment and amounted to $2,635 and $2,498 for the three months ended July 31, 2008 and 2007, respectively, and $8,040 and $7,323 for the nine months ended July 31, 2008 and 2007, respectively.
(2)	Corporate trust management consists of trust management fees and funeral and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to the Company’s subsidiary, Investors Trust, Inc. The trust earnings represent earnings realized over the life of the preneed contracts delivered during the relevant periods. Trust management fees included in funeral revenue for the three months ended July 31, 2008 and 2007 were $1,264 and $1,472, respectively, and funeral trust earnings for the three months ended July 31, 2008 and 2007 were $3,346 and $3,105, respectively. Trust management fees included in cemetery revenue for the three months ended July 31, 2008 and 2007 were $1,255 and $1,345, respectively, and cemetery trust earnings for the three months ended July 31, 2008 and 2007 were $1,038 and $1,121, respectively. Trust management fees included in funeral revenue for the nine months ended July 31, 2008 and 2007 were $3,957 and $4,400, respectively, and funeral trust earnings for the nine months ended July 31, 2008 and 2007 were $10,158 and $9,505, respectively. Trust management fees included in cemetery revenue for the nine months ended July 31, 2008 and 2007 were $3,844 and $3,983, respectively, and cemetery trust earnings for the nine months ended July 31, 2008 and 2007 were $3,148 and $3,159, respectively.
(3)	Preneed sales amounts represent total preneed funeral and cemetery service and merchandise sales generated in the applicable period, net of cancellations. These sales are deferred and are recorded as revenue in the period the services are performed or the merchandise is delivered.

     A reconciliation of total segment gross profit to total earnings from continuing operations before income taxes for the three and nine months ended July 31, 2008 and 2007 is as follows:

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Gross profit for reportable segments	$	27,998		$	26,509		$	90,702		$	90,281
Corporate general and administrative expenses		(8,188	)		(8,343	)		(24,226	)		(23,129	)
Hurricane related charges, net		(341	)		(210	)		(351	)		(2,343	)
Separation charges		—			(48	)		—			(580	)
Gains on dispositions and impairment (losses), net		25			(46	)		153			44
Other operating income, net		407			290			753			1,441
Interest expense		(6,000	)		(6,222	)		(17,981	)		(19,274	)
Loss on early extinguishment of debt		—			(677	)		—			(677	)
Investment and other income, net		593			810			1,670			2,427
Earnings from continuing operations before income taxes	$	14,494		$	12,063		$	50,720		$	48,190

24

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(10)     Supplementary Information

     The detail of certain income statement accounts is as follows for the three and nine months ended July 31, 2008 and 2007.

	Three Months Ended July 31,				Nine Months Ended July 31,
	2008		2007		2008		2007
Service revenue
Funeral	$	42,795	$	40,341	$	136,202	$	128,709
Cemetery		15,726		15,058		48,592		47,328
		58,521		55,399		184,794		176,037
Merchandise revenue
Funeral		23,872		24,452		76,800		77,394
Cemetery		42,227		41,087		118,299		124,018
		66,099		65,539		195,099		201,412
Other revenue
Funeral		1,891		2,121		5,860		6,307
Cemetery		3,917		4,520		11,767		12,697
		5,808		6,641		17,627		19,004
Total revenue	$	130,428	$	127,579	$	397,520	$	396,453
Service costs
Funeral	$	15,403	$	15,235	$	45,979	$	44,253
Cemetery		11,515		11,218		32,043		32,250
		26,918		26,453		78,022		76,503
Merchandise costs
Funeral		15,116		15,381		47,094		47,626
Cemetery		23,615		24,123		69,818		73,167
		38,731		39,504		116,912		120,793
General and administrative expenses
Funeral		23,005		21,973		70,187		68,536
Cemetery		13,776		13,140		41,697		40,340
		36,781		35,113		111,884		108,876
Total costs	$	102,430	$	101,070	$	306,818	$	306,172

     Service revenue includes funeral service revenue, funeral trust earnings, insurance commission revenue, burial site openings and closings and perpetual care trust earnings. Merchandise revenue includes funeral merchandise revenue, flower sales, cemetery property sales revenue, cemetery merchandise revenue and merchandise trust earnings. Other revenue consists of finance charge revenue and trust management fees. Service costs include the direct costs associated with service revenue and preneed selling costs associated with preneed service sales. Merchandise costs include the direct costs associated with merchandise revenue and preneed selling costs associated with preneed merchandise sales.

25

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes

     The following tables present the condensed consolidating historical financial statements as of July 31, 2008 and October 31, 2007 and for the three and nine months ended July 31, 2008 and 2007, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the Company’s 6.25 percent senior notes and its 3.125 percent and 3.375 percent senior convertible notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries of the 6.25 percent senior notes include the Puerto Rican subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are prohibited by law from guaranteeing the senior notes. The guarantor subsidiaries of the 6.25 percent senior notes are wholly-owned directly or indirectly by the Company, except for three immaterial guarantor subsidiaries of which the Company is the majority owner. The non-guarantor subsidiaries of the senior convertible notes are identical to those of the 6.25 percent senior notes but also include three immaterial non-wholly owned subsidiaries and any future non-wholly owned subsidiaries. The guarantees are full and unconditional and joint and several. In the statements presented within this footnote, Tier 2 guarantor subsidiaries represent the three immaterial non-wholly owned subsidiaries that do not guaranty the senior convertible notes but do guaranty the 6.25 percent senior notes. Non-guarantor subsidiaries represent the identical non-guarantor subsidiaries of the 6.25 percent senior notes and senior convertible notes. In the condensed consolidating statements of earnings and other comprehensive income, corporate general and administrative expenses and interest expense of the parent are presented net of amounts charged to the guarantor and non-guarantor subsidiaries.

     The condensed consolidating statements of earnings and other comprehensive income for the nine months ended July 31, 2007 has been revised to correct $1,295 of hurricane related charges that were previously included in the Tier 1 guarantor subsidiaries column but should have been included in the Tier 2 guarantor subsidiaries column. These revisions had no impact on the consolidated totals or the totals for guarantor subsidiaries in the Company’s condensed consolidating statements of earnings and other comprehensive income for the three and nine months ended July 31, 2007 and no impact on the condensed consolidating balance sheet as of October 31, 2007 or condensed consolidating statement of cash flows for the nine months ended July 31, 2007.

26

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income

	Three Months Ended July 31, 2008
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	63,398		$	381		$	4,779		$	—		$	68,558
Cemetery		—			56,046			842			4,982			—			61,870
		—			119,444			1,223			9,761			—			130,428
Costs and expenses:
Funeral		—			49,648			265			3,611			—			53,524
Cemetery		—			44,114			698			4,094			—			48,906
		—			93,762			963			7,705			—			102,430
Gross profit		—			25,682			260			2,056			—			27,998
Corporate general and administrative expenses		(8,188	)		—			—			—			—			(8,188	)
Hurricane related charges, net		(402	)		—			61			—			—			(341	)
Gains on dispositions and impairment (losses), net		—			25			—			—			—			25
Other operating income, net		22			341			—			44			—			407
Operating earnings (loss)		(8,568	)		26,048			321			2,100			—			19,901
Interest expense		(1,585	)		(3,869	)		(40	)		(506	)		—			(6,000	)
Investment and other income, net		563			29			—			1			—			593
Equity in subsidiaries		16,458			(74	)		—			—			(16,384	)		—
Earnings from continuing operations before income taxes		6,868			22,134			281			1,595			(16,384	)		14,494
Income tax expense (benefit)		(2,261	)		7,236			195			195			—			5,365
Net earnings		9,129			14,898			86			1,400			(16,384	)		9,129
Other comprehensive loss, net		(26	)		—			—			(4	)		4			(26	)
Comprehensive income	$	9,103		$	14,898		$	86		$	1,396		$	(16,380	)	$	9,103

27

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income

	Three Months Ended July 31, 2007
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	61,689		$	379		$	4,846		$	—		$	66,914
Cemetery		—			54,757			794			5,114			—			60,665
		—			116,446			1,173			9,960			—			127,579
Costs and expenses:
Funeral		—			49,259			276			3,054			—			52,589
Cemetery		—			43,819			636			4,026			—			48,481
		—			93,078			912			7,080			—			101,070
Gross profit		—			23,368			261			2,880			—			26,509
Corporate general and administrative expenses		(8,343	)		—			—			—			—			(8,343	)
Hurricane related charges, net		—			(210	)		—			—			—			(210	)
Separation charges		—			(48	)		—			—			—			(48	)
Gains on dispositions and impairment (losses), net		—			(46	)		—			—			—			(46	)
Other operating income, net		19			215			—			56			—			290
Operating earnings (loss)		(8,324	)		23,279			261			2,936			—			18,152
Interest expense		(2,158	)		(3,242	)		(37	)		(785	)		—			(6,222	)
Loss on early extinguishment of debt		(677	)		—			—			—			—			(677	)
Investment and other income, net		792			13			—			5			—			810
Equity in subsidiaries		19,346			510			—			—			(19,856	)		—
Earnings from continuing operations before income taxes		8,979			20,560			224			2,156			(19,856	)		12,063
Income tax expense (benefit)		856			3,406			85			(494	)		—			3,853
Earnings from continuing operations		8,123			17,154			139			2,650			(19,856	)		8,210
Discontinued operations:
Loss from discontinued operations before income taxes		—			(138	)		—			—			—			(138	)
Income tax benefit		—			(51	)		—			—			—			(51	)
Loss from discontinued operations		—			(87	)		—			—			—			(87	)
Net earnings		8,123			17,067			139			2,650			(19,856	)		8,123
Other comprehensive income (loss), net		—			—			—			—			—			—
Comprehensive income	$	8,123		$	17,067		$	139		$	2,650		$	(19,856	)	$	8,123

28

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income

	Nine Months Ended July 31, 2008
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	202,495		$	1,410		$	14,957		$	—		$	218,862
Cemetery		—			161,205			2,565			14,888			—			178,658
		—			363,700			3,975			29,845			—			397,520
Costs and expenses:
Funeral		—			151,970			898			10,392			—			163,260
Cemetery		—			129,453			2,155			11,950			—			143,558
		—			281,423			3,053			22,342			—			306,818
Gross profit		—			82,277			922			7,503			—			90,702
Corporate general and administrative expenses		(24,226	)		—			—			—			—			(24,226	)
Hurricane related charges, net		(779	)		37			391			—			—			(351	)
Gains on dispositions and impairment (losses), net		—			153			—			—			—			153
Other operating income, net		79			509			1			164			—			753
Operating earnings (loss)		(24,926	)		82,976			1,314			7,667			—			67,031
Interest expense		(3,318	)		(12,916	)		(113	)		(1,634	)		—			(17,981	)
Investment and other income, net		1,614			50			—			6			—			1,670
Equity in subsidiaries		54,263			418			—			—			(54,681	)		—
Earnings from continuing operations before income taxes		27,633			70,528			1,201			6,039			(54,681	)		50,720
Income tax expense (benefit)		(4,321	)		21,280			399			1,408			—			18,766
Net earnings		31,954			49,248			802			4,631			(54,681	)		31,954
Other comprehensive income, net		17			—			—			17			(17	)		17
Comprehensive income	$	31,971		$	49,248		$	802		$	4,648		$	(54,698	)	$	31,971

29

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income

	Nine Months Ended July 31, 2007
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	196,247		$	1,154		$	15,009		$	—			212,410
Cemetery		—			165,634			2,313			16,096			—			184,043
		—			361,881			3,467			31,105			—			396,453
Costs and expenses:
Funeral		—			150,321			782			9,312			—			160,415
Cemetery		—			131,879			1,869			12,009			—			145,757
		—			282,200			2,651			21,321			—			306,172
Gross profit		—			79,681			816			9,784			—			90,281
Corporate general and administrative expenses		(23,129	)		—			—			—			—			(23,129	)
Hurricane related charges, net		(3	)		(1,045	)		(1,295	)		—			—			(2,343	)
Separation charges		(384	)		(196	)		—			—			—			(580	)
Gains on dispositions and impairment (losses), net		—			44			—			—			—			44
Other operating income, net		296			950			1			194			—			1,441
Operating earnings (loss)		(23,220	)		79,434			(478	)		9,978			—			65,714
Interest expense		(5,739	)		(11,511	)		(153	)		(1,871	)		—			(19,274	)
Loss on early extinguishment of debt		(677	)		—			—			—			—			(677	)
Investment and other income, net		2,378			39			—			10			—			2,427
Equity in subsidiaries		59,762			758			—			—			(60,520	)		—
Earnings (loss) from continuing operations before income taxes		32,504			68,720			(631	)		8,117			(60,520	)		48,190
Income tax expense (benefit)		(1,174	)		14,126			(234	)		1,473			—			14,191
Earnings (loss) from continuing operations		33,678			54,594			(397	)		6,644			(60,520	)		33,999
Discontinued operations:
Loss from discontinued operations before income taxes		—			(519	)		—			—			—			(519	)
Income tax benefit		—			(198	)		—			—			—			(198	)
Loss from discontinued operations		—			(321	)		—			—			—			(321	)
Net earnings (loss)		33,678			54,273			(397	)		6,644			(60,520	)		33,678
Other comprehensive income, net		3			—			—			3			(3	)		3
Comprehensive income (loss)	$	33,681		$	54,273		$	(397	)	$	6,647		$	(60,523	)	$	33,681

30

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Balance Sheets

	July 31, 2008
			Guarantor			Guarantor		Non-
			Subsidiaries-			Subsidiaries-		Guarantor
	Parent		Tier 1			Tier 2		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	38,871	$	7,889		$	33	$	1,900	$	—		$	48,693
Marketable securities		—		—			—		38		—			38
Receivables, net of allowances		20,552		52,704			484		4,508		—			78,248
Inventories		334		32,768			316		2,482		—			35,900
Prepaid expenses		1,602		5,834			64		1,427		—			8,927
Deferred income taxes, net		1,253		5,969			56		1,201		—			8,479
Total current assets		62,612		105,164			953		11,556		—			180,285
Receivables due beyond one year, net of allowances		—		53,429			376		15,997		—			69,802
Preneed funeral receivables and trust investments		—		429,604			—		10,217		—			439,821
Preneed cemetery receivables and trust investments		—		213,545			1,134		8,614		—			223,293
Goodwill		—		253,353			48		19,787		—			273,188
Cemetery property, at cost		—		340,144			11,540		25,453		—			377,137
Property and equipment, at cost		47,965		449,078			1,829		37,849		—			536,721
Less accumulated depreciation		29,414		186,602			780		13,784		—			230,580
Net property and equipment		18,551		262,476			1,049		24,065		—			306,141
Deferred income taxes, net		32,913		144,865			—		6,592		(3,310	)		181,060
Cemetery perpetual care trust investments		—		195,457			8,355		3,613		—			207,425
Other assets		9,836		6,375			16		1,075		—			17,302
Intercompany receivables		839,387		—			—		—		(839,387	)		—
Equity in subsidiaries		26,156		7,244			—		—		(33,400	)		—
Total assets	$	989,455	$	2,011,656		$	23,471	$	126,969	$	(876,097	)	$	2,275,454
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	27	$	—		$	—	$	—	$	—		$	27
Accounts payable		2,011		19,674			105		1,496		—			23,286
Accrued expenses and other current liabilities		15,649		43,018			9		2,820		—			61,496
Total current liabilities		17,687		62,692			114		4,316		—			84,809
Long-term debt, less current maturities		450,097		—			—		—		—			450,097
Deferred income taxes		—		—			3,310		—		(3,310	)		—
Intercompany payables		—		822,442			3,994		12,951		(839,387	)		—
Deferred preneed funeral revenue		—		204,797			—		45,685		—			250,482
Deferred preneed cemetery revenue		—		251,924			322		27,609		—			279,855
Non-controlling interest in funeral and cemetery trusts		—		575,057			1,035		5,594		—			581,686
Other long-term liabilities		16,491		3,134			—		124		—			19,749
Negative equity in subsidiaries		102,040		—			—		—		(102,040	)		—
Total liabilities		586,315		1,920,046			8,775		96,279		(944,737	)		1,666,678
Non-controlling interest in perpetual care trusts		—		193,650			8,372		3,614		—			205,636
Common stock		92,237		102			324		52		(478	)		92,237
Other		310,875		(102,142	)		6,000		26,996		69,146			310,875
Accumulated other comprehensive income		28		—			—		28		(28	)		28
Total shareholders’ equity		403,140		(102,040	)		6,324		27,076		68,640			403,140
Total liabilities and shareholders’ equity	$	989,455	$	2,011,656		$	23,471	$	126,969	$	(876,097	)	$	2,275,454

31

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Balance Sheets

	October 31, 2007
			Guarantor			Guarantor		Non-
			Subsidiaries-			Subsidiaries-		Guarantor
	Parent		Tier 1			Tier 2		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	63,202	$	6,685		$	36	$	1,622	$	—		$	71,545
Marketable securities		—		—			—		262		—			262
Receivables, net of allowances		4,054		51,619			103		4,839		—			60,615
Inventories		368		32,765			328		2,600		—			36,061
Prepaid expenses		950		4,306			3		1,096		—			6,355
Deferred income taxes, net		1,334		5,785			78		1,424		—			8,621
Total current assets		69,908		101,160			548		11,843		—			183,459
Receivables due beyond one year, net of allowances		10,358		53,926			928		18,396		—			83,608
Preneed funeral receivables and trust investments		—		504,534			—		10,519		—			515,053
Preneed cemetery receivables and trust investments		—		245,056			1,199		9,424		—			255,679
Goodwill		—		253,451			48		19,787		—			273,286
Cemetery property, at cost		—		338,274			11,408		25,118		—			374,800
Property and equipment, at cost		43,395		436,588			1,699		37,299		—			518,981
Less accumulated depreciation		26,701		172,924			663		12,775		—			213,063
Net property and equipment		16,694		263,664			1,036		24,524		—			305,918
Deferred income taxes, net		29,238		156,254			—		9,913		(2,546	)		192,859
Cemetery perpetual care trust investments		—		224,182			8,322		3,999		—			236,503
Other assets		9,664		7,039			16		1,090		—			17,809
Intercompany receivables		897,546		—			—		—		(897,546	)		—
Equity in subsidiaries		21,124		6,826			—		—		(27,950	)		—
Total assets	$	1,054,532	$	2,154,366		$	23,505	$	134,613	$	(928,042	)	$	2,438,974
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	198	$	—		$	—	$	—	$	—		$	198
Accounts payable		2,196		21,284			1,075		2,051		—			26,606
Accrued expenses and other current liabilities		16,654		45,934			—		2,691		—			65,279
Total current liabilities		19,048		67,218			1,075		4,742		—			92,083
Long-term debt, less current maturities		450,115		—			—		—		—			450,115
Deferred income taxes		—		—			2,546		—		(2,546	)		—
Intercompany payables		—		869,802			4,419		23,325		(897,546	)		—
Deferred preneed funeral revenue		—		212,166			—		44,437		—			256,603
Deferred preneed cemetery revenue		—		255,266			515		28,726		—			284,507
Non-controlling interest in funeral and cemetery trusts		—		674,977			1,119		6,956		—			683,052
Other long-term liabilities		11,717		2,152			—		—		—			13,869
Negative equity in subsidiaries		150,334		—			—		—		(150,334	)		—
Total liabilities		631,214		2,081,581			9,674		108,186		(1,050,426	)		1,780,229
Non-controlling interest in perpetual care trusts		—		223,119			8,309		3,999		—			235,427
Common stock		98,420		102			324		52		(478	)		98,420
Other		324,887		(150,436	)		5,198		22,365		122,873			324,887
Accumulated other comprehensive income		11		—			—		11		(11	)		11
Total shareholders’ equity		423,318		(150,334	)		5,522		22,428		122,384			423,318
Total liabilities and shareholders’ equity	$	1,054,532	$	2,154,366		$	23,505	$	134,613	$	(928,042	)	$	2,438,974

32

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Cash Flows

	Nine Months Ended July 31, 2008
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(22,882	)	$	63,484		$	464		$	11,187		$	—	$	52,253
Cash flows from investing activities:
Proceeds from sales of marketable securities		19,969			—			—			250			—		20,219
Purchases of marketable securities		(19,952	)		—			—			(3	)		—		(19,955	)
Proceeds from sale of assets, net		—			358			—			—			—		358
Purchase of subsidiaries and other investments, net of cash acquired		(1,378	)		—			—			—			—		(1,378	)
Additions to property and equipment		(5,147	)		(14,399	)		(42	)		(782	)		—		(20,370	)
Other		—			75			—			—			—		75
Net cash used in investing activities		(6,508	)		(13,966	)		(42	)		(535	)		—		(21,051	)
Cash flows from financing activities:
Repayments of long-term debt		(190	)		—			—			—			—		(190	)
Intercompany receivables (payables)		59,113			(48,314	)		(425	)		(10,374	)		—		—
Issuance of common stock		1,659			—			—			—			—		1,659
Purchase and retirement of common stock		(48,627	)		—			—			—			—		(48,627	)
Dividends		(7,067	)		—			—			—			—		(7,067	)
Excess tax benefits from share-based payment arrangements		171			—			—			—			—		171
Net cash provided by (used in) financing activities		5,059			(48,314	)		(425	)		(10,374	)		—		(54,054	)
Net increase (decrease) in cash		(24,331	)		1,204			(3	)		278			—		(22,852	)
Cash and cash equivalents, beginning of period		63,202			6,685			36			1,622			—		71,545
Cash and cash equivalents, end of period	$	38,871		$	7,889		$	33		$	1,900		$	—	$	48,693

33

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)

Condensed Consolidating Statements of Cash Flows

	Nine Months Ended July 31, 2007
				Guarantor			Guarantor			Non-
				Subsidiaries-			Subsidiaries-			Guarantor
	Parent			Tier 1			Tier 2			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(13,518	)	$	58,627		$	(250	)	$	9,940		$	—	$	54,799
Cash flows from investing activities:
Purchases of marketable securities		—			—			—			(148	)		—		(148	)
Proceeds from sale of assets, net		—			1,645			—			—			—		1,645
Purchase of subsidiaries and other investments, net of cash acquired		—			(6,134	)		—			—			—		(6,134	)
Insurance proceeds related to hurricane damaged properties		—			1,400			—			—			—		1,400
Additions to property and equipment		(5,436	)		(16,651	)		(69	)		(964	)		—		(23,120	)
Other		—			56			—			—			—		56
Net cash used in investing activities		(5,436	)		(19,684	)		(69	)		(1,112	)		—		(26,301	)
Cash flows from financing activities:														—
Proceeds from long-term debt		250,000			—			—			—			—		250,000
Repayments of long-term debt		(146,461	)		—			—			(30,000	)		—		(176,461	)
Intercompany receivables (payables)		11,629			(33,786	)		300			21,857			—		—
Debt issue costs		(5,572	)		—			—			—			—		(5,572	)
Proceeds from sale of common stock warrants		43,850			—			—			—			—		43,850
Issuance of common stock		2,521			—			—			—			—		2,521
Purchase of call options		(60,000	)		—			—			—			—		(60,000	)
Purchase and retirement of common stock		(64,201	)		—			—			—			—		(64,201	)
Dividends		(7,724	)		—			—			—			—		(7,724	)
Excess tax benefits from share-based payment arrangements		108			—			—			—			—		108
Net cash provided by (used in) financing activities		24,150			(33,786	)		300			(8,143	)		—		(17,479	)
Net increase (decrease) in cash		5,196			5,157			(19	)		685			—		11,019
Cash and cash equivalents, beginning of period		39,120			3,254			37			1,459			—		43,870
Cash and cash equivalents, end of period	$	44,316		$	8,411		$	18		$	2,144		$	—	$	54,889

(12) Dispositions and Acquisitions

Dispositions

     The Company recorded net gains on dispositions and impairment losses for continuing operations of $25 and $153 for the three and nine months ended July 31, 2008, respectively. For the three and nine months ended July 31, 2007, net gains on dispositions and impairment losses amounted to ($46) and $44, respectively, for continuing operations and ($203) and ($558), respectively, for discontinued operations. The Company sold one immaterial funeral home from the Western Division funeral segment during the nine months ended July 31, 2008. The change in goodwill from October 31, 2007 to July 31, 2008 is a result of this sale.

Acquisitions

     During the nine months ended July 31, 2008, the Company acquired an investment in an outside business for approximately $1,378. During the nine months ended July 31, 2007, the Company purchased two properties for approximately $3,328 and a new funeral home in its Eastern Division for approximately $2,800. This funeral home

34

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(12) Discontinued Operations and Acquisitions—(Continued)

acquisition was accounted for under the purchase method, and the acquired assets and liabilities were valued at their estimated fair values. Its results of operations have been included since the acquisition date. The excess purchase price over the fair value of net assets acquired for this funeral home was allocated to goodwill.

(13) Separation Charges

     The Company recorded $350 for separation pay in the nine months ended July 31, 2007 related to the retirement of a former executive officer, but will make the payments over a two-year period in accordance with the terms of the retirement agreement. As of July 31, 2008, the Company has $278 in remaining payments under all executive officer separation agreements. The Company also recorded approximately $230 in the nine months ended July 31, 2007 primarily related to the reorganization of its divisions during fiscal year 2005. Reorganization costs in 2007 primarily relate to a lease agreement for which the Company is committed through 2009. In the third quarter of 2007, the Company entered into a sublease of this property; however, this sublease does not cover the full cost of the original lease.

(14) Consolidated Comprehensive Income

     Consolidated comprehensive income for the three and nine months ended July 31, 2008 and 2007 is as follows:

	Three Months Ended July 31,						Nine Months Ended July 31,
	2008			2007			2008			2007
Net earnings	$	9,129		$	8,123		$	31,954		$	33,678
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments, net of deferred tax (expense) benefit of $17, $—, ($9), and ($2), respectively		(26	)		—			17			3
(Increase) reduction in net unrealized losses associated with available-for-sale securities of the trusts		(45,065	)		(23,628	)		(98,678	)		(8,384	)
Reclassification of the net unrealized losses activity attributable to the non-controlling interest holders		45,065			23,628			98,678			8,384
Total other comprehensive income (loss)		(26	)		—			17			3
Total comprehensive income	$	9,103		$	8,123		$	31,971		$	33,681

(15) Hurricane Related Charges

     The Company has insurance coverage related to property damage, incremental costs and property operating expenses it incurred due to damage caused by Hurricane Katrina. The insurance policies also provide coverage for interruption to the business, including lost profits, and reimbursement for other expenses and costs incurred relating to the damages and losses suffered. Net expenses of $341 and $210 for the three months ended July 31, 2008 and 2007, respectively, and $351 and $2,343 for the nine months ended July 31, 2008 and 2007, respectively, are reflected in the “Hurricane related charges, net” line in the condensed consolidated statements of earnings. Net expenses recorded in fiscal year 2008 primarily relate to the lawsuit the Company filed against its insurance carriers which is described below. The Company received $10,000 in hurricane related insurance proceeds including $3,169 in business interruption insurance proceeds during the first quarter of 2007, all of which was recorded in receivables as of October 31, 2006. No additional insurance proceeds were recorded in the nine months ended July 31, 2008 or 2007. For additional information on the effects of Hurricane Katrina on the Company, see Note 22 to the

35

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(15) Hurricane Related Charges—(Continued)

consolidated financial statements in the Company’s 2007 Form 10-K.

     The Company has been unable to finalize its negotiations with its insurance carriers related to property damage and extra expenses, and business interruption damages, related to Hurricane Katrina, and filed suit against the carriers in August 2007. In 2007, the carriers advanced an additional $1,100, which the Company has not recorded as income but as a liability pending the outcome of the litigation. The suit involves numerous policy interpretation disputes, among other issues, and no assurance can be given as to how much additional proceeds the Company may recover from its insurers, if any, or the timing of the receipt of any additional proceeds. A trial date has been set in Federal Court on December 1, 2008. With the exception of any legal costs related to this suit, the Company does not anticipate any additional charges related to Hurricane Katrina.

(16) Income Taxes

     The Company has been advised that the congressional Joint Committee on Taxation approved its requested refund of approximately $10,400 and interest of approximately $2,000 related to the Company’s amended federal income tax returns for fiscal years ended October 31, 1997 through 2000 and 2002 through 2004. As of October 31, 2007, this amount was classified in receivables due beyond one year on the Company’s condensed consolidated balance sheet. As a result of the approval and the expectation that the refund will be received within the next 12 months, the receivable was reclassified to current receivables as of July 31, 2008.

     During the third quarter of 2008, the Company filed with the IRS (in connection with the filing of its October 31, 2007 federal income tax return) an application to change its tax accounting method with regards to the taxation of preneed services. This change resulted in an increase in income tax receivables of $8,912 and a corresponding decrease in deferred income taxes in the condensed consolidated balance sheet. The Company received $4,345 of this refund in August 2008, which was recorded in current receivables as of July 31, 2008. The remaining amount of $4,567 was applied against tax payments due by the Company on July 15, 2008, which reduced income taxes payable as of July 31, 2008.

(17) Subsequent Events

     On September 1, 2008, Hurricane Gustav made landfall in southern Louisiana. The Company’s corporate headquarters building and its New Orleans funeral homes and cemeteries sustained minor damages and were able to restore operations shortly thereafter.

36

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

Overview

General

     We are the second largest provider of funeral and cemetery products and services in the death care industry in the United States. As of August 31, 2008, we owned and operated 221 funeral homes and 139 cemeteries in 24 states within the United States and Puerto Rico. We sell cemetery property and funeral and cemetery products and services both at the time of need and on a preneed basis. Our revenues in each period are derived primarily from at-need sales, preneed sales delivered out of our backlog during the period (including the accumulated trust earnings or build-up in the face value of insurance contracts related to these preneed deliveries), preneed cemetery property sales and other items such as perpetual care trust earnings, insurance commissions and finance charges. For a more detailed discussion of our accounting for preneed sales and trust and escrow account earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 in our Annual Report on Form 10-K for the fiscal year ended October 31, 2007 (the “2007 Form 10-K”).

     Our focus for fiscal year 2008 is our ‘Best in Class’ initiative, which aims to improve performance at the individual locations by giving all managers the same key metrics by which they can measure their performance and by providing tools to facilitate the sharing of best practices by key metric. We also seek to strengthen our performance-oriented company culture and to refocus management’s time and attention on improving field operations. The goal of our ‘Best in Class’ initiative is to generate a higher return on assets and to grow profits and cash flow at our existing funeral homes and cemeteries. For additional information, see Item 1 in our 2007 Form 10-K. We are currently also implementing continuous improvement initiatives. During the third quarter of 2008, we formalized a “Continuous Improvement” department which was formed to execute the plans to strengthen and streamline our processes to eliminate waste and inefficiencies.

     Our results can be affected by the number of deaths in our markets. The number of deaths in the United States is expected to increase at a steady, moderate pace over the long-term; however, the number can fluctuate from market to market and period to period. Although we have experienced a decline in funeral service volume for several years, our funeral service volumes have increased 1.4 percent thus far in fiscal year 2008. For additional information, see Item 1 in our 2007 Form 10-K. We are addressing funeral service volumes through our ‘Best in Class’ initiative and enhanced sales and marketing efforts for both at-need and preneed sales.

     Families have been showing an increasing preference for cremation. This trend has been a significant concern for traditional funeral home and cemetery operators like us because cremations have typically included few, if any, additional products or services other than the cremation itself, and can result in lower revenue and profits than traditional services. For additional information, see Item 1 in our 2007 Form 10-K. To address this trend, we have increased our efforts to market full service funerals and cremations. Our other efforts to increase our funeral and cemetery revenue include our funeral package pricing and our emphasis on customization. For additional information, see Item 1 in our 2007 Form 10-K. We are also increasing our focus on expanding the types of death care products and services we offer our customers. For the nine months ended July 31, 2008, we achieved a 1.9 percent increase in our average revenue per traditional funeral service and a 3.2 percent increase in our average revenue per cremation service.

     Current economic conditions have impacted our ability to timely close preneed sales. Through the first nine months of 2008, preneed cemetery property sales, net of discounts, declined 5.0 percent, which decreases our cemetery revenue. In addition, preneed funeral and cemetery service and merchandise sales decreased 2.4 percent for the nine-month period which does not impact current revenue but reduces our backlog and could reduce our future revenues. Current economic conditions could also decrease prices at-need customers are willing to pay, but we have not seen this trend occur through the first nine months of 2008 as our overall funeral average revenue, including trust earnings, increased 2.3 percent.

     In addition, the cost of certain commodities, particularly copper, which represents a large component of our bronze markers sold in our cemetery business, has increased significantly. In the first quarter of 2008, we were impacted by escalating merchandise and energy costs and we have taken steps to counter this impact. Some of the

37

costs impacting our business are largely beyond our control. To the extent that we are unable to continue to pass these cost increases on to our customers, they will have a negative impact on our earnings and cash flows.

     Recent changes in the financial markets have not had a significant adverse effect on our current results of operations or cash flows, although declines in the values of investments in our trust and escrow accounts have reduced their carrying value on our condensed consolidated balance sheet. Prolonged market downturns can affect the returns on our trusts and escrow accounts, which can adversely affect our revenue and profits over the longer term. For additional information, see Items 1 and 1A in our 2007 Form 10-K. The contracts our trusts relate to are long-term in nature, and we can manage the portfolio to mitigate the effects we are currently experiencing. It is more significant to focus on annual returns over a longer period of time which will present a better picture of our portfolio. Our five year total annual returns including the third quarter of 2008 were 4.2 percent for the funeral and cemetery merchandise trusts and 3.5 percent for the cemetery perpetual care trust.

     As previously disclosed, during the third quarter of fiscal 2008, Service Corporation International (“SCI”) made proposals to acquire all of our stock for cash. In a letter dated July 21, 2008, SCI offered $11.00 per share in cash for all of our outstanding shares, subject to the negotiation of mutually satisfactory definitive written agreements and the completion of certain limited, confirmatory due diligence. Our Board of Directors unanimously approved the formation of a committee of independent directors (the “Independent Committee”) to evaluate alternatives available to us to maximize shareholder value. The Independent Committee has commenced the process of working with its advisors and management to collect information and analyze all strategic alternatives available to the Company. Neither the Independent Committee nor the Board intends to provide any update with respect to the Independent Committee’s review of potential strategic alternatives until the Board has approved a definitive course of action.

Financial Summary

     For the third quarter of fiscal year 2008, net earnings increased $1.0 million to $9.1 million from $8.1 million for the third quarter of fiscal year 2007. Earnings from continuing operations for the quarter increased $0.9 million to $9.1 million from $8.2 million for the corresponding period in the prior year.

     Revenue from continuing operations increased $2.8 million to $130.4 million for the quarter ended July 31, 2008. Funeral revenue from continuing operations increased $1.6 million from $66.9 million in the third quarter of 2007 to $68.5 million in the third quarter of 2008. During the third quarter of 2008, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 2.3 percent and an increase in average revenue per cremation service of 6.3 percent due primarily to the continued refinement of new funeral packages and pricing. These increases along with a quarter-over-quarter increase in funeral trust earnings resulted in an overall increase in our same-store average revenue per funeral service of 3.5 percent. Despite the increases in same-store average revenue, we experienced a 1.2 percent decrease in same-store funeral services performed. Cemetery revenue from continuing operations increased $1.2 million from $60.7 million for the quarter ended July 31, 2007 to $61.9 million for the quarter ended July 31, 2008. This increase is due primarily to a $1.4 million increase in construction on various cemetery projects and a $0.8 million increase in cemetery merchandise delivered and services performed. Consolidated gross profit increased $1.5 million to $28.0 million.

     Interest expense decreased $0.2 million to $6.0 million for the third quarter of 2008 due to a 118 basis point decrease in the average rate primarily related to the issuance of the $250.0 million senior convertible notes in fiscal year 2007. We also recorded a $0.7 million charge for the loss on early extinguishment of debt in the third quarter of 2007 related to the $250.0 million senior convertible note transaction. Our weighted average diluted shares outstanding decreased to 92.4 million shares for the quarter ended July 31, 2008 compared to 102.7 million shares for the same period of 2007, yielding a positive impact on earnings per share.

     For the third quarter of fiscal year 2008, we had a 5.6 percent increase in net preneed funeral sales and a 4.4 percent decrease in cemetery property sales, net of discounts, compared to the same period of last year.

     For the nine months ended July 31, 2008, net earnings decreased $1.7 million to $32.0 million from $33.7 million for the same period of fiscal year 2007. Earnings from continuing operations for the first nine months of fiscal year 2008 decreased $2.0 million to $32.0 million from $34.0 million for the corresponding period in the prior

38

year. The earnings decrease is due primarily to an increase in income tax expense of $4.5 million due to $4.2 million in income tax benefits utilized in the first nine months of 2007.

     Revenue from continuing operations increased $1.1 million to $397.6 million for the nine months ended July 31, 2008. Funeral revenue from continuing operations increased $6.5 million from $212.4 million in the first nine months of 2007 to $218.9 million in the first nine months of 2008. During the nine months ended July 31, 2008, our same-store funeral operations achieved an increase in average revenue per traditional funeral service of 1.9 percent and an increase in average revenue per cremation service of 3.2 percent due primarily to the continued refinement of new funeral packages and pricing. These increases were offset by a shift in mix to lower-priced cremation services resulting in an overall increase in our same-store average revenue per funeral service, including trust earnings, of 2.3 percent. We also experienced an increase in same-store funeral services performed of 1.4 percent. Cemetery revenue from continuing operations decreased $5.4 million from $184.1 million for the nine months ended July 31, 2007 to $178.7 million for the nine months ended July 31, 2008. This decrease is due primarily to a $4.3 million decrease in construction on various cemetery projects and a $4.2 million, or 5.0 percent, decrease in cemetery property sales, net of discounts, due in part to current economic conditions. The decreases were partially offset by a $2.5 million, or 3.7 percent, increase in cemetery merchandise delivered and services performed. Consolidated gross profit increased $0.4 million to $90.7 million primarily due to a $3.6 million increase in funeral gross profit, partially offset by a $3.2 million decrease in cemetery gross profit, due primarily to the changes in funeral and cemetery revenue discussed above.

     Corporate general and administrative expenses increased $1.1 million to $24.2 million for the first nine months of 2008. This increase was primarily due to a $1.5 million increase in costs related to the continuous improvement initiative that began in the first quarter of fiscal year 2008 and a $1.4 million increase in information technology costs due in part to the implementation of new business systems and a web development project in the current year. The increases were partially offset by a $1.1 million decrease in professional fees and a $0.9 million decrease in depreciation expense for the nine months ended July 31, 2008 due to the accelerated depreciation in the prior year of our previous computer software systems associated with the implementation of the new business systems in the prior year. We incurred $0.4 million in hurricane related charges in the first nine months of fiscal year 2008 compared to $2.3 million in hurricane related charges for the same period in 2007. Interest expense for the period decreased $1.3 million to $18.0 million for the first nine months of 2008 due to a 174 basis point decrease in the average rate primarily related to the issuance of the $250.0 million senior convertible notes in fiscal year 2007. As a result of the $250.0 million senior convertible note transaction in June 2007, we recorded a $0.7 million charge for the loss on early extinguishment of debt during the nine months ended July 31, 2007. Our weighted average diluted shares outstanding decreased to 94.7 million shares for the nine months ended July 31, 2008 compared to 104.4 million shares for the same period of 2007, yielding a positive impact on earnings per share.

     For the nine months ended July 31, 2008, we had a 3.6 percent decrease in net preneed funeral sales and a 5.0 percent decrease in cemetery property sales, net of discounts, compared to the same period of last year due in part to current economic conditions.

     Cash flow provided by operating activities for the nine months ended July 31, 2008 was $52.3 million compared to $54.8 million for the same period of last year. The decrease is primarily due to $3.2 million of business interruption insurance proceeds and $1.5 million of insurance proceeds, net of expenses, related to Hurricane Katrina, received in fiscal year 2007. In addition, the Company paid $9.0 million in net tax payments in the first nine months of 2007 compared to net tax payments of $11.8 million in the first nine months of 2008.

     For the nine months ended July 31, 2008, we made $48.4 million in stock repurchases under our current stock repurchase program.

      Critical Accounting Policies

     The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions (see Note 1(d) to the condensed consolidated financial statements). Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgment. These critical accounting policies are discussed in “Management’s Discussion and Analysis

39

of Financial Condition and Results of Operations” in our 2007 Form 10-K.

     There have been no changes to our critical accounting policies since the filing of our 2007 Form 10-K, except for the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of Statement of Financial Accounting Standards Statement No. 109” (“FIN 48”) during the first quarter of fiscal year 2008.

     FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We have reviewed our income tax positions and identified certain tax deductions or revenue deferrals that are not certain. As a result of the adoption, we recognized a charge of $1.0 million to the November 1, 2007 accumulated deficit balance. As of the adoption date, we had unrecognized tax benefits of $3.6 million of which $0.6 million, if recognized, would affect the effective tax rate. Also, as of the adoption date, we had accrued interest and penalties related to the unrecognized tax benefits of $0.7 million. Our policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively.

     With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years before 2002. To the extent tax, interest and penalties are not assessed with respect to uncertain tax positions in the future, amounts accrued will be reduced and reflected as a reduction of tax expense, interest expense or “other” expense.

     Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to change our allowance, which could materially impact our financial condition and results of operations.

Results of Operations

     The following discussion segregates the financial results of our continuing operations into our various segments, grouped by our funeral and cemetery operations. For a discussion of our segments, see Note 9 to the condensed consolidated financial statements included herein. As there have been no material acquisitions or construction of new locations in fiscal years 2008 and 2007, results from continuing operations essentially reflect those of same-store locations.

40

Three Months Ended July 31, 2008 Compared to Three Months Ended July 31, 2007—Continuing Operations

Funeral Operations

	Three Months Ended July 31,
					Increase
	2008		2007		(Decrease)
	(In millions)
Funeral Revenue:
Eastern Division	$	28.1	$	27.7	$	.4
Western Division		35.8		34.7		1.1
Corporate Trust Management (1)		4.6		4.5		.1
Total Funeral Revenue	$	68.5	$	66.9	$	1.6
Funeral Costs:
Eastern Division	$	24.2	$	24.6	$	(.4	)
Western Division		29.1		27.8		1.3
Corporate Trust Management (1)		.2		.2		—
Total Funeral Costs	$	53.5	$	52.6	$	.9
Funeral Gross Profit:
Eastern Division	$	3.9	$	3.1	$	.8
Western Division		6.7		6.9		(.2	)
Corporate Trust Management (1)		4.4		4.3		.1
Total Funeral Gross Profit	$	15.0	$	14.3	$	.7

Same-Store Analysis

	Change in Average			Change in			Same-Store
	Revenue Per			Same-Store			Cremation Rate
	Funeral Service			Funeral Services			2008			2007
Eastern Division		2.0	%		(.3	)%		36.5	%		36.2	%
Western Division		4.1	%		(1.9	)%		42.2	%		42.6	%
Total		3.5	% (1)		(1.2	)%		39.7	%		39.8	%

⁽¹⁾ Corporate trust management consists of trust management fees and funeral merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the preneed contracts delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for the three months ended July 31, 2008 and 2007 were $1.3 million and $1.4 million, respectively. As corporate trust management is considered a separate operating segment, trust earnings are included in the total average revenue per funeral service presented, not in the Eastern or Western divisions’ average revenue per funeral service. Funeral trust earnings for the three months ended July 31, 2008 and 2007 were $3.3 million and $3.1 million, respectively.

Consolidated Operations—Funeral

     Funeral revenue from continuing operations increased $1.6 million, or 2.4 percent, from $66.9 million in the third quarter of 2007 to $68.5 million in the third quarter of 2008. During the third quarter of 2008, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 2.3 percent and an increase in average revenue per cremation service of 6.3 percent due primarily to the continued refinement of new funeral packages and pricing. These increases along with a quarter-over-quarter increase in funeral trust

41

earnings resulted in an overall increase in our same-store average revenue per funeral service of 3.5 percent. The cremation rate for our same-store operations was 39.7 percent for the three months ended July 31, 2008 compared to 39.8 percent for the corresponding period in 2007. During the third quarter of 2008, our same-store funeral services performed decreased 1.2 percent, or 174 events, to 13,911 events.

     Funeral gross profit increased $0.7 million to $15.0 million for the third quarter of 2008 compared to $14.3 million for the same period of 2007. This increase is primarily due to the $1.6 million increase in funeral revenue, as discussed above. Funeral gross profit margin increased 50 basis points to 21.9 percent for the third quarter of 2008 from 21.4 percent for the same period of 2007.

Segment Discussion—Funeral

     Funeral revenue in the Eastern division funeral segment increased $0.4 million primarily due to an increase in the average revenue per funeral service in our same-store operations of 2.0 percent due primarily to the continued refinement of new funeral packages and pricing, partially offset by a decrease in the number of funeral services performed by our same-store operations of 0.3 percent. Funeral revenue in the Western division funeral segment increased $1.1 million primarily due to a 4.1 percent increase in the average revenue per funeral service in our same-store operations due primarily to the continued refinement of new funeral packages and pricing, partially offset by a 1.9 percent decrease in the number of funeral services performed by same-store operations. Funeral revenue in the corporate trust management segment increased $0.1 million due to a $0.2 million increase in funeral trust earnings, partially offset by a $0.1 million decline in trust management fees.

     Funeral gross profit for the Eastern division funeral segment increased $0.8 million primarily due to an increase in revenue, as discussed above, and a decrease in expenses. The decrease in expenses is primarily due to a decrease in salaries and wages. Funeral gross profit for the Western division funeral segment decreased $0.2 million. As demonstrated in the table above, the same-store cremation rate increased for the Eastern division and decreased for the Western division.

Cemetery Operations

	Three Months Ended July 31,
					Increase
	2008		2007		(Decrease)
	(In millions)
Cemetery Revenue:
Eastern Division	$	32.8	$	34.3	$	(1.5	)
Western Division		26.8		23.9		2.9
Corporate Trust Management (1)		2.3		2.5		(.2	)
Total Cemetery Revenue	$	61.9	$	60.7	$	1.2
Cemetery Costs:
Eastern Division	$	28.4	$	29.6	$	(1.2	)
Western Division		20.3		18.7		1.6
Corporate Trust Management (1)		.2		.2		—
Total Cemetery Costs	$	48.9	$	48.5	$	.4
Cemetery Gross Profit:
Eastern Division	$	4.4	$	4.7	$	(.3	)
Western Division		6.5		5.2		1.3
Corporate Trust Management (1)		2.1		2.3		(.2	)
Total Cemetery Gross Profit	$	13.0	$	12.2	$	.8

⁽¹⁾ Corporate trust management consists of trust management fees and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the preneed contracts delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated financial statements

42

included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for the three months ended July 31, 2008 and 2007 were $1.3 million and $1.4 million, respectively, and cemetery trust earnings for the three months ended July 31, 2008 and 2007 were $1.0 million and $1.1 million, respectively. Perpetual care trust earnings are included in the revenues and gross profit of the related geographic segment.

Consolidated Operations—Cemetery

     Cemetery revenue from continuing operations increased $1.2 million, or 2.0 percent, from $60.7 million for the quarter ended July 31, 2007 to $61.9 million for the quarter ended July 31, 2008. This increase is primarily due to a $1.4 million increase in construction on various cemetery projects and a $0.8 million increase in cemetery merchandise delivered and services performed. These increases were partially offset by a $1.2 million, or 4.4 percent, decrease in cemetery property sales, net of discounts, due in part to current economic conditions.

     Perpetual care trust earnings for the quarter ended July 31, 2008 amounted to $2.6 million compared to $2.5 million for the same period in 2007.

     Cemetery gross profit increased $0.8 million to $13.0 million for the third quarter of 2008 compared to $12.2 million for the same period of 2007. The increase in gross profit is primarily due to the increase in revenue, as discussed above. Cemetery gross profit margin increased by 90 basis points to 21.0 percent for the third quarter of 2008 from 20.1 percent for the same period of 2007.

Segment Discussion—Cemetery

     Cemetery revenue in the Eastern division cemetery segment decreased $1.5 million primarily due to a $1.9 million decrease in revenue recognition resulting from contracts for which we have not collected 10 percent of the sale. Cemetery revenue in the Western division cemetery segment increased $2.9 million primarily due to a $1.4 million increase in construction on various cemetery projects. Cemetery revenue in the corporate trust management segment decreased $0.2 million due to a $0.1 million decline in cemetery trust earnings and a $0.1 million decline in trust management fees.

     Cemetery gross profit for the Eastern division cemetery segment decreased $0.3 million due to the decrease in cemetery revenue, as discussed above, partially offset by a decrease in expenses. The decrease in cemetery expenses is primarily due to the decline in cemetery costs related to contracts for which we have not collected 10 percent of the sale. Cemetery gross profit for the Western division cemetery segment increased $1.3 million primarily due to an increase in revenue as discussed above.

     Goodwill of a reporting unit must be tested for impairment on at least an annual basis. We conduct our annual goodwill impairment analysis during the fourth quarter of each fiscal year. In addition to an annual review, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may be greater than its fair value. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business and significant negative industry or economic trends.

     While the current economic downturn has continued to impact cemetery property sales in our Eastern division in the quarter ended July 31, 2008, a triggering event has not occurred. As of July 31, 2008, we have $26.0 million of cemetery goodwill recorded related to the Eastern division which would be the maximum potential future charge, although the amount of any future charge would depend on the results of the fair value assessment required under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets (“SFAS No. 142”),” and cannot be predicted with any certainty at this time.

Other

     The effective tax rate for continuing operations for the three months ended July 31, 2008 was 37.0 percent

43

compared to 31.9 percent for the same period in 2007. The reduced rate in 2007 was primarily due to a tax benefit of $0.8 million attributable to the completion of an audit by the Commonwealth of Puerto Rico for tax periods 1999, 2000 and 2001.

     We incurred $0.3 million in hurricane related charges in the third quarter of fiscal 2008 primarily due to legal costs associated with ongoing litigation. We incurred $0.2 million in hurricane related charges for the third quarter of fiscal 2007 primarily due to repairs at locations damaged by Hurricane Katrina. We are continuing to pursue claims with our insurance carriers as described in Note 15 to the condensed consolidated financial statements.

     Interest expense decreased $0.2 million to $6.0 million for the third quarter of 2008 due to a 118 basis point decrease in the average rate during the quarter primarily related to the issuance of the $250.0 million senior convertible notes in fiscal year 2007. The senior convertible notes carry an average interest rate of 3.25 percent.

     Investment and other income, net decreased $0.2 million to $0.6 million due primarily to a decrease in the average rate earned on our cash balances from 4.83 percent in the third quarter of 2007 to 1.42 percent in the third quarter of 2008.

     As a result of the $250.0 million senior convertible note transaction in June 2007, we recorded a charge for the loss on the early extinguishment of debt of $0.7 million during the third quarter of 2007.

     Our weighted average diluted shares outstanding decreased to 92.4 million shares for the quarter ended July 31, 2008 compared to 102.7 million shares for the same period in 2007. The decrease is primarily due to our stock repurchase program in which we have repurchased $48.4 million, or 6.6 million shares, of our Class A common stock, yielding a positive impact on earnings per share. In June 2008, we announced an increase in the stock repurchase program from $50.0 million to $75.0 million leaving us with $26.6 million available under the current program.

Preneed Sales into and Deliveries out of the Backlog

     Net preneed funeral sales increased 5.6 percent during the third quarter of 2008 compared to the corresponding period in 2007 despite current economic conditions.

     The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We added $45.7 million in gross preneed sales to our funeral and cemetery merchandise and services backlog (including $19.6 million related to insurance-funded preneed funeral contracts) during the three months ended July 31, 2008 to be recognized in the future (net of cancellations) as these prepaid products and services are delivered, compared to gross sales of $44.5 million (including $18.8 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2007. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the condensed consolidated balance sheet. Revenues recognized on deliveries out of our preneed funeral and cemetery merchandise and services backlog, including accumulated trust earnings related to these preneed deliveries, amounted to $37.5 million for the three months ended July 31, 2008, compared to $35.5 million for the corresponding period in 2007, resulting in net additions to the backlog of $8.2 million and $9.0 million for the three months ended July 31, 2008 and 2007, respectively.

44

Nine Months Ended July 31, 2008 Compared to Nine Months Ended July 31, 2007—Continuing Operations

Funeral Operations

	Nine Months Ended July 31,
	2008		2007		Increase
	(In millions)
Funeral Revenue:
Eastern Division	$	90.0	$	89.1	$	.9
Western Division		114.8		109.4		5.4
Corporate Trust Management (1)		14.1		13.9		.2
Total Funeral Revenue	$	218.9	$	212.4	$	6.5
Funeral Costs:
Eastern Division	$	73.8	$	73.7	$	.1
Western Division		88.9		86.2		2.7
Corporate Trust Management (1)		.6		.5		.1
Total Funeral Costs	$	163.3	$	160.4	$	2.9
Funeral Gross Profit:
Eastern Division	$	16.2	$	15.4	$	.8
Western Division		25.9		23.2		2.7
Corporate Trust Management (1)		13.5		13.4		.1
Total Funeral Gross Profit	$	55.6	$	52.0	$	3.6

Same-Store Analysis

	Change in Average			Change in			Same-Store
	Revenue Per			Same-Store			Cremation Rate
	Funeral Service			Funeral Services			2008			2007
Eastern Division		.5	%		.4	%		35.9	%		35.0	%
Western Division		3.6	%		2.1	%		42.9	%		42.3	%
Total		2.3	% (1)		1.4	%		39.9	%		39.2	%

⁽¹⁾ Corporate trust management consists of trust management fees and funeral merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the preneed contracts delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for the nine months ended July 31, 2008 and 2007 were $4.0 million and $4.4 million, respectively. As corporate trust management is considered a separate operating segment, trust earnings are included in the total average revenue per funeral service presented, not in the Eastern or Western divisions’ average revenue per funeral service. Funeral trust earnings for the nine months ended July 31, 2008 and 2007 were $10.1 million and $9.5 million, respectively.

Consolidated Operations—Funeral

     Funeral revenue from continuing operations increased $6.5 million, or 3.1 percent, from $212.4 million for the nine months ended July 31, 2007 to $218.9 million for the nine months ended July 31, 2008. We achieved a 1.4 percent increase in same-store funeral services performed, or 614 events, to 45,126 events. Our same-store funeral operations achieved a 1.9 percent increase in the average revenue per traditional funeral service and a 3.2 percent increase in the average revenue per cremation service due primarily to the continued refinement of new funeral packages and pricing. These increases were offset by a shift in mix to lower-priced cremation services resulting in an overall increase in our same-store average revenue per funeral service, including trust earnings, of 2.3 percent.

45

The cremation rate for our same-store operations was 39.9 percent for the nine months ended July 31, 2008 compared to 39.2 percent for the corresponding period in 2007.

     Funeral gross profit increased $3.6 million to $55.6 million for the first nine months of fiscal year 2008 compared to $52.0 million for the same period of fiscal year 2007 primarily due to the increase in revenue, as noted above. Funeral gross profit margin increased 90 basis points to 25.4 percent for the first nine months of fiscal year 2008 from 24.5 percent for the same period in 2007.

Segment Discussion—Funeral

     Funeral revenue in the Eastern division funeral segment increased $0.9 million primarily due to a 0.5 percent increase in average revenue per funeral service in same-store operations and a 0.4 percent increase in the number of funeral services performed by same-store operations. Funeral revenue in the Western division funeral segment increased $5.4 million primarily due to a 3.6 percent increase in the average revenue per funeral service in same-store operations and a 2.1 percent increase in the number of funeral services performed by same-store operations. Funeral revenue in the corporate trust management segment increased $0.2 million primarily due to a $0.6 million increase in funeral trust earnings, partially offset by a $0.4 million decrease in trust management fees.

     Funeral gross profit for the Eastern division funeral segment increased $0.8 million primarily due to an increase in revenue, as discussed above. Funeral gross profit for the Western division funeral segment increased $2.7 million primarily due to an increase in revenue, as discussed above. As demonstrated in the table above, the same-store cremation rate increased for both the Eastern and Western division.

Cemetery Operations

	Nine Months Ended July 31,
					Increase
	2008		2007		(Decrease)
			(In millions)
Cemetery Revenue:
Eastern Division	$	98.0	$	108.5	$	(10.5	)
Western Division		73.7		68.4		5.3
Corporate Trust Management (1)		7.0		7.2		(.2	)
Total Cemetery Revenue	$	178.7	$	184.1	$	(5.4	)
Cemetery Costs:
Eastern Division	$	86.0	$	91.0	$	(5.0	)
Western Division		56.9		54.4		2.5
Corporate Trust Management (1)		.7		.4		.3
Total Cemetery Costs	$	143.6	$	145.8	$	(2.2	)
Cemetery Gross Profit:
Eastern Division	$	12.0	$	17.5	$	(5.5	)
Western Division		16.8		14.0		2.8
Corporate Trust Management (1)		6.3		6.8		(.5	)
Total Cemetery Gross Profit	$	35.1	$	38.3	$	(3.2	)

⁽¹⁾ Corporate trust management consists of trust management fees and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the preneed contracts delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for the nine months ended July 31, 2008 and 2007 were $3.8 million and $4.0 million, respectively, and cemetery trust earnings for both the nine months ended July 31, 2008 and 2007 were $3.2 million. Perpetual care trust earnings are included in the revenues and gross profit of the

46

related geographic segment.

Consolidated Operations—Cemetery

     Cemetery revenue from continuing operations decreased $5.4 million, or 2.9 percent, from $184.1 million for the nine month period ending July 31, 2007 to $178.7 million for the nine month period ending July 31, 2008. The decrease is due primarily to a $4.3 million decrease in construction on various cemetery projects. Last year, we experienced growth due to focused efforts to reduce the production backlog in existing cemetery projects. We also experienced a $4.2 million, or 5.0 percent, decrease in cemetery property sales, net of discounts, due in part to current economic conditions. The decreases were partially offset by a $2.5 million, or 3.7 percent, increase in cemetery merchandise delivered and services performed.

     Perpetual care trust earnings for the nine months ended July 31, 2008 amounted to $8.0 million compared to $7.3 million for the nine months ended July 31, 2007.

     Cemetery gross profit decreased $3.2 million from $38.3 million in the first nine months of fiscal year 2007 to $35.1 million in the first nine months of fiscal year 2008. Cemetery gross profit margin decreased 120 basis points to 19.6 percent in the first nine months of fiscal year 2008 from 20.8 percent in the first nine months of fiscal year 2007. The decrease in gross profit is primarily related to the decrease in cemetery revenue, as noted above.

Segment Discussion—Cemetery

     Cemetery revenue in the Eastern division cemetery segment decreased $10.5 million primarily due to a $5.8 million decrease in construction during the first nine months of fiscal year 2008 on various cemetery development projects and a $3.7 million, or 6.8 percent, decrease in cemetery property sales, net of discounts, due in part to current economic conditions. Cemetery revenue in the Western division cemetery segment increased $5.3 million primarily due to a $1.8 million increase in cemetery commission income related to a new program to manage the cemetery sales of the Archdiocese of Los Angeles, a $1.6 million increase related to the leasing of our mineral rights at one of our cemeteries to an outside third-party and a $1.6 million increase in cemetery merchandise delivered and services performed. Cemetery revenue in the corporate trust management segment decreased $0.2 million due to a $0.2 million decline in trust management fees.

     Cemetery gross profit for the Eastern division cemetery segment decreased $5.5 million due to the decrease in cemetery revenue, as discussed above, partially offset by a decrease in expenses. The decrease in cemetery expenses is primarily due to a decrease in costs on construction on various cemetery projects. Cemetery gross profit for the Western division cemetery segment increased $2.8 million primarily due to an increase in revenue, as discussed above.

     Goodwill of a reporting unit must be tested for impairment on at least an annual basis. We conduct our annual goodwill impairment analysis during the fourth quarter of each fiscal year. In addition to an annual review, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may be greater than its fair value. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business and significant negative industry or economic trends.

     While the current economic downturn has continued to impact cemetery property sales in our Eastern division in the quarter ended July 31, 2008, a triggering event has not occurred. As of July 31, 2008, we have $26.0 million of cemetery goodwill recorded related to the Eastern division which would be the maximum potential future charge, although the amount of any future charge would depend on the results of the fair value assessment required under SFAS No. 142, “Goodwill and Other Intangible Assets,” and cannot be predicted with any certainty at this time.

Other

     The effective tax rate for continuing operations for the nine months ended July 31, 2008 was 37.0 percent

47

compared to 29.4 percent for the same period in 2007. The reduced rate in 2007 was primarily due to a tax benefit of $3.4 million resulting from the utilization of a capital loss carryforward, which was not previously recorded because we were uncertain we could generate sufficient capital gain income prior to its expiration at the end of fiscal 2007. We also recorded a tax benefit of $0.8 million in the nine months ended July 31, 2007 attributable to the completion of an audit by the Commonwealth of Puerto Rico for tax periods 1999, 2000 and 2001. The difference between the effective tax rate and the statutory tax rate of 35.0 percent is primarily due to a percentage increase caused by state income taxes offset by a percentage decrease caused by a dividend exclusion.

     As of November 1, 2007, we adopted FIN 48, which clarifies the accounting and disclosure for uncertain tax positions in accordance with SFAS No. 109, “Accounting for Income Taxes.” We have reviewed our income tax positions and identified certain tax deductions or revenue deferrals that are not certain. The cumulative effect of adopting FIN 48 has been recorded as a $1.0 million increase to the November 1, 2007 opening balance of accumulated deficit, a $3.4 million increase in deferred tax assets and a $4.4 million increase in other long-term liabilities. For additional information on FIN 48, see Note 2 to the condensed consolidated financial statements included herein.

     Corporate general and administrative expenses increased $1.1 million to $24.2 million for the first nine months of fiscal 2008. The increase was primarily due to a $1.5 million increase in costs related to the continuous improvement initiative that began in the first quarter of 2008 and a $1.4 million increase in information technology costs due in part to the implementation of new business systems and a web development project in the current year. The increases were partially offset by a $1.1 million decrease in professional fees and a $0.9 million decrease in depreciation expense for the nine months ended July 31, 2008 due to the accelerated depreciation in the prior year of our previous computer software systems associated with the implementation of the new business systems in the prior year.

     We recorded $0.6 million in separation charges during the nine months ended July 31, 2007 primarily related to separation pay of a former executive officer who retired in the first quarter of 2007.

     We incurred $0.4 million in hurricane related charges in the first nine months of fiscal 2008 primarily due to legal costs associated with ongoing litigation, compared to $2.3 million in hurricane related charges for the same period in 2007 primarily due to repairs at locations damaged by Hurricane Katrina. We are continuing to pursue claims with our insurance carriers as described in Note 15 to the condensed consolidated financial statements.

     Interest expense decreased $1.3 million to $18.0 million for the nine months ended July 31, 2008 due to a 174 basis point decrease in the average rate primarily related to the issuance of the $250.0 million senior convertible notes in fiscal year 2007. The senior convertible notes carry an average interest rate of 3.25 percent.

     Other operating income, net decreased $0.7 million to $0.8 million for the nine months ended July 31, 2008. The decrease is primarily due to the sale of excess cemetery property and proceeds related to the sale of an investment during the nine months ended July 31, 2007.

     Investment and other income, net decreased $0.7 million to $1.7 million due primarily to a decrease in the average rate earned on our cash balances from 4.82 percent in the first nine months of fiscal year 2007 to 2.08 percent for the first nine months of fiscal year 2008.

     As a result of the $250.0 million senior convertible note transaction in June 2007, we recorded a $0.7 million charge for the loss on early extinguishment of debt during the nine months ended July 31, 2007.

     Our weighted average diluted shares outstanding decreased to 94.7 million shares for the nine months ended July 31, 2008 compared to 104.4 million shares for the same period in 2007. The decrease is primarily due to our $75.0 million stock repurchase program in which we have repurchased $48.4 million, or 6.6 million shares, of our Class A common stock, yielding a positive impact on earnings per share.

     Cash and cash equivalents decreased $22.9 million from October 31, 2007 to July 31, 2008 primarily due to $48.4 million in stock repurchases that occurred under our current stock repurchase program. Current receivables increased $17.6 million from October 31, 2007 to July 31, 2008 primarily due to a $10.4 million income tax refund

48

receivable being reclassified from receivables due beyond one year to current receivables as of July 31, 2008 and a $4.3 million income tax receivable recorded in the third quarter of 2008 related to a change in income tax accounting methods. Deferred income taxes decreased $11.8 million from October 31, 2007 to July 31, 2008 primarily due to a change in income tax accounting methods which resulted in an $8.9 million reduction. See Note 16 to the condensed consolidated financial statements for additional information on these income tax related items that occurred in the third quarter of 2008. The increase in other long-term liabilities of $5.9 million from October 31, 2007 to July 31, 2008 was primarily due to a $4.5 million increase due to the adoption of FIN 48 in the first quarter of 2008.

     Preneed funeral receivables and trust investments, preneed cemetery receivables and trust investments, cemetery perpetual care trust investments, non-controlling interest in funeral and cemetery trusts and non-controlling interest in perpetual care trusts were all impacted by the recent decline in market value of our trust assets due to a broad based decline in the overall financial markets. For additional information, see Notes 3, 4 and 5 to our condensed consolidated financial statements included herein.

Preneed Sales into and Deliveries out of the Backlog

     Net preneed funeral sales decreased 3.6 percent during the nine months ended July 31, 2008 compared to the corresponding period in 2007 due in part to current economic conditions.

     The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We added $129.6 million in preneed sales to our funeral and cemetery merchandise and services backlog (including $56.4 million related to insurance-funded preneed funeral contracts) during the nine months ended July 31, 2008 to be recognized in the future (net of cancellations) as these prepaid products and services are delivered, compared to sales of $132.8 million (including $56.3 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2007. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the condensed consolidated balance sheet. Revenues recognized on deliveries out of our preneed funeral and cemetery merchandise and services backlog, including accumulated trust earnings related to these preneed deliveries, amounted to $114.7 million for the nine months ended July 31, 2008, compared to $109.6 million for the corresponding period in 2007, resulting in net additions to the backlog of $14.9 million and $23.2 million for the nine months ended July 31, 2008 and 2007, respectively.

Liquidity and Capital Resources

General

     We generate cash in our operations primarily from at-need sales, preneed sales that turn at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn at-need and monies collected on preneed sales that are not required to be trusted. Over the last five years, we have generated more than $50.0 million each year in cash flow from operations. We have historically satisfied our working capital requirements with cash flows from operations. We believe that our current level of cash on hand, projected cash flows from operations and available capacity under our $125.0 million revolving credit facility will be sufficient to meet our cash requirements for the foreseeable future, although we will need to refinance long-term debt becoming due in 2013 through 2016, as described below.

     We plan to continue to evaluate our options for deployment of cash flow as opportunities arise. We believe that the use of our cash to pay dividends, repurchase stock, construct funeral homes on cemeteries of unaffiliated third parties and make acquisitions of or investments in death care or related businesses are attractive options. We believe that growing our organization through acquisitions and investments is a good business strategy, as it will enable us to enjoy the important synergies and economies of scale from our infrastructure. We regularly review acquisition and other strategic opportunities, which may require us to draw on our revolving credit facility or pursue additional debt or equity financing.

     We have initiated discussions with members of our bank group regarding the renewal of the $125.0 million revolving credit facility which is set to expire in November 2009. As of July 31, 2008, there were no amounts

49

drawn on the facility. Our availability under the revolving credit facility, after giving consideration to $14.6 million in outstanding letters of credit and a $30.8 million bond we are required to maintain to guarantee our obligations related to funds we withdrew in fiscal year 2001 from trust funds in Florida, was $79.6 million as of July 31, 2008. Our $200.0 million senior notes are not redeemable until February 15, 2009 and mature on February 15, 2013. We also have $250.0 million in senior convertible notes, half of which mature in 2014 and the other half of which mature in 2016. See the table below under “Contractual Obligations and Commercial Commitments” for further information on our long-term debt obligations.

     We currently pay quarterly cash dividends of two and one-half cents per share on our Class A and B common stock, which amounted to $7.1 million for the nine months ended July 31, 2008. Although we intend to pay regular quarterly cash dividends for the foreseeable future, the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of our financial performance. We also have a $75.0 million stock repurchase program, of which $26.6 million remains available as of July 31, 2008. Repurchases under the program are limited to our Class A common stock, and are made in the open market or in privately negotiated transactions at such times and in such amounts as management deemed appropriate, depending upon market conditions and other factors.

Cash Flow

     Our operations provided cash of $52.3 million for the nine months ended July 31, 2008, compared to $54.8 million for the corresponding period in 2007. The decrease is primarily due to $3.2 million of business interruption insurance proceeds and $1.5 million of insurance proceeds, net of expenses, related to Hurricane Katrina, received in fiscal year 2007. In addition, we paid $9.0 million in net tax payments in the first nine months of 2007 compared to net tax payments of $11.8 million in the first nine months of 2008.

     Our investing activities resulted in a net cash outflow of $21.1 million for the nine months ended July 31, 2008, compared to a net cash outflow of $26.3 million for the comparable period in 2007. The change is primarily due to the fact that we purchased several properties in the nine months ended July 31, 2007 resulting in a net cash outflow of $6.1 million compared to $1.4 million in the nine months ended July 31, 2008. For the nine months ended July 31, 2008, capital expenditures amounted to $20.4 million, which included $12.4 million for maintenance capital expenditures, $0.5 million for growth initiatives, $2.9 million related to Hurricane Katrina and $4.6 million related to the implementation of new business systems. For the nine months ended July 31, 2007, capital expenditures were $23.1 million, which included $11.5 million for maintenance capital expenditures, $2.2 million for growth initiatives, $5.5 million related to Hurricane Katrina and $3.9 million related to the implementation of new business systems. In the nine months ended July 31, 2008, there were no insurance proceeds related to hurricane damaged properties compared to $1.4 million in the same period in 2007.

     Our financing activities resulted in a net cash outflow of $54.1 million for the nine months ended July 31, 2008, compared to a net cash outflow of $17.5 million for the comparable period in 2007. This change is primarily due to net debt proceeds of $73.5 million ($250.0 million in proceeds of long-term debt and $176.5 million in repayments of long-term debt) in the nine months ended July 31, 2007. There were $0.2 million in debt repayments in the nine months ended July 31, 2008. In June 2007, we issued $250.0 million in senior convertible notes. As part of this debt transaction, we prepaid the remaining balance of our Term Loan B for $164.0 million, sold common stock warrants and purchased call options resulting in a net cash outflow of $16.2 million and recorded debt issuance costs of $5.6 million. Also, as part of this debt transaction, we repurchased approximately 7.7 million shares of our Class A common stock for $64.2 million, compared to $48.6 million in cash outflows related to our current stock repurchase program for the same period in 2008.

Contractual Obligations and Commercial Commitments

     We have contractual obligations requiring future cash payments under existing contractual arrangements. The following table details our known future cash payments (in millions) related to various contractual obligations as of July 31, 2008.

50

	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long-term debt obligations (1)	$	450.1	$	—	$	—	$	200.0	$	250.1
Interest on long-term debt (2)		119.4		20.6		41.3		41.3		16.2
Operating and capital lease obligations (3)		28.9		1.1		7.2		3.7		16.9
Non-competition and other agreements (4)		1.4		.4		.7		.3		—
	$	599.8	$	22.1	$	49.2	$	245.3	$	283.2

(1)	See below for a breakdown of our future scheduled principal payments and maturities of our long-term debt by type as of July 31, 2008.
(2)	Includes contractual interest payments for our senior convertible notes, senior notes and third-party debt.
(3)	Our noncancellable operating leases are primarily for land and buildings and expire over the next one to 15 years, except for six leases that expire between 2032 and 2039. In the first quarter of 2008, we entered into a capital lease for equipment with a two-year term for approximately $0.4 million. Our future minimum lease payments as of July 31, 2008 are $1.1 million, $4.1 million, $3.1 million, $2.1 million, $1.6 million, and $16.9 million for the years ending October 31, 2008, 2009, 2010, 2011, 2012 and later years, respectively.
(4)	We have entered into non-competition agreements with prior owners and key employees of acquired subsidiaries that expire at various times through 2012. This category also includes separation pay related to former executive officers.

     We have contingent obligations that include uncertain tax positions for which we are unable to make an estimate of the timing of future cash settlements at this time.

     As of July 31, 2008, our outstanding debt balance was $450.1 million, consisting of $250.0 million of senior convertible notes, $200.0 million of 6.25 percent senior notes and $0.1 million of other debt. There were no amounts drawn on the revolving credit facility. The following table reflects future scheduled principal payments and maturities of our long-term debt (in millions) as of July 31, 2008.

							Other, Principally
	Revolving		Senior					Seller Financing
Fiscal Year Ending	Credit		Convertible		Senior		of Acquired
October 31,	Facility		Notes		Notes		Operations		Total
2008	$	—	$	—	$	—	$	—	$	—
2009		—		—		—		—		—
2010		—		—		—		—		—
2011		—		—		—		—		—
2012		—		—		—		—		—
Thereafter		—		250.0		200.0		.1		450.1
Total long-term debt	$	—	$	250.0	$	200.0	$	.1	$	450.1

Off-Balance Sheet Arrangements

     Our off-balance sheet arrangements as of July 31, 2008 consist of the following items:

(1) the $30.8 million bond we are required to maintain to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida, which is discussed above and in Note 19 to the consolidated financial statements in our 2007 Form 10-K; and

51

(2) the insurance-funded preneed funeral contracts, which will be funded by life insurance or annuity contracts issued by third-party insurers, are not reflected in our condensed consolidated balance sheets, and are discussed in Note 2(i) to the consolidated financial statements in our 2007 Form 10-K.

Recent Accounting Standards

     See Note 2 to the condensed consolidated financial statements included herein.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Quantitative and qualitative disclosure about market risk is presented in Item 7A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2007, filed with the Securities and Exchange Commission (“SEC”) on December 21, 2007. Except as described below, there have been no material changes in the Company’s market risk from that disclosed in our Form 10-K for the fiscal year ended October 31, 2007. For a discussion of market value as of July 31, 2008 of investments in our trusts, see Notes 3, 4 and 5 to the condensed consolidated financial statements included herein.

     As of July 31, 2008 and October 31, 2007, the carrying values of our long-term fixed-rate debt, including accrued interest, were approximately $456.2 million and $455.7 million, respectively, compared to fair values of $457.7 million and $457.1 million, respectively. Fair values were determined using quoted market prices. Each approximate 10 percent change in the average interest rates applicable to determine the fair value of such debt, 50 basis points for July 31, 2008 and October 31, 2007 would result in changes of approximately $11.9 million and $13.3 million, respectively, in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

     As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s Disclosure Committee and management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

     There have been no changes in the Company’s internal control over financial reporting during the quarter ended July 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     For a discussion of our current litigation, see Note 7 to the condensed consolidated financial statements included herein.

52

     In addition to the matters in Note 7, we and certain of our subsidiaries are parties to a number of other legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

Item 1A. Risk Factors

     Except as described below, there have been no material changes from the risk factors previously disclosed in our 2007 Form 10-K.

     Our 2007 Form 10-K described the risks associated with a proposed change in accounting for our senior convertible notes. In May 2008, the final version of Financial Accounting Standards Board (“FASB”) Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”), was issued, and the new accounting rules will be effective for us beginning November 1, 2009 and must be applied retrospectively to all periods presented. We are currently evaluating the impact FSP No. APB 14-1 will have on our consolidated financial statements, but expect to record higher interest expense related to our senior convertible notes beginning in fiscal year 2010.

Potential continuing uncertainty resulting from the recent Service Corporation International (“SCI”) acquisition proposal and related matters may adversely affect our business and cause volatility in the trading price of our common stock.

     On July 7, 2008, our Board of Directors rejected an unsolicited proposal from SCI to acquire all of our outstanding shares for $9.50 per share in cash. In a letter dated June 25, 2008, SCI invited us to enter into negotiations regarding the possible combination of the two companies. In the letter, SCI stated that were it to be given access to certain non-public, non-competitively-sensitive information about our overhead and trust management structure, it might be able to improve its offer, suggesting a potential range of $10.25 per share to $11.25 per share. Our Board of Directors carefully evaluated the terms of the proposal and unanimously concluded that it is in the best interests of Stewart Enterprises and its shareholders to reject the proposal as inadequate.

     On July 23, 2008, we issued a press release announcing that our Board of Directors met to consider another letter from SCI dated July 21, 2008 offering $11.00 per share in cash for all of our outstanding shares, subject to the negotiation of mutually satisfactory definitive written agreements and the completion of certain limited, confirmatory due diligence. At the meeting, our Board of Directors unanimously approved the formation of a committee of independent directors (the “Independent Committee”) to evaluate alternatives available to us to maximize shareholder value, and authorized the Independent Committee to hire an investment banker or other advisors as it deems appropriate.

     On August 28, 2008, we announced that the Independent Committee has retained Goldman, Sachs & Co. as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as special legal counsel, in connection with the Board’s evaluation of strategic alternatives available to us to maximize shareholder value. We also announced that the Independent Committee has commenced the process of working with its advisors and management to collect information and analyze all strategic alternatives available to us. The Independent Committee intends to conduct a thorough evaluation of all strategic alternatives to determine the course of action that is in the best interests of the Company and its shareholders. Neither the Independent Committee nor the Board intends to provide any update with respect to the review of potential strategic alternatives until the Board has approved a definitive course of action.

     On August 28, 2008, we also announced that Chairman of the Board, Frank B. Stewart, Jr., who currently controls approximately 34 percent of our voting power, has advised the Board that he is fully supportive of the process being undertaken by the Independent Committee, has not made any decisions regarding the outcome of the

53

process, and plans to wait until the Board has had the opportunity to review the appropriate information and analysis presented by the Independent Committee to the full Board before making any decisions regarding his plans or views. Under Louisiana law and our articles of incorporation, the affirmative vote of at least two-thirds of the voting power present is required to approve certain major transactions, including a merger, and any amendments to our articles of incorporation.

     The review and consideration of the SCI proposal and other strategic alternatives has been, and may continue to be, a distraction for our management and employees and will require a significant amount of our time and resources. SCI’s proposal may also create uncertainty for our current and potential customers and other business partners, which may cause them to terminate, or not to renew or enter into, arrangements with us. This has also created uncertainty for our employees, and this uncertainty could cause low morale and may adversely affect our ability to retain key employees and to hire new talent. These consequences, alone or in combination, may harm our business.

     We also believe that as a result of SCI’s proposal and the speculation concerning the potential sale, the trading price of our common stock may be subject to wide price fluctuations. There can be no assurance whether a transaction will occur or at what price. If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

					Total number of		Maximum
					shares		approximate dollar
					purchased as		value of shares that
	Total number		Average		part of publicly-		may yet be
	of shares		price paid		announced plans		purchased under the
Period	purchased		per share		or programs(1)		plans or programs
May 1, 2008 through May 31, 2008		1,000,000	$	6.91		1,000,000	$	5,918,049
June 1, 2008 through June 30, 2008		268,708	$	6.75		268,708	$	29,104,970
July 1, 2008 through July 31, 2008		349,492	$	7.25		349,492	$	26,571,185
Total		1,618,200	$	6.96		1,618,200	$	26,571,185

⁽¹⁾ On September 19, 2007, we announced that our Board of Directors had authorized a new $25.0 million stock repurchase program. Repurchases under the program are limited to our Class A common stock, and are made in the open market or in privately negotiated transactions at such times and in such amounts as management deems appropriate, depending upon market conditions and other factors. On December 20, 2007, we announced a $25.0 million increase in this program. On June 19, 2008, we announced an additional $25.0 million increase to the program, which increased the program to $75.0 million. As of July 31, 2008, we had repurchased 6.6 million shares for $48.4 million at an average price of $7.32 per share under this program.

Item 5. Other Information

     On September 8, 2008, the Board of Directors approved an amendment to our bylaws and to our indemnity agreements with directors primarily designed to make clear that a director’s rights to indemnification and advancement of expenses vest at the time he begins to serve as a director, cannot be diminished after that time, and continue after he ceases to serve as a director. The amended and restated bylaws and the amendment to the indemnity agreements are filed as exhibits to this report.

54

Item 6. Exhibits

3.1	Amended and Restated Articles of Incorporation of the Company, as amended and restated as of April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2008)
3.2	By-laws of the Company, as amended and restated as of September 8, 2008
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	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 filed November 4, 1999)
4.4	Amendment No. 1 to the Rights Agreement dated June 26, 2007 between Stewart Enterprises, Inc. and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed June 27, 2007)
4.5	Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed November 23, 2004)
4.6	Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25 percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 14, 2005)
4.7	Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 14, 2005)
4.8	Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.125 percent Senior Convertible Notes due 2014 (including Form of 3.125 percent Senior Convertible Notes due 2014) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 27, 2007)
4.9	Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.375 percent Senior Convertible Notes due 2016 (including Form of 3.375 percent Senior Convertible Notes due 2016) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 27, 2007)
4.10	Registration Rights Agreement dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and the Initial Purchasers (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed June 27, 2007)

55

10.1	Amendment No. 2 to Employment Agreement dated May 1, 2008 between the Company and Thomas J. Crawford (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2008)
10.2	Amendment No. 1 to Employment Agreement dated May 1, 2008 between the Company and Thomas M. Kitchen (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2008)
10.3	Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective June 18, 2008
10.4	Amended and Restated Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective August 1, 2008
10.5	Form of First Amendment to Indemnity Agreements between Stewart Enterprises, Inc. and its Directors
10.6	Amendment to Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective June 17, 2008
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer

56

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

SIGNATURES

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

	STEWART ENTERPRISES, INC.
September 9, 2008	/s/ THOMAS M. KITCHEN
	Thomas M. Kitchen
	Senior Executive Vice President and Chief Financial Officer
September 9, 2008	/s/ ANGELA M. LACOUR
	Angela M. Lacour
	Vice President Corporate Controller Chief Accounting Officer

57

Exhibit Index

3.2	By-laws of the Company, as amended and restated as of September 8, 2008
10.3	Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective June 18, 2008
10.4	Amended and Restated Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective August 1, 2008
10.5	Form of First Amendment to Indemnity Agreements between Stewart Enterprises, Inc. and its Directors
10.6	Amendment to Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective June 17, 2008
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer

58

EX-3.2

Exhibit 3.2

BY-LAWS
OF
STEWART ENTERPRISES, INC.
(as amended and restated as of September 8, 2008)

SECTION I
OFFICES

     1.1 Principal Office. The principal office of the Corporation shall be located at such place as the Board of Directors may from time to time determine.

     1.2 Additional offices. The Corporation may have such offices at such other places as the Board of Directors may from time to time determine or the business of the Corporation may require.

SECTION II
SHAREHOLDERS MEETINGS

     2.1 Place of Meetings. Unless otherwise required by law or these By-laws, all meetings of the shareholders shall be held at the principal office of the Corporation or at such other place, within or without the State of Louisiana, as may be designated by the Board of Directors.

     2.2 Annual Meetings; Notice Thereof. An annual meeting of the shareholders shall be held each year on the date and at the time as the Board of Directors shall designate, for the purpose of electing directors and for the transaction of such other business as may be properly brought before the meeting. If no annual shareholders’ meeting is held for a period of eighteen months, any shareholder may call such meeting to be held at the registered office of the Corporation as shown on the records of the Secretary of State of the State of Louisiana.

     2.3 Special Meetings. Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board, or the President. At any time, upon the written request of any shareholder or group of shareholders holding in the aggregate at least 25% of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation), the Secretary shall call a special meeting of shareholders to be held at the registered office of the Corporation at such time as the Secretary may fix, not less than 15 nor more than 60 days after the receipt of such request, and if the Secretary shall neglect or refuse to fix such time or to give notice of the meeting, the shareholder or shareholders making the request may do so. Such request must state the specific purpose or purposes of the proposed special meeting and the business to be conducted thereat shall be limited to such purpose or purposes.

     2.4 Notice of Meetings. Except as otherwise provided by law, the authorized person or persons calling a shareholders’ meeting shall cause written notice of the time, place and purpose of the meeting to be given to all shareholders entitled to vote at such meeting, at least 10 days and not more than 60 days prior to the day fixed for the meeting. Notice of the annual meeting need not state the purpose or purposes thereof, unless action is to be taken at the meeting as to which notice is required by law or the By-laws. Notice of a special meeting shall state the

1

purpose or purposes thereof, and the business conducted at any special meeting shall be limited to the purpose or purposes stated in the notice.

     2.5 List of Shareholders. At every meeting of shareholders, a list of shareholders entitled to vote, arranged alphabetically and certified by the Secretary or by the agent of the Corporation having charge of transfers of shares, showing the number and class of shares held by each such shareholder on the record date for the meeting and confirming the number of votes per share as to which each such shareholder is entitled, shall be produced on the request of any shareholder.

     2.6 Quorum. At all meetings of shareholders, the holders of a majority of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) shall constitute a quorum, provided, however, that this subsection shall not have the effect of reducing the vote required to approve any matter that may be established by law, the Articles of Incorporation or these By-laws.

     2.7 Voting. When a quorum is present at any shareholders’ meeting, the vote of the holders of a majority of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) that is present in person or represented by proxy, voting together as a single class, shall decide each question brought before such meeting, unless the resolution of the question requires, by express provision of law, the Articles of Incorporation or these By-laws, a different vote or one or more separate votes by the holders of a class or series of capital stock, in which case such express provision shall apply and control the decision of such question. Directors shall be elected by plurality vote.

     2.8 Proxies.

          (a) At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy authorized by such shareholder and bearing a date not more than eleven months prior to the meeting, unless the instrument provides for a longer period, but in no case will an outstanding proxy be valid for longer than three years from the date of its execution; provided, however, that in no event may a proxy be voted at a meeting called pursuant to La. R.S. 12:138 unless it is executed and dated by the shareholder within 30 days of the date of such meeting. The person appointed as proxy need not be a shareholder of the Corporation.

          (b) The following are valid means by which a shareholder may authorize another person or persons to act for him as proxy:

               (i) A shareholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the shareholder or his authorized officer, director, employee or agent signing such writing or causing his signature to be affixed to such writing by any reasonable means, including but not limited to facsimile signature.

               (ii) A shareholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission (including but not limited to transmission by telephone, the Internet or e-mail) to the person who will be the holder of the proxy, or to a proxy solicitation

2

firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission; however, any such telegram, cablegram or other means of electronic transmission shall be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or other such persons making that determination shall specify the information upon which they relied.

     2.9 Adjournments. Adjournments of any annual or special meeting of shareholders may be taken without new notice being given unless a new record date is fixed for the adjourned meeting, but any meeting at which directors are to be elected shall be adjourned only from day to day until such directors shall have been elected.

     2.10 Withdrawal. If a quorum is present or represented at a duly organized shareholders’ meeting, such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum as fixed in Section 2.6 of these By-laws, or the refusal of any shareholders to vote.

     2.11 Lack of Quorum. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting to such time and place as they may determine, subject, however, to the provisions of Section 2.9 hereof. In the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less than a quorum as fixed in Section 2.6 hereof, shall nevertheless be deemed to constitute a quorum for the purpose of electing directors.

     2.12 2.12 Presiding Officer. The Chairman of the Board or the Chief Executive Officer, or in their absence a chairman designated by the Board of Directors, shall preside at all shareholders’ meetings.

     2.13 Definition of Shareholder. As used in these By-laws, and unless the context otherwise requires, the term shareholder shall mean a person who is the record holder of shares of the Corporation’s capital stock or a registered holder of any bonds, debentures or similar obligations granted voting rights by the Corporation pursuant to La. R.S. 12:75H.

     2.14 Business to be Conducted at Annual and Special Meetings of Shareholders.

          (a) At any annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of record entitled to vote at such meeting who complies with the procedures set forth in this Section 2.14.

          (b) At any special meeting of shareholders called at the request of a shareholder, or group of shareholders, of record in accordance with the Corporation’s Articles of Incorporation and these By-laws, only such business shall be conducted as shall have been (i) submitted by the shareholder, or group of shareholders of record requesting the meeting, (ii) described in the request for the meeting, and (iii) described in the notice of the meeting.

3

          (c) At any special meeting of shareholders called at the request of the Board of Directors, the Chairman of the Board or the President of the Corporation, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, the Chairman of the Board or the President or (ii) by any shareholder of record entitled to vote at such meeting who complies with the procedures set forth in this Section 2.14.

          (d) No proposal by a shareholder, or group of shareholders, of record of the Corporation shall be considered at an annual shareholders’ meeting unless Sufficient Notice (as described in subparagraph (f) hereof) of the proposal is received by the Secretary of the Corporation not less than 120 calendar days in advance of the date in the current year that corresponds to the date on which proxy materials were first mailed by the Corporation in connection with the previous year’s annual meeting. If the date of the annual meeting is changed to a date that is 30 calendar days earlier or later than the date in the current year that corresponds to the date on which the annual meeting was held in the previous year, or if no annual meeting was held in the previous year, Sufficient Notice of the proposal must be received by the Secretary of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event less than 70 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, Sufficient Notice of the proposal must be received by the Secretary of the Corporation no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.

          (e) No proposal by a shareholder, or group of shareholders, of record of the Corporation shall be considered at a special meeting of shareholders called by the Board of Directors, the Chairman of the Board or the President unless Sufficient Notice (as described in subparagraph (f) hereof) of the proposal is received by the Secretary of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event less than 70 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, Sufficient Notice of the proposal must be received by the Secretary of the Corporation no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.

          (f) Notice of a proposal shall constitute Sufficient Notice only if it contains (i) a complete and accurate description of the proposal; (ii) a statement that the shareholder (or the shareholder’s legal representative) intends to attend the meeting and present the proposal and that the shareholder intends to hold of record securities of the Corporation entitled to vote at the meeting through the meeting date; (iii) the shareholder’s name and address and the number of shares of the Corporation’s voting securities that the shareholder holds of record and beneficially as of the notice date; and (iv) a complete and accurate description of any material interest of such shareholder in such proposal.

          (g) Notwithstanding compliance with this Section 2.14, no shareholder proposal shall be deemed to be properly brought before a shareholders’ meeting if it is not a proper subject for action by shareholders under Louisiana law or the Articles of Incorporation.

4

          (h) Any shareholder proposal failing to comply with this Section 2.14 shall not be considered at the meeting and, if introduced at the meeting, shall be ruled out of order.

          (i) Nothing in this Section 2.14 is intended to confer any rights to have any proposal included in the notice of any meeting or in proxy materials related to such meeting.

          (j) Notwithstanding the requirement in this Section 2.14 that a shareholder be a shareholder of record in order to present a shareholder proposal at a shareholders’ meeting, a beneficial owner of shares entitled to vote at the meeting shall be entitled to present a proposal at a meeting if such beneficial owner complies with Rule 14a-8 promulgated under the Securities Exchange Act of 1934 and the proposal has been included in the Corporation’s proxy statement for the meeting pursuant to Rule 14a-8.

SECTION III
DIRECTORS

     3.1 Number. All of the corporate powers shall be vested in, and the business and affairs of the Corporation shall be managed by, a Board of Directors. Except as otherwise fixed by or pursuant to Article III of the Articles of Incorporation (as it may be duly amended from time to time) relating to the rights of the holders of any class or series of stock having a preference over the Class A and Class B Common Stock as to dividends or upon liquidation to elect additional directors by class vote, the Board of Directors shall consist of up to 12 natural persons, the exact number of which shall be fixed each year by resolution of the Board of Directors, provided that, if after proxy materials for any meeting of shareholders at which directors are to be elected are mailed to shareholders any person or persons named therein to be nominated at the direction of the Board of Directors become unable or unwilling to serve, the number of directors fixed by the Board or Directors for such year shall be automatically reduced by a number equal to the number of such persons unless the Board of Directors selects an additional nominee or nominees to replace such persons. No director need be a shareholder. The Secretary shall have the power to certify at any time as to the number of directors authorized. No person shall be eligible for nomination, election or appointment to the Board of Directors unless such person will not have achieved his or her 70th birthday on or prior to the date on which his or her election or appointment would otherwise become effective; provided, however, that (i) the foregoing shall not be applied in a manner that would shorten the current term of office of any incumbent director on the date of the adoption of this by-law, (ii) the Board may, by a vote of two-thirds of its members who are not affected by the decision, exempt any Director from the foregoing limitation in order that such Director may serve not more than two additional terms of office; and (iii) such limitation shall not apply to Frank B. Stewart, Jr. so long as he is the record and/or beneficial owner of not less than 3.5 million shares of the Company’s Class B Common Stock (as such number may be adjusted from time to time to reflect stock dividends, stock splits, a recapitalization or other similar transactions).

     3.2 Powers. The Board may exercise all such powers of the Corporation and do all such lawful acts and things which are not by law, the Articles of Incorporation or these By-laws directed or required to be done by the shareholders.

5

     3.3 Election. Beginning with the Company’s annual meeting of shareholders to be held in 2007, each of the Company’s directors, other than those who may be elected by the holders of any class or series of stock having preference over the Class A and Class B Common Stock as to dividends or upon liquidation, shall be elected to serve a term of one year and until a successor is chosen and has qualified.

     3.4 General Election. At each annual meeting of shareholders, directors shall be elected to succeed those directors whose terms then expire. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

     3.5 Vacancies. Except as otherwise provided in the Articles of Incorporation or these By-laws, the office of a director shall become vacant if he dies, resigns or is duly removed from office and the Board of Directors may declare vacant the office of a director if he is interdicted or adjudicated an incompetent, is adjudicated a bankrupt, in the sole opinion of the Board of Directors becomes incapacitated by illness or other infirmity so that he is unable to perform his duties for a period of six months or longer, or ceases at any time to have the qualifications required by law, the Articles of Incorporation or these By-laws.

     3.6 Filling Vacancies. Except as otherwise provided in Section 3.8 of these By-laws, any vacancy on the Board (including any vacancy resulting from an increase in the authorized number of directors or from failure of the shareholders to elect the full number of authorized directors) may, notwithstanding any resulting absence of a quorum of directors, be filled by a two-thirds vote of the Board of Directors remaining in office, provided that the shareholders shall have the right, at any special meeting called for such purpose prior to any such action by the Board, to fill the vacancy. A director elected pursuant to this section shall serve until the next shareholders’ meeting held for the election of directors and until his successor is elected and qualified.

     3.7 Notice of Shareholder Nominees. Except as otherwise provided in Section 3.8 of these By-laws, only persons who are nominated in accordance with the procedures set forth in this section shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of record of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered or mailed and received at the principal office of the Corporation not less than 45 days nor more than 90 days prior to the meeting, provided, however, that in the event that less than 55 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder’s notice shall set forth or include the following:

          (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director the name, age, business address and residential address of such person, the principal occupation or employment of such person, the class and number of shares of capital

6

stock of the Corporation which such person is the beneficial owner (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934), such person’s written consent to being named in the proxy statement as a nominee and to serve as a director if elected and any other information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors or would be otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934; and

          (b) as to the shareholder of record giving the notice, (i) the name and address of such shareholder and (ii) the class and number of shares of capital stock of the Corporation of which such shareholder is the beneficial owner (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934). If requested in writing by the Secretary of the Corporation at least 15 days in advance of the meeting, such shareholder shall disclose to the Secretary within ten days of such request, whether such person is the sole beneficial owner of the shares held of record by him, and, if not, the name and address of each other person known by the shareholder of record to claim or have a beneficial interest in such shares.

At the request of the Board of Directors, any person nominated by or at the direction of the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee. If a shareholder seeks to nominate one or more persons as directors, the Secretary shall appoint two inspectors, who shall not be affiliated with the Corporation, to determine whether the shareholder has complied with this section. If the inspectors shall determine that the shareholder has not complied with this section, the defective nomination shall be disregarded and the inspectors shall direct the Chairman of the meeting to declare at the meeting that such nomination was not made in accordance with the procedures prescribed by the Articles of Incorporation and these By-laws.

     3.8 Directors Elected by Preferred Shareholders. Notwithstanding anything in these By-laws to the contrary, whenever the holders of any one or more classes or series of stock having a preference over the Class A and Class B Common Stock as to dividends or upon liquidation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of the Articles of Incorporation (as they may be duly amended from time to time) fixing the rights and preferences of such preferred stock shall govern with respect to the nomination, election, term, removal, vacancies or other related matters with respect to such directors.

     3.9 Compensation of Directors. Directors shall receive such compensation for their services, in their capacity as directors, as may be fixed by resolution of the Board of Directors, provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

     3.10 Vice Chairman of the Board. The Board of Directors may appoint a Vice Chairman of the Board, who shall perform such duties as the Chairman of the Board or the Board of Directors shall prescribe.

7

SECTION IV
MEETINGS OF THE BOARD

     4.1 Place of Meetings. The meetings of the Board of Directors may be held at such place within or without the State of Louisiana as a majority of the directors may from time to time appoint.

     4.2 Regular Meetings; Notice. Regular meetings of the Board may be held at such times as the Board may from time to time determine. Notice of regular meetings of the Board of Directors shall be required, but no special form of notice or time of notice shall be necessary.

     4.3 Special Meetings; Notice. Special meetings of the Board may be called by the Chairman of the Board or the President on reasonable notice given to each director, either personally or by telephone, mail, telex, telecopy or any other comparable form of facsimile communication. Special meetings shall be called by the Secretary in like manner and on like notice on the written request of a majority of the directors and if such officer fails or refuses, or is unable within 24 hours to call a meeting when requested, then the directors making the request may call the meeting on two days’ written notice given to each director. The notice of a special meeting of directors need not state its purpose or purposes, but if the notice states a purpose or purposes and does not state a further purpose to consider such other business as may properly come before the meeting, the business to be conducted at the special meeting shall be limited to the purpose or purposes stated in the notice.

     4.4 Waiver of Notice. Directors present at any regular or special meeting shall be deemed to have received due, or to have waived, notice thereof, provided that a director who participates in a meeting by telephone (as permitted by Section 4.8 hereof) shall not be deemed to have received or waived due notice if, at the beginning of the meeting, he objects to the transaction of any business because the meeting is not lawfully called.

     4.5 Quorum. A majority of the Board shall be necessary to constitute a quorum for the transaction of business, and except as otherwise provided by law, the Articles of Incorporation or these By-laws, the acts of a majority of the directors present at a duly-called meeting at which a quorum is present shall be the acts of the Board. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present.

     4.6 Withdrawal. If a quorum is present when the meeting convened, the directors present may continue to do business, taking action by vote of a majority of a quorum as fixed in Section 4.5 hereof, until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum as fixed in Section 4.5 hereof or the refusal of any director present to vote.

     4.7 Action by Consent. Any action that may be taken at a meeting of the Board, or any committee thereof, may be taken by a consent in writing signed by all of the directors or by all members of the committee, as the case may be, and filed with the records of proceedings of the Board or committee.

8

     4.8 Meetings by Telephone or Similar Communication. Members of the Board may participate at and be present at any meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment if all persons participating in such meeting can hear and communicate with each other.

SECTION V
COMMITTEES OF THE BOARD

     5.1 General. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation (and one or more directors may be named as alternate members to replace any absent or disqualified regular members), which, to the extent provided by resolution of the Board or these By-laws, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to documents, but no such committee shall have power or authority to amend the Articles of Incorporation, adopt an agreement of merger, consolidation or share exchange, recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation’s assets, recommend to the shareholders a dissolution of the Corporation or a revocation of dissolution, remove or indemnify directors, or amend these By-laws; and unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or authorize the issuance of stock. Such committee or committees shall have such name or names as may be stated in these By-laws, or as may be determined, from time to time, by the Board. Any vacancy occurring in any such committee shall be filled by the Board, but the President may designate another director to serve on the committee pending action by the Board. Each such member of a committee shall hold office during the term designated by the Board.

     5.2 Standing Committees. The standing committees of the Board of Directors shall be the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, which committees shall have such authority and be comprised of such members as designated by the Board.

SECTION VI
REMOVAL OF BOARD MEMBERS

     Except as may be otherwise provided in Section 3.8 of these By-laws, any director may be removed, with or without cause, by a two-thirds vote of the Board of Directors and any director or the entire Board of Directors may be removed at any time, with or without cause, by the affirmative vote of the holders of not less than two-thirds of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) that is present or represented at a special shareholders’ meeting called for that purpose, voting together as a single class. At the same meeting in which the Board of Directors or the shareholders remove one or more directors, a successor or successors may be elected for the unexpired term of the director or directors removed. Except as provided in the Articles of Incorporation and in this Section 6, directors shall not be subject to removal.

9

SECTION VII
NOTICES

     7.1 Form of Delivery. Whenever under the provisions of law, the Articles of Incorporation or these By-laws notice is required to be given to any shareholder or director, it shall not be construed to mean personal notice unless otherwise specifically provided in the Articles of Incorporation or these By-laws, but such notice may be given by mail, addressed to such shareholder or director at his address as it appears on the records of the Corporation, with postage thereon prepaid, or in such other manner as may be specified in these By-laws. Notices given by mail shall be deemed to have been given at the time they are deposited in the United States mail, and all other notices shall be deemed to have been given upon receipt.

     7.2 Waiver. Whenever any notice is required to be given by law, the Articles of Incorporation or these By-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. In addition, notice shall be deemed to have been given to, or waived by, any shareholder or director who attends a meeting of shareholders or directors in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the transaction of any business because the meeting is not lawfully called or convened.

SECTION VIII
OFFICERS

     8.1 Designations. The Board of Directors shall elect a Chairman of the Board, Chief Executive Officer, President, Secretary and Treasurer. The Chief Executive Officer may appoint such other officers as he or she shall deem necessary or appropriate, and shall present to the Board a list of such officers at least annually. More than one office may be held by one person, provided that no person holding more than one office may sign, in more than one capacity, any certificate or other instrument required by law to be signed by two officers.

     8.2 Duties and Terms of Office. Officers shall exercise such powers and perform such duties as the Chief Executive Officer may from time to time direct, provided that their powers and duties are not inconsistent with these By-laws or any Board resolution. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer elected by the Board shall hold office until the first meeting of the Board of Directors after the annual meeting of shareholders next succeeding his or her election, and until his or her successor is elected or until his or her earlier resignation or removal. Officers appointed by the Chief Executive Officer shall hold such office for the term designated by the Chief Executive Officer or, if none, until his or her successor is elected or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board, Chief Executive Officer or Secretary of the Corporation. Such resignation shall take effect at the time specified therein and acceptance of such resignation shall not be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any officer appointed by the Chief Executive Officer may be removed by the Chief Executive Officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officers, if any, with the Corporation, but the election of an officer shall not in and of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation,

10

removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting, or, if the appointment of the officer did not require Board approval, by the Chief Executive Officer.

     8.3 The Chairman of the Board. The Chairman of the Board or a director designated by him shall preside at meetings of the Board of Directors and the shareholders and perform such other duties as may be designated by the Board of Directors or these By-laws.

     8.4 The Chief Executive Officer and President. The office of Chief Executive Officer and President shall be held by one person unless the Board otherwise determines. Subject to such determination, the Chief Executive Officer and President shall, subject to the powers of the Chairman of the Board, have general and active responsibility for the management of the business of the Corporation, shall be the chief executive officer of the Corporation, shall supervise the daily operations of the business of the Corporation and shall ensure that all orders, policies and resolutions of the Board are carried out.

     8.5 The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. He or she shall give, or cause to be given, notice of all meetings of the shareholders and regular and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer. He or she shall keep in safe custody the seal of the Corporation, if any, and affix such seal to any instrument requiring it.

     8.6 The Treasurer. The Treasurer shall have the custody of the corporate funds and shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation. He or she shall keep a proper accounting of all receipts and disbursements and shall disburse the funds of the Corporation only for proper corporate purposes or as may be ordered by the Board and shall render to the Chief Executive Officer and the Board at the regular meetings of the Board, or whenever they may require it, an account of all his or her transactions as Treasurer.

SECTION IX
STOCK

     9.1 Certificates. The shares of the Corporation may be (i) uncertificated, provided the Corporation is a participant in the Direct Registration System, or its successor, of the Depository Trust & Clearing Corporation in accordance with §57 of the Louisiana Business Corporation Law, and/or (ii) represented by certificates signed by the President or a Vice President and the Secretary or an Assistant Secretary evidencing the number and class (and series, if any) of shares owned by the stockholder, containing such information as required by law and bearing the seal of the Corporation. If any stock certificate is manually signed by a transfer agent or registrar other than the Corporation itself or an employee of the Corporation, the signature of any such officer may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be an officer, transfer agent or registrar of the Corporation before such certificate is issued, it

11

may be issued by the Corporation with the same effect as if such person or entity were an officer, transfer agent or registrar of the Corporation on the date of issue.

     9.2 Missing Certificates. The President or any Vice President may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the Corporation’s receipt of an affidavit of that fact from the person claiming the certificate of stock to be lost, stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates, the officers of the Corporation shall, unless dispensed with by the President, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond or enter into a written indemnity agreement, in each case in an amount appropriate to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

     9.3 Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered holder of uncertificated shares such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation.

     Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send, or cause to be sent, to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 57(B) and (C) and 59 of the Louisiana Business Corporation Law.

SECTION X
DETERMINATION OF SHAREHOLDERS

     10.1 Record Date. For the purpose of determining shareholders entitled to notice of and to vote at a meeting, or to receive a dividend, or to receive or exercise subscription or other rights, or to participate in a reclassification of stock, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a record date for determination of shareholders for such purpose, such date to be not more than 60 days and, if fixed for the purpose of determining shareholders entitled to notice of and to vote at a meeting, not less than 10 days, prior to the date on which the action requiring the determination of shareholder is to be taken.

     10.2 Registered Shareholders. Except as otherwise provided by law, the Corporation and its directors, officers and agents may recognize and treat a person registered on its records as the owner of shares as the owner in fact thereof for all purposes, and as the person exclusively entitled to have and to exercise all rights and privileges incident to the ownership of such shares, and the Corporation’s rights under this section shall not be affected by any actual or constructive notice that the Corporation, or any of its directors, officers or agents, may have to the contrary.

12

SECTION XI
INDEMNIFICATION

     11.1 Definitions. As used in this section the following terms shall have the meanings set forth below:

          (a) “Board” — the Board of Directors of the Corporation.

          (b) “Claim” — any threatened, pending or completed claim, action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether made judicially or extra-judicially, or any separate issue or matter therein, as the context requires.

          (c) “Determining Body” — those members of the Board who are not named as parties to the Claim for which indemnification is being sought (“Impartial Directors”), if there are at least three Impartial Directors, a committee of at least three Impartial Directors appointed by the Board (regardless whether the members of the Board of Directors voting on such appointment are Impartial Directors) or if there are fewer than three Impartial Directors or if the Board of Directors or the committee appointed pursuant to clause (ii) of this paragraph so directs (regardless whether the members thereof are Impartial Directors), independent legal counsel, which may be the regular outside counsel of the Corporation.

          (d) “Disbursing Officer” — the President of the Corporation or, if the President is a party to the Claim for which indemnification is being sought, any officer not a party to such Claim who is designated by the President to be the Disbursing Officer with respect to indemnification requests related to the Claim, which designation shall be made promptly after receipt of the initial request for indemnification with respect to such Claim.

          (e) “Expenses” — any expenses or costs (including, without limitation, attorney’s fees, judgments, punitive or exemplary damages, fines and amounts paid in settlement).

          (f) “Indemnitee” — each person who is or was a director or officer of the Corporation.

     11.2 Indemnity.

          (a) To the extent such Expenses exceed the amounts reimbursed or paid pursuant to policies of liability insurance maintained by the Corporation, the Corporation shall indemnify each Indemnitee against any Expenses actually and reasonably incurred by (as they are incurred) in connection with any Claim either against him or as to which he is involved solely as a witness or person required to give evidence, by reason of his position as a director or officer of the Corporation, as a director or officer of any subsidiary of the Corporation or as a fiduciary with respect to any employee benefit plan of the Corporation, or as a director, officer, partner, employee or agent of another Corporation, partnership, joint venture, trust or other for-profit or not-for-profit entity or enterprise, if such position is or was held at the request of the Corporation, whether relating to service in such position before or after the effective date of this Section, if he (i) is successful in his defense of the Claim on the merits or otherwise or (ii) has been found by the Determining Body (acting in good faith) to have met the Standard of Conduct

13

(defined below); provided that (A) the amount otherwise payable by the Corporation may be reduced by the Determining Body to such amount as it deems proper if it determines that the Claim involved the receipt of a personal benefit by Indemnitee, and (B) no indemnification shall be made in respect of any Claim as to which Indemnitee shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in the performance of his duty to the Corporation or to have obtained an improper personal benefit, unless, and only to the extent that, a court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the court deems proper.

          (b) The Standard of Conduct is met when the conduct by an Indemnitee with respect to which a Claim is asserted was conduct that was in good faith and that he reasonably believed to be in, or not opposed to, the best interest of the Corporation, and, in the case of a criminal action or proceeding, that he had no reasonable cause to believe was unlawful. The termination of any Claim by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet the Standard of Conduct.

          (c) Promptly upon becoming aware of the existence of any Claim as to which he may be indemnified hereunder, Indemnitee shall notify the President of the Corporation of the Claim and whether he intends to seek indemnification hereunder. If such notice indicates that Indemnitee does so intend, the President shall promptly advise the Board thereof and notify the Board that the establishment of the Determining Body with respect to the Claim will be a matter presented at the next regularly scheduled meeting of the Board. After the Determining Body has been established the President shall inform the Indemnitee thereof and Indemnitee shall immediately provide the Determining Body with all facts relevant to the Claim known to him. Within 60 days of the receipt of such information, together with such additional information as the Determining Body may request of Indemnitee, the Determining Body shall determine, and shall advise Indemnitee of its determination, whether Indemnitee has met the Standard of Conduct.

          (d) During such 60-day period, Indemnitee shall promptly inform the Determining Body upon his becoming aware of any relevant facts not therefore provided by him to the Determining Body, unless the Determining Body has obtained such facts by other means.

          (e) In the case of any Claim not involving a proposed, threatened or pending criminal proceeding,

               (i) if Indemnitee has, in the good faith judgment of the Determining Body, met the Standard of Conduct, the Corporation may, in its sole discretion after notice to Indemnitee, assume all responsibility for the defense of the Claim, and, in any event, the Corporation and the Indemnitee each shall keep the other informed as to the progress of the defense, including prompt disclosure of any proposals for settlement; provided that if the Corporation is a party to the Claim and Indemnitee reasonably determines that there is a conflict between the positions of the Corporation and Indemnitee with respect to the Claim, then Indemnitee shall be entitled to conduct his defense, with counsel of his choice; and provided

14

further that Indemnitee shall in any event be entitled at his expense to employ counsel chosen by him to participate in the defense of the Claim; and

               (ii) the Corporation shall fairly consider any proposals by Indemnitee for settlement of the Claim. If the Corporation (A) proposes a settlement acceptable to the person asserting the Claim, or (B) believes a settlement proposed by the person asserting the Claim should be accepted, it shall inform Indemnitee of the terms thereof and shall fix a reasonable date by which Indemnitee shall respond. If Indemnitee agrees to such terms, he shall execute such documents as shall be necessary to effect the settlement. If he does not agree he may proceed with the defense of the Claim in any manner he chooses, but if he is not successful on the merits or otherwise, the Corporation’s obligation to indemnify him for any Expenses incurred following his disagreement shall be limited to the lesser of (A) the total Expenses incurred by him following his decision not to agree to such proposed settlement or (B) the amount the Corporation would have paid pursuant to the terms of the proposed settlement. If, however, the proposed settlement would impose upon Indemnitee any requirement to act or refrain from acting that would materially interfere with the conduct of his affairs, Indemnitee may refuse such settlement and proceed with the defense of the Claim, if he so desires, at the Corporation’s expense without regard to the limitations imposed by the preceding sentence. In no event, however, shall the Corporation be obligated to indemnify Indemnitee for any amount paid in a settlement that the Corporation has not approved.

          (f) In the case of a Claim involving a proposed, threatened or pending criminal proceeding, Indemnitee shall be entitled to conduct the defense of the Claim, and to make all decisions with respect thereto, with counsel of his choice, provided, however, that the Corporation shall not be obligated to indemnify Indemnitee for an amount paid in settlement that the Corporation has not approved.

          (g) After notifying the Corporation of the existence of a Claim, Indemnitee may from time to time request the Corporation to pay the Expenses (other than judgments, fines, penalties or amounts paid in settlement) that he incurs in pursuing a defense of the Claim prior to the time that the Determining Body determines whether the Standard of Conduct has been met. If the Disbursing Officer believes the amount requested to be reasonable, he shall pay to Indemnitee the amount requested (regardless of Indemnitee’s apparent ability to repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation under the circumstances. If the Disbursing Officer does not believe such amount to be reasonable, the Corporation shall pay the amount deemed by him to be reasonable and Indemnitee may apply directly to the Determining Body for the remainder of the amount requested.

          (h) After the Determining Body has determined that the Standard of Conduct was met, for so long as and to the extent that the Corporation is required to indemnify Indemnitee under this Agreement, the provisions of Paragraph (g) shall continue to apply with respect to Expenses incurred after such time except that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing Officer shall pay to Indemnitee such amount of any fines, penalties or judgments against him which have become final as the Corporation is obligated to indemnify him.

15

          (i) Any determination by the Corporation with respect to settlements of a Claim shall be made by the Determining Body.

          (j) The Corporation and Indemnitee shall keep confidential, to the extent permitted by law and their fiduciary obligations, all facts and determinations provided or made pursuant to or arising out of the operation of this Section, and the Corporation and Indemnitee shall instruct its or his agents and employees to do likewise.

     11.3 Enforcement.

          (a) The rights provided by this Section shall be enforceable by Indemnitee in any court of competent jurisdiction.

          (b) If Indemnitee seeks a judicial adjudication of his rights under this Section Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in connection with such proceeding but only if he prevails therein. If it shall be determined that Indemnitee is entitled to receive part but not all of the relief sought, then the Indemnitee shall be entitled to be reimbursed for all Expenses incurred by him in connection with such judicial adjudication if the amount to which he is determined to be entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated.

          (c) In any judicial proceeding described in this subsection, the Corporation shall bear the burden of proving that Indemnitee is not entitled to any Expenses sought with respect to any Claim.

     11.4 Saving Clause. If any provision of this Section is determined by a court having jurisdiction over the matter to require the Corporation to do or refrain from doing any act that is in violation of applicable law, the court shall be empowered to modify or reform such provision so that, as modified or reformed, such provision provides the maximum indemnification permitted by law, and such provision, as so modified or reformed, and the balance of this Section, shall be applied in accordance with their terms. Without limiting the generality of the foregoing, if any portion of this Section shall be invalidated on any ground, the Corporation shall nevertheless indemnify an Indemnitee to the full extent permitted by any applicable portion of this Section that shall not have been invalidated and to the full extent permitted by law with respect to that portion that has been invalidated.

     11.5 Non-Exclusivity.

          (a) The indemnification and advancement of Expenses provided by or granted pursuant to this Section shall not be deemed exclusive of any other rights to which Indemnitee is or may become entitled under any statute, article of incorporation, by-law, authorization of shareholders or directors, agreement, or otherwise.

          (b) It is the intent of the Corporation by this Section to indemnify and hold harmless Indemnitee to the fullest extent permitted by law, so that if applicable law would permit the Corporation to provide broader indemnification rights than are currently permitted, the

16

Corporation shall indemnify and hold harmless Indemnitee to the fullest extent permitted by applicable law notwithstanding that the other terms of this Section would provide for lesser indemnification.

     11.6 Successors and Assigns. This Section shall be binding upon the Corporation, its successors and assigns, and shall inure to the benefit of the Indemnitee’s heirs, personal representatives, and assigns and to the benefit of the Corporation, its successors and assigns.

     11.7 Indemnification of Other Persons. The Corporation may indemnify any person not covered by Sections 11.1 through 11.6 to the extent provided in a resolution of the Board or a separate section of these By-laws.

     11.8 Contract Rights, Vesting, and Amendment or Repeal. The rights created in favor of Indemnitees by this Section 11 shall be contract rights and shall be enforceable by Indemnitees in the same manner and to the same extent as though embodied in a written contract between the Corporation and each Indemnitee. The rights of Indemnitees under this Section 11 shall be deemed to vest (or with respect to currently serving Indemnitees, to have vested) on the date when each director or officer begins (or began) to serve in that capacity and shall continue after each ceases to serve in that capacity. Such vested rights shall not be divested, diminished, or adversely affected, as to any such Indemnitee, by any amendment or repeal of this or any other Bylaw of the Corporation made after that vesting date.

SECTION XII
AMENDMENTS

     12.1 Adoption of By-laws; Amendments Thereof. By-laws of the Corporation may be adopted only by a majority vote of the Board of Directors. By-laws may be amended or repealed only by (i) a majority vote of the Board of Directors, except that any amendment to or repeal of Section 6 of these By-laws shall require an affirmative vote of at least three-quarters of the Board, or (ii) the affirmative vote of the holders of at least two-thirds of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation), voting together as a single class, that is present in person or by proxy at any regular or special meeting of shareholders, the notice of which expressly states that the proposed amendment or repeal is to be considered at the meeting.

     12.2 New By-laws; Amendments. Any purported amendment to these By-laws which would add hereto a matter not covered herein prior to such purported amendment shall be deemed to constitute the adoption of a By-law provision and not an amendment to the By-laws.

SECTION XIII
MISCELLANEOUS

     13.1 Dividends. Except as otherwise provided by law or the Articles of Incorporation, dividends upon the stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, property, or shares of stock, subject to the limitations specified in the Articles of Incorporation.

17

     13.2 Voting of Shares Owned by Corporation. Unless otherwise directed by the Board, any shares of capital stock issued by a wholly-owned subsidiary of the Corporation may be voted by the President of the Corporation at any shareholders’ meeting of the subsidiary (or in connection with any written consent in lieu thereof).

     13.3 Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Signatures of the authorized signatories may be by facsimile.

     13.4 Fiscal Year. The Board of Directors may adopt for and on behalf of the Corporation a fiscal or a calendar year.

     13.5 Seal. The Board of Directors may adopt a corporate seal, which shall have inscribed thereon the name of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Failure to affix the seal shall not, however, affect the validity of any instrument.

     13.6 Gender. All pronouns and variations thereof used in these By-laws shall be deemed to refer to the masculine, feminine or neuter gender, singular or plural, as the identity of the person, persons, entity or entities referred to may require.

     13.7 Louisiana’s Fair Price Statute. The Company expressly opts into, and accepts the benefits of, La. R.S. 12:132-134, as they may be amended from time to time.

     13.8 Control Share Acquisition Statute. The Company expressly waives the benefits of La. R.S. 12:135-140.2, as they may be amended from time to time.

18

EX-10.3

EXHIBIT 10.3

STEWART ENTERPRISES, INC.

RETENTION PLAN AND SUMMARY PLAN DESCRIPTION

     In order to encourage the continued employment of key employees of Stewart Enterprises, Inc. (the “Company”), and to alleviate concerns about any possible loss of employment upon a change of control of the Company, the Company has adopted a Retention Plan (the “Plan”) having the following terms and conditions. This document also constitutes the Plan’s Summary Plan Description, as described in Section 102 of the Employee Retirement Income Security Act of 1974 (“ERISA”).

ARTICLE 1
DEFINITIONS

     1.1 Affiliate. “Affiliate” or “affiliated companies” shall mean any company controlled by, controlling, or under common control with, the Company.

     1.2 Board. “Board” shall mean the Board of Directors of the Company.

     1.3 Cause. With respect to each Participant, “Cause” shall mean:

          (a) the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company or its Affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board of the Company which specifically identifies the manner in which the Board believes that the Participant has not substantially performed the Participant’s duties;

          (b) the willful engaging by the Participant in illegal conduct or gross misconduct;

          (c) unauthorized acts or omissions that could reasonably be expected to cause material financial harm to the Company or materially disrupt Company operations;

          (d) commission of an act of dishonesty (even if not a crime) resulting in the enrichment of the Participant at the expense of the Company; or

          (e) knowing falsification or knowing attempted falsification of financial records of the Company in violation of SEC Rule 13b2-1.

For purposes of subparagraphs (a) and (b) above, no act or failure to act, on the part of the Participant, shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Company or its Affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of a

1

senior officer of the Company or based upon the advice of counsel for the Company or its Affiliates shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company or its Affiliates.

The cessation of employment of the Participant shall not be deemed to be for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Participant and the Participant is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Participant is guilty of the conduct described in subparagraphs (a) through (e) above, and specifying the particulars thereof in detail.

     1.4 Company. As used in this Plan, “Company” shall mean the Company as defined above and any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or business of the Company.

     1.5 Change of Control. “Change of Control” shall mean:

          (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% of the outstanding shares of the Company’s Class A Common Stock, no par value per share (the “Common Stock”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control:

               (i) any acquisition of Common Stock directly from the Company,

               (ii) any acquisition of Common Stock by the Company,

               (iii) any acquisition of Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or

               (iv) any acquisition of Common Stock by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.5; or

          (b) individuals who, as of the date this Plan is executed (the “Effective Date”) constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, unless such individual’s initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Incumbent Board; or

2

          (c) consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination,

               (i) all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding common stock and the Company’s voting securities entitled to vote generally in the election of directors immediately prior to such Business Combination have direct or indirect beneficial ownership, respectively, of 50% or more of the then outstanding shares of common stock, and 50% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the corporation resulting from such Business Combination (which, for purposes of this paragraph (i) and paragraphs (ii) and (iii), shall include a corporation which as a result of such transaction controls the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), and

               (ii) except to the extent that such ownership existed prior to the Business Combination, no person (excluding any corporation resulting from such Business Combination or any employee benefit plan or related trust of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or 20% or more of the combined voting power of the then outstanding voting securities of such corporation, and

               (iii) at least 50% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

          (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     1.6 Disability. “Disability” shall mean a condition that would entitle the Participant to receive benefits under the Company’s long-term disability insurance policy in effect at the time either because he or she is Totally Disabled or Partially Disabled, as such terms are defined in the Company’s policy in effect as of the Effective Date or as similar terms are defined in any successor policy. If the Company has no long-term disability plan in effect, “Disability” shall occur if (a) the Participant is rendered incapable because of physical or mental illness of satisfactorily discharging his or her duties and responsibilities to the Company for a period of 90 consecutive days, (b) a duly qualified physician chosen by the Company and acceptable to the Participant or his legal representatives so certifies in writing, and (c) the Board determines that the Participant has become disabled.

     1.7 Good Reason. “Good Reason” shall mean any action or inaction during the Employment Term that constitutes a material negative change in the service relationship between the Participant and the Company and a material breach by the Company of its obligations under the terms of this Plan, provided that, the Participant shall have provided written notice to the Company within 90 days of the initial existence of the condition described in this Section 1.7 and

3

such event or condition continues uncured for a period of 30 days after written notice thereof is given by the Participant to the Company. A termination by a Participant with Good Reason shall constitute an involuntary termination for purposes of Section 409A of the Internal Revenue Code of 1986, as amended.

     1.8 Participant. “Participant” shall mean those key employees of the Company who hold the positions listed on Schedule 1 hereto. Notwithstanding the provisions of this Section 1.8, any Participant entitled to receive benefits from the Company upon a Change of Control pursuant to the terms of an employment or change of control agreement between the Participant and the Company that are greater than those provided by this Plan shall not be a Participant in the Plan, and shall not be entitled to benefits under this Plan. Schedule 1 may be amended by the Compensation Committee of the Board from time to time in its sole discretion; except that no Participant can be removed from the Plan upon or after a Change of Control.

ARTICLE 2
CHANGE OF CONTROL BENEFIT

     2.1 Employment Term and Capacity after Change of Control. (a) If a Change of Control occurs at a time that the Participant continues to be employed by the Company or a subsidiary, then the Participant’s employment shall continue on the terms provided in Sections 2.1 and 2.2 hereof through the first anniversary of the Change of Control, such one year period being referred to herein as the “Employment Term.” Upon any earlier termination of the Participant’s status as an employee by the Company without Cause or by the Participant for Good Reason during the Employment Term, the Participant shall be entitled to the payment and benefits provided in Section 2.3 hereof.

          (b) After a Change of Control and during the Employment Term, (i) the Participant’s position, authority, duties and responsibilities shall be at least comparable in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Change of Control and (ii) the Participant’s service shall be performed during normal business hours at the location where the Participant was employed immediately preceding the Change of Control or any office or location less than 40 miles from such location.

     2.2 Compensation and Benefits. During the Employment Term, the Participant shall be entitled to the following compensation and benefits:

          (a) Base Salary. The Participant shall receive an annual base salary (“Base Salary”), which shall be paid at a monthly, semi-monthly or bi-weekly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred by the Participant, by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Change of Control occurs. During the Employment Term, the Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Participant prior to the Change of Control and shall be increased no more than 12 months after the last salary increase awarded to the Participant prior to the Change of Control in an amount equal to the percentage increase (excluding promotional increases) in base salary generally awarded to peer employees of the Company and its affiliated

4

companies for the year of determination. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Participant under this Plan. Base Salary shall not be reduced after any such increase and the term Base Salary as utilized in this Plan shall refer to Base Salary as so increased.

          (b) Annual Bonus. In addition to Base Salary, the Participant shall be awarded, for the fiscal year ending during the Employment Term, an annual bonus (the “Bonus”) in cash at least equal to (i) the average Bonus paid to the Participant for the last three completed fiscal years prior to the Change of Control, (ii) the average Bonus paid for the last two completed fiscal years prior to the Change of Control, if the Participant has participated in a Company Bonus plan only for the last two fiscal years, or (iii) the actual Bonus paid for the last completed fiscal year prior to the Change of Control, if the Participant has participated in a Company Bonus plan only for the last completed fiscal year. Notwithstanding the foregoing, in calculating the minimum Bonus payment under this section 2.2(b), a Bonus amount for a prior fiscal year that was reduced pro rata because the Participant was not a participant in a Company Bonus plan for a full year shall be annualized. If a Participant did not participate in a Company Bonus plan in a prior fiscal year, the Participant shall be awarded for the fiscal year ending during the Employment Term a Bonus in cash at least equal to the target Bonus to which the Participant is entitled for such fiscal year. Each such Bonus shall be paid no later than 2¹/2 months following the end of the fiscal year for which the Bonus is awarded, unless the Participant shall have elected to defer the receipt of such Bonus in accordance with procedures established by the Company.

          (c) Fringe Benefits. The Participant shall be entitled to fringe benefits in accordance with the most favorable agreements, plans, practices, programs and policies of the Company and its affiliated companies in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

          (d) Expenses. The Participant shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Participant in accordance with the most favorable agreements, policies, practices and procedures of the Company and its affiliated companies in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

          (e) Incentive, Savings and Retirement Plans. The Participant shall be entitled to participate in all equity incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Participant with equity grants (measured with respect to both regular and special equity incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable than the most favorable of those provided by the Company and its affiliated companies for the Participant under any agreements, plans, practices, policies and programs as in effect at any time during the 120-day period

5

immediately preceding the Change of Control or, if more favorable to the Participant, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies.

          (f) Welfare Benefit Plans. The Participant and/or the Participant’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Participant with benefits, in each case, less favorable than the most favorable of any agreements, plans, practices, policies and programs in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies.

          (g) Vacation. The Participant shall be entitled to paid vacation in accordance with the most favorable agreements, plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

     2.3 Obligations upon Termination after a Change of Control.

          (a) Termination by Company for Reasons other than Death, Disability or Cause or by Participant for Good Reason. If, after a Change of Control and during the Employment Term, the Company terminates the Participant’s employment other than for Cause, death or Disability, or the Participant terminates employment for Good Reason,

               (i) the Company shall pay to the Participant in a lump sum in cash within 30 days after the date of termination an amount equal to the sum of (x) the amount of Base Salary in effect at the date of termination, plus (y), an amount equal to (i) the average Bonus paid to the Participant for the last three completed fiscal years, (ii) the average Bonus paid for the last two completed fiscal years, if the Participant has participated in a Company Bonus plan only for the last two fiscal years, or (iii) the actual Bonus paid for the last completed fiscal year, if the Participant has participated in a Company Bonus plan only for the last completed fiscal year. Notwithstanding the foregoing, in calculating the Bonus payment under this section 2.3(a)(i), a Bonus amount for a prior fiscal year that was reduced pro rata because the Participant was not a participant in a Company Bonus plan for a full year shall be annualized. If a Participant did not participate in a Company Bonus plan in a prior fiscal year, the Participant shall be entitled to a Bonus payment under this Section 2.3(a)(i) equal to the target Bonus to which the Participant was entitled for the fiscal year during which termination occurred; and

               (ii) for a period of twelve (12) months following the date of termination of employment (the “Continuation Period”), the Company shall continue on behalf

6

of the Participant and his or her dependents and beneficiaries the medical, dental and hospitalization benefits provided (x) to the Participant at any time during the 90-day period prior to the Change of Control or (y) to other similarly situated employees who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 2.3(a)(ii) during the Continuation Period shall be no less favorable to the Participant and his or her dependents and beneficiaries, than the most favorable of such coverages and benefits (including deductibles and percentage of cost paid by the Participant) during any of the periods referred to in clauses (x) or (y) above. The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Participant obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Participant hereunder as long as the aggregate coverages and benefits of the combined benefit plans are no less favorable to the Participant than the coverages and benefits required to be provided hereunder. The coverage during the Continuation Period will run concurrently with the coverage provided under the Consolidated Omnibus Budget Reconciliation Act.

          (b) Death. If, after a Change of Control and during the Employment Term, the Participant’s status as an employee is terminated by reason of the Participant’s death, there shall be no further obligation under this Plan to the Participant’s legal representatives (other than those already accrued to the Participant), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies.

          (c) Disability. If, after a Change of Control and during the Employment Term, Participant’s status as an employee is terminated by reason of Participant’s Disability, there shall be no further obligation under this Plan to the Participant (other than those already accrued to the Participant), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies.

          (d) Cause. If, after a Change of Control and during the Employment Term, the Participant’s status as an employee is terminated by the Company for Cause, there shall be no further obligation under this Plan to the Participant other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company or its affiliated companies.

          (e) Voluntary Termination. If, after a Change of Control and during the Employment Term, the Participant voluntarily terminates his or her employment with the Company other than for Good Reason, there shall be no further obligation under this Plan to the Participant other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company or its affiliated companies.

     2.4 Accrued Obligations and Other Benefits. It is the intent of this Plan that upon termination of employment for any reason the Participant be entitled to receive promptly, and in addition to any other benefits specifically provided, (a) the Participant’s Base Salary through the date of termination to the extent not theretofore paid, (b) any accrued vacation pay, to the extent not theretofore paid, and (c) any other amounts or benefits required to be paid or provided or which the Participant is entitled to receive under any plan, program, policy practice or agreement of the Company or by law.

7

     2.5 Stock Options and Restricted Stock. The foregoing benefits are intended to be in addition to the value of any options to acquire Common Stock of the Company the exercisability of which is accelerated or shares of restricted stock or restricted stock units the vesting of which is accelerated pursuant to the terms of any stock incentive or other similar plan heretofore or hereafter adopted by the Company.

     2.6 Legal Fees. Should a Participant prevail in any cause of action, suit, arbitration or other legal proceeding, which proceeding was initiated in whole or in part to enforce the provisions of the Plan, the Company shall reimburse the Participant for all costs, including reasonable attorneys’ fees, incurred by the Participant in connection with such cause of action, suit, arbitration or other legal proceeding.

     2.7 Set-Off; Mitigation. After a Change of Control, the Company’s and its Affiliates’ obligations to make the payments provided for in this Plan and otherwise to perform their obligations hereunder shall not be affected by any set-off for compensation from new employment or otherwise, counterclaim, recoupment, defense or other claim, right or action which the Company or its Affiliates may have against the Participant or others; except that to the extent the Participant accepts other employment in connection with which he or she is provided medical, dental or hospitalization benefits, the Company shall only be required to provide such benefits as described in Section 2.3 (a)(ii). It is the intent of this Plan that in no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan.

ARTICLE 3
MISCELLANEOUS

     3.1 Successors. (a) The Company shall require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or businesses of the Company in writing (i) assume unconditionally and expressly this Plan and (ii) agree to perform or to cause to be performed all of the obligations under this Plan in the same manner and to the same extent as would have been required of the Company had no assignment or succession occurred.

          (b) The Company shall also require all entities that control or that after the transaction will control (directly or indirectly) the Company or any such successor or assignee to agree in writing to cause to be performed all of the obligations under this Plan.

     3.2 Funding. The Plan is funded solely through general assets of the Company or of any successor or assignee and no employee contributions are taken nor are any funds held in trust.

     3.3 Plan Amendment or Termination. The Company reserves the right to amend or terminate this Plan at any time and without advance notice. An amendment shall be made in writing, executed by an officer of the Company, as authorized by the Compensation Committee of the Company’s Board of Directors. No benefits will be paid to anyone whose employment is terminated after the Plan is terminated or amended to exclude that Participant. Notwithstanding

8

the foregoing, no amendment or termination of the Plan may be made following a Change of Control unless approved in writing by 80% of the Participants.

     3.4 Applicable Laws. The Plan shall be governed by the laws of the State of Louisiana to the extent not preempted by ERISA.

     3.5 Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of Stewart Enterprises, Inc. (the “Plan Administrator”). The Plan Administrator’s address is: 1333 South Clearview Parkway, Jefferson, Louisiana 70121. The Plan Administrator shall have the exclusive right to interpret the Plan and all such interpretations shall be binding on all affected parties. The Stewart Enterprises, Inc. Retention Plan document is a legal document that controls the operation of the Plan. Its provisions cover all situations relating to benefits and its provisions will be final authority. The ERISA Plan Number is 505. The Company’s Employer Identification Number is 72-0693290.

     3.6 Company’s Reservation of Rights. A Participant is employed at the pleasure of the Company and the Company has the right at any time to terminate the Participant’s status as an employee of the Company, to change or diminish his or her status during the Employment Term, subject to the rights of the Participant hereunder, and to add to or remove positions from the list of Participants set forth on Schedule 1. Only employees of the Company or its affiliated companies listed on Schedule 1 at the time of a Change of Control shall be entitled to claim the benefits conferred on Participants by the Plan.

     3.7 Type of Plan. This Plan is intended to be a severance welfare benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”). In no event shall benefits payable to any Participant under this Plan exceed twice the Participant’s “Annual Compensation” (as defined in ERISA regulation §2510.3-2(b)(2)) during the year immediately preceding the year of termination.

     3.8 Section 409A. The benefits provided under this Plan are intended to satisfy the exception from Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder applicable to short-term deferrals and shall be construed accordingly.

ARTICLE 4
CLAIMS FOR BENEFITS

     4.1 Claims Procedure. Claims for benefits may be made to the Plan Administrator at the above address. Payments of the amounts provided in this Plan shall ordinarily be made without the need for demand at the discretion of the Company. Nevertheless, a Participant who claims entitlement to a benefit can file a written claim for benefits with the Plan Administrator within 90 days after the Participant’s employment is terminated. The Plan Administrator shall accept or reject the claim within 30 days of its receipt. If the claim is denied, the Plan Administrator shall give the reason for denial in a written notice in plain English so as to be understood by the claimant, referring to the Plan provisions that provide the basis for the denial. If any additional information or material is necessary to perfect the claim, the Plan Administrator shall identify these items and explain why such additional material is necessary.

9

     4.2 Claim Denial and Appeal. Upon denial of the claim, the claimant may file a written request for review of the denied claim to the Plan Administrator within 60 days of the denial. The claimant shall have the opportunity to be represented by counsel and may request to be heard at a hearing. The claimant shall have the opportunity to review the pertinent documents and the opportunity to submit written reasons opposing the denial. The decision upon the appeal will be made within 60 days of receipt of the requested review unless special circumstances (such as a need to hold a hearing) require an extension of time for processing, in which case a decision will be made as soon as possible, but no later than 120 days after receipt of a request for review. If such extension of time for review is required, because of special circumstances, written notice of the extension will be furnished to the claimant prior to the commencement of the extension. If the appeal is denied, the denial shall be in writing.

ARTICLE 5
ERISA RIGHTS

     Participants are entitled to certain rights and protections under ERISA and regulations and rulings issued thereunder. Some of the benefits provided by the Plan may be subject to ERISA. ERISA provides that Participants shall be entitled to:

     Receive information about Plan and benefits. Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as work sites, all Plan documents, and a copy of the latest annual report (Form 5500 Series), available at the Public Disclosure Room of the Employee Benefits Security Administration, if such report is required to be filed.

     Obtain copies of all Plan documents and other plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. (This document is the only Plan document and Summary Plan Description.)

     Prudent actions by Plan fiduciaries. In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of Participants. No one, including the Company or any other person, may terminate a Participant’s employment or otherwise discriminate against a Participant in any way to prevent the Participant from obtaining a welfare benefit or exercising his or her rights under ERISA.

     Enforce rights. If a claim for a benefit is denied or ignored, in whole or in part, the Participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

     Under ERISA, there are steps Participants can take to enforce the above rights. For instance, if a Participant requests a copy of Plan documents or the latest annual report from the Plan and does not receive them within 30 days, the Participant may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the Participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If the Participant has a claim for benefits which is denied or ignored, in whole or in part, the Participant may file suit in a Federal

10

court. If it should happen that Plan fiduciaries misuse plan assets, or if the Participant is discriminated against for asserting his or her rights, the Participant may seek assistance from the U.S. Department of Labor, or the Participant may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If the Participant is successful the court may order the person he or she has sued to pay these costs and fees. If the Participant loses, the court may order the Participant to pay these costs and fees, for example, if it finds the claim is frivolous.

     Assistance with questions. If the Participant has any questions about this Plan, he or she should contact the Plan Administrator. If the Participant has any questions about this statement or about his or her rights under ERISA, or if he or she needs assistance in obtaining documents from the Plan Administrator, he or she should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. The Participant may also obtain certain publications about his or her rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

11

     This Plan was executed in Jefferson, Louisiana, this 18th day of June, 2008.

WITNESSES:	STEWART ENTERPRISES, INC.
	By:
Name:	Name:
	Title:
Name:

12

EX-10.4

EXHIBIT 10.4

AMENDED AND RESTATED
STEWART ENTERPRISES, INC.
RETENTION PLAN AND SUMMARY PLAN DESCRIPTION

     In order to encourage the continued employment of key employees of Stewart Enterprises, Inc. (the “Company”), and to alleviate concerns about any possible loss of employment upon a change of control of the Company, the Company has adopted a Retention Plan (the “Plan”) having the following terms and conditions. This document also constitutes the Plan’s Summary Plan Description, as described in Section 102 of the Employee Retirement Income Security Act of 1974 (“ERISA”).

ARTICLE 1
DEFINITIONS

     1.1 Affiliate. “Affiliate” or “affiliated companies” shall mean any company controlled by, controlling, or under common control with, the Company.

     1.2 Board. “Board” shall mean the Board of Directors of the Company.

     1.3 Cause. With respect to each Participant, “Cause” shall mean:

          (a) the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company or its Affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board of the Company which specifically identifies the manner in which the Board believes that the Participant has not substantially performed the Participant’s duties;

          (b) the willful engaging by the Participant in illegal conduct or gross misconduct;

          (c) unauthorized acts or omissions that could reasonably be expected to cause material financial harm to the Company or materially disrupt Company operations;

          (d) commission of an act of dishonesty (even if not a crime) resulting in the enrichment of the Participant at the expense of the Company; or

          (e) knowing falsification or knowing attempted falsification of financial records of the Company in violation of SEC Rule 13b2-1.

For purposes of subparagraphs (a) and (b) above, no act or failure to act, on the part of the Participant, shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Company or its Affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of a senior officer of the Company or based upon the advice of counsel for the Company or its Affiliates shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company or its Affiliates.

1

The cessation of employment of the Participant shall not be deemed to be for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Participant and the Participant is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Participant is guilty of the conduct described in subparagraphs (a) through (e) above, and specifying the particulars thereof in detail.

     1.4 Company. As used in this Plan, “Company” shall mean the Company as defined above and any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or business of the Company.

     1.5 Change of Control. “Change of Control” shall mean:

          (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% of the outstanding shares of the Company’s Class A Common Stock, no par value per share (the “Common Stock”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control:

               (i) any acquisition of Common Stock directly from the Company,

               (ii) any acquisition of Common Stock by the Company,

               (iii) any acquisition of Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or

               (iv) any acquisition of Common Stock by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.5; or

          (b) individuals who, as of the date this Plan is executed (the “Effective Date”) constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, unless such individual’s initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Incumbent Board; or

          (c) consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination,

               (i) all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding common stock and the Company’s voting securities entitled to vote generally in the election of directors immediately prior to such Business Combination have direct or indirect beneficial ownership, respectively, of 50% or more

2

of the then outstanding shares of common stock, and 50% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the corporation resulting from such Business Combination (which, for purposes of this paragraph (i) and paragraphs (ii) and (iii), shall include a corporation which as a result of such transaction controls the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), and

               (ii) except to the extent that such ownership existed prior to the Business Combination, no person (excluding any corporation resulting from such Business Combination or any employee benefit plan or related trust of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or 20% or more of the combined voting power of the then outstanding voting securities of such corporation, and

               (iii) at least 50% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

          (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     1.6 Disability. “Disability” shall mean a condition that would entitle the Participant to receive benefits under the Company’s long-term disability insurance policy in effect at the time either because he or she is Totally Disabled or Partially Disabled, as such terms are defined in the Company’s policy in effect as of the Effective Date or as similar terms are defined in any successor policy. If the Company has no long-term disability plan in effect, “Disability” shall occur if (a) the Participant is rendered incapable because of physical or mental illness of satisfactorily discharging his or her duties and responsibilities to the Company for a period of 90 consecutive days, (b) a duly qualified physician chosen by the Company and acceptable to the Participant or his legal representatives so certifies in writing, and (c) the Board determines that the Participant has become disabled.

     1.7 Good Reason. “Good Reason” shall mean any action or inaction during the Employment Term that constitutes a material negative change in the service relationship between the Participant and the Company and a material breach by the Company of its obligations under the terms of this Plan, provided that, the Participant shall have provided written notice to the Company within 90 days of the initial existence of the condition described in this Section 1.7 and such event or condition continues uncured for a period of 30 days after written notice thereof is given by the Participant to the Company. A termination by a Participant with Good Reason shall constitute an involuntary termination for purposes of Section 409A of the Internal Revenue Code of 1986, as amended.

     1.8 Participant. “Participant” shall mean those key employees of the Company who hold the positions listed on Schedule 1 hereto. Notwithstanding the provisions of this Section 1.8, any Participant entitled to receive benefits from the Company upon a Change of Control pursuant to the terms of an employment or change of control agreement between the Participant and the Company that are greater than those provided by this Plan shall not be a Participant in the Plan, and shall not be entitled to benefits under this Plan. Schedule 1 may be amended by the

3

Compensation Committee of the Board from time to time in its sole discretion; except that no Participant can be removed from the Plan upon or after a Change of Control.

ARTICLE 2
CHANGE OF CONTROL BENEFIT

     2.1 Employment Term and Capacity after Change of Control. (a) If a Change of Control occurs at a time that the Participant continues to be employed by the Company or a subsidiary, then the Participant’s employment shall continue on the terms provided in Sections 2.1 and 2.2 hereof through the first anniversary of the Change of Control, such one year period being referred to herein as the “Employment Term.” Upon any earlier termination of the Participant’s status as an employee by the Company without Cause or by the Participant for Good Reason during the Employment Term, the Participant shall be entitled to the payment and benefits provided in Section 2.3 hereof.

          (b) After a Change of Control and during the Employment Term, (i) the Participant’s position, authority, duties and responsibilities shall be at least comparable in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Change of Control and (ii) the Participant’s service shall be performed during normal business hours at the location where the Participant was employed immediately preceding the Change of Control or any office or location less than 40 miles from such location.

     2.2 Compensation and Benefits. During the Employment Term, the Participant shall be entitled to the following compensation and benefits:

          (a) Base Salary. The Participant (other than a Participant who is a sales employee) shall receive an annual base salary (“Base Salary”), which shall be paid at a monthly, semi-monthly or bi-weekly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred by the Participant, by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Change of Control occurs. During the Employment Term, the Base Salary of a Participant who is not a sales employee shall be reviewed no more than 12 months after the last salary increase awarded to the Participant prior to the Change of Control and shall be increased no more than 12 months after the last salary increase awarded to the Participant prior to the Change of Control in an amount equal to the percentage increase (excluding promotional increases) in base salary generally awarded to peer employees of the Company and its affiliated companies for the year of determination. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Participant under this Plan. Base Salary of a Participant who is not a sales employee shall not be reduced after any such increase and the term Base Salary as utilized in this Plan shall refer to Base Salary as so increased.

          (b) Annual Bonus. In addition to Base Salary, a Participant (other than a Participant who is a sales employee) shall be awarded, for the fiscal year ending during the Employment Term, an annual bonus (the “Bonus”) in cash at least equal to (i) the average Bonus paid to the Participant for the last three completed fiscal years prior to the Change of Control, (ii) the average Bonus paid for the last two completed fiscal years prior to the Change of Control, if the Participant has participated in a Company Bonus plan only for the last two fiscal years, or (iii) the actual Bonus paid for the last completed fiscal year prior to the Change of Control, if the Participant has participated in a Company Bonus plan only for the last completed fiscal year.

4

Notwithstanding the foregoing, in calculating the minimum Bonus payment under this section 2.2(b), a Bonus amount for a prior fiscal year that was reduced pro rata because the Participant was not a participant in a Company Bonus plan for a full year shall be annualized. If a Participant did not participate in a Company Bonus plan in a prior fiscal year, the Participant shall be awarded for the fiscal year ending during the Employment Term a Bonus in cash at least equal to the target Bonus to which the Participant is entitled for such fiscal year. Each such Bonus shall be paid no later than 2¹/2 months following the end of the fiscal year for which the Bonus is awarded, unless the Participant shall have elected to defer the receipt of such Bonus in accordance with procedures established by the Company.

          (c) Fringe Benefits. The Participant shall be entitled to fringe benefits in accordance with the most favorable agreements, plans, practices, programs and policies of the Company and its affiliated companies in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

          (d) Expenses. The Participant shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Participant in accordance with the most favorable agreements, policies, practices and procedures of the Company and its affiliated companies in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

          (e) Incentive, Savings and Retirement Plans. The Participant shall be entitled to participate in all equity incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Participant with equity grants (measured with respect to both regular and special equity incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable than the most favorable of those provided by the Company and its affiliated companies for the Participant under any agreements, plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies.

          (f) Welfare Benefit Plans. The Participant and/or the Participant’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Participant with benefits, in each case, less favorable than the most favorable of any agreements, plans, practices, policies and programs in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies.

5

          (g) Vacation. The Participant shall be entitled to paid vacation in accordance with the most favorable agreements, plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies.

     2.3 Obligations upon Termination after a Change of Control.

          (a) Termination by Company for Reasons other than Death, Disability or Cause or by Participant for Good Reason. If, after a Change of Control and during the Employment Term, the Company terminates the Participant’s employment other than for Cause, death or Disability, or the Participant terminates employment for Good Reason,

               (i) the Company shall pay to any Participant (other than a Participant who is a sales employee) in a lump sum in cash within 30 days after the date of termination an amount equal to the sum of (x) the amount of Base Salary in effect at the date of termination, plus (y), an amount equal to (i) the average Bonus paid to the Participant for the last three completed fiscal years, (ii) the average Bonus paid for the last two completed fiscal years, if the Participant has participated in a Company Bonus plan only for the last two fiscal years, or (iii) the actual Bonus paid for the last completed fiscal year, if the Participant has participated in a Company Bonus plan only for the last completed fiscal year. Notwithstanding the foregoing, in calculating the Bonus payment under this section 2.3(a)(i), a Bonus amount for a prior fiscal year that was reduced pro rata because the Participant was not a participant in a Company Bonus plan for a full year shall be annualized. If a Participant did not participate in a Company Bonus plan in a prior fiscal year, the Participant (other than a Participant who is a sales employee) shall be entitled to a Bonus payment under this Section 2.3(a)(i) equal to the target Bonus to which the Participant was entitled for the fiscal year during which termination occurred; or

               (ii) the Company shall pay to any Participant who is a sales employee in a lump sum in cash within 30 days after the date of termination an amount equal to twelve times the Participant’s average monthly earnings, with the average monthly earnings to be determined based on the 36 full calendar months immediately preceding the date of termination. If the sales employee was not employed by the Company for the full 36 months, then the average will be based on the full calendar months that the sales employee was employed by the Company.

               (iii) for a period of twelve (12) months following the date of termination of employment (the “Continuation Period”), the Company shall continue on behalf of the Participant and his or her dependents and beneficiaries the medical, dental and hospitalization benefits provided (x) to the Participant at any time during the 90-day period prior to the Change of Control or (y) to other similarly situated employees who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 2.3(a)(iii) during the Continuation Period shall be no less favorable to the Participant and his or her dependents and beneficiaries, than the most favorable of such coverages and benefits (including deductibles and percentage of cost paid by the Participant) during any of the periods referred to in clauses (x) or (y) above. The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Participant obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the

6

Participant hereunder as long as the aggregate coverages and benefits of the combined benefit plans are no less favorable to the Participant than the coverages and benefits required to be provided hereunder. The coverage during the Continuation Period will run concurrently with the coverage provided under the Consolidated Omnibus Budget Reconciliation Act.

          (b) Death. If, after a Change of Control and during the Employment Term, the Participant’s status as an employee is terminated by reason of the Participant’s death, there shall be no further obligation under this Plan to the Participant’s legal representatives (other than those already accrued to the Participant), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies.

          (c) Disability. If, after a Change of Control and during the Employment Term, Participant’s status as an employee is terminated by reason of Participant’s Disability, there shall be no further obligation under this Plan to the Participant (other than those already accrued to the Participant), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies.

          (d) Cause. If, after a Change of Control and during the Employment Term, the Participant’s status as an employee is terminated by the Company for Cause, there shall be no further obligation under this Plan to the Participant other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company or its affiliated companies.

          (e) Voluntary Termination. If, after a Change of Control and during the Employment Term, the Participant voluntarily terminates his or her employment with the Company other than for Good Reason, there shall be no further obligation under this Plan to the Participant other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company or its affiliated companies.

     2.4 Accrued Obligations and Other Benefits. It is the intent of this Plan that upon termination of employment for any reason the Participant be entitled to receive promptly, and in addition to any other benefits specifically provided, (a) the Participant’s Base Salary through the date of termination to the extent not theretofore paid, (b) any accrued vacation pay, to the extent not theretofore paid, and (c) any other amounts or benefits required to be paid or provided or which the Participant is entitled to receive under any plan, program, policy practice or agreement of the Company or by law.

     2.5 Stock Options and Restricted Stock. The foregoing benefits are intended to be in addition to the value of any options to acquire Common Stock of the Company the exercisability of which is accelerated or shares of restricted stock or restricted stock units the vesting of which is accelerated pursuant to the terms of any stock incentive or other similar plan heretofore or hereafter adopted by the Company.

     2.6 Legal Fees. Should a Participant prevail in any cause of action, suit, arbitration or other legal proceeding, which proceeding was initiated in whole or in part to enforce the provisions of the Plan, the Company shall reimburse the Participant for all costs, including reasonable attorneys’ fees, incurred by the Participant in connection with such cause of action, suit, arbitration or other legal proceeding.

     2.7 Set-Off; Mitigation. After a Change of Control, the Company’s and its Affiliates’ obligations to make the payments provided for in this Plan and otherwise to perform

7

their obligations hereunder shall not be affected by any set-off for compensation from new employment or otherwise, counterclaim, recoupment, defense or other claim, right or action which the Company or its Affiliates may have against the Participant or others; except that to the extent the Participant accepts other employment in connection with which he or she is provided medical, dental or hospitalization benefits, the Company shall only be required to provide such benefits as described in Section 2.3 (a)(ii). It is the intent of this Plan that in no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan.

ARTICLE 3
MISCELLANEOUS

     3.1 Successors. (a) The Company shall require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or businesses of the Company in writing (i) assume unconditionally and expressly this Plan and (ii) agree to perform or to cause to be performed all of the obligations under this Plan in the same manner and to the same extent as would have been required of the Company had no assignment or succession occurred.

          (b) The Company shall also require all entities that control or that after the transaction will control (directly or indirectly) the Company or any such successor or assignee to agree in writing to cause to be performed all of the obligations under this Plan.

     3.2 Funding. The Plan is funded solely through general assets of the Company or of any successor or assignee and no employee contributions are taken nor are any funds held in trust.

     3.3 Plan Amendment or Termination. The Company reserves the right to amend or terminate this Plan at any time and without advance notice. An amendment shall be made in writing, executed by an officer of the Company, as authorized by the Compensation Committee of the Company’s Board of Directors. No benefits will be paid to anyone whose employment is terminated after the Plan is terminated or amended to exclude that Participant. Notwithstanding the foregoing, no amendment or termination of the Plan may be made following a Change of Control unless approved in writing by 80% of the Participants.

     3.4 Applicable Laws. The Plan shall be governed by the laws of the State of Louisiana to the extent not preempted by ERISA.

     3.5 Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of Stewart Enterprises, Inc. (the “Plan Administrator”). The Plan Administrator’s address is: 1333 South Clearview Parkway, Jefferson, Louisiana 70121. The Plan Administrator shall have the exclusive right to interpret the Plan and all such interpretations shall be binding on all affected parties. The Stewart Enterprises, Inc. Retention Plan document is a legal document that controls the operation of the Plan. Its provisions cover all situations relating to benefits and its provisions will be final authority. The ERISA Plan Number is 505. The Company’s Employer Identification Number is 72-0693290.

     3.6 Company’s Reservation of Rights. A Participant is employed at the pleasure of the Company and the Company has the right at any time to terminate the Participant’s status as an employee of the Company, to change or diminish his or her status during the Employment

8

Term, subject to the rights of the Participant hereunder, and to add to or remove positions from the list of Participants set forth on Schedule 1. Only employees of the Company or its affiliated companies listed on Schedule 1 at the time of a Change of Control shall be entitled to claim the benefits conferred on Participants by the Plan.

     3.7 Type of Plan. This Plan is intended to be a severance welfare benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”). In no event shall benefits payable to any Participant under this Plan exceed twice the Participant’s “Annual Compensation” (as defined in ERISA regulation §2510.3-2(b)(2)) during the year immediately preceding the year of termination.

     3.8 Section 409A. The benefits provided under this Plan are intended to satisfy the exception from Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder applicable to short-term deferrals and shall be construed accordingly.

ARTICLE 4
CLAIMS FOR BENEFITS

     4.1 Claims Procedure. Claims for benefits may be made to the Plan Administrator at the above address. Payments of the amounts provided in this Plan shall ordinarily be made without the need for demand at the discretion of the Company. Nevertheless, a Participant who claims entitlement to a benefit can file a written claim for benefits with the Plan Administrator within 90 days after the Participant’s employment is terminated. The Plan Administrator shall accept or reject the claim within 30 days of its receipt. If the claim is denied, the Plan Administrator shall give the reason for denial in a written notice in plain English so as to be understood by the claimant, referring to the Plan provisions that provide the basis for the denial. If any additional information or material is necessary to perfect the claim, the Plan Administrator shall identify these items and explain why such additional material is necessary.

     4.2 Claim Denial and Appeal. Upon denial of the claim, the claimant may file a written request for review of the denied claim to the Plan Administrator within 60 days of the denial. The claimant shall have the opportunity to be represented by counsel and may request to be heard at a hearing. The claimant shall have the opportunity to review the pertinent documents and the opportunity to submit written reasons opposing the denial. The decision upon the appeal will be made within 60 days of receipt of the requested review unless special circumstances (such as a need to hold a hearing) require an extension of time for processing, in which case a decision will be made as soon as possible, but no later than 120 days after receipt of a request for review. If such extension of time for review is required, because of special circumstances, written notice of the extension will be furnished to the claimant prior to the commencement of the extension. If the appeal is denied, the denial shall be in writing.

ARTICLE 5
ERISA RIGHTS

     Participants are entitled to certain rights and protections under ERISA and regulations and rulings issued thereunder. Some of the benefits provided by the Plan may be subject to ERISA. ERISA provides that Participants shall be entitled to:

     Receive information about Plan and benefits. Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as work sites, all Plan documents,

9

and a copy of the latest annual report (Form 5500 Series), available at the Public Disclosure Room of the Employee Benefits Security Administration, if such report is required to be filed.

     Obtain copies of all Plan documents and other plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. (This document is the only Plan document and Summary Plan Description.)

     Prudent actions by Plan fiduciaries. In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of Participants. No one, including the Company or any other person, may terminate a Participant’s employment or otherwise discriminate against a Participant in any way to prevent the Participant from obtaining a welfare benefit or exercising his or her rights under ERISA.

     Enforce rights. If a claim for a benefit is denied or ignored, in whole or in part, the Participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

     Under ERISA, there are steps Participants can take to enforce the above rights. For instance, if a Participant requests a copy of Plan documents or the latest annual report from the Plan and does not receive them within 30 days, the Participant may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the Participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If the Participant has a claim for benefits which is denied or ignored, in whole or in part, the Participant may file suit in a Federal court. If it should happen that Plan fiduciaries misuse plan assets, or if the Participant is discriminated against for asserting his or her rights, the Participant may seek assistance from the U.S. Department of Labor, or the Participant may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If the Participant is successful the court may order the person he or she has sued to pay these costs and fees. If the Participant loses, the court may order the Participant to pay these costs and fees, for example, if it finds the claim is frivolous.

     Assistance with questions. If the Participant has any questions about this Plan, he or she should contact the Plan Administrator. If the Participant has any questions about this statement or about his or her rights under ERISA, or if he or she needs assistance in obtaining documents from the Plan Administrator, he or she should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. The Participant may also obtain certain publications about his or her rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

10

     This Plan was executed in Jefferson, Louisiana, this 1st day of August, 2008.

WITNESSES:	STEWART ENTERPRISES, INC.
	By:
Name:	Name:
	Title:
Name:

11

EX-10.5

Exhibit 10.5

FIRST AMENDMENT
TO
STEWART ENTERPRISES, INC.
INDEMNITY AGREEMENT

     This agreement, made and entered into this ___ day of                     , 2008, by and between Stewart Enterprises, Inc. (the “Corporation”) and                                          (“Indemnitee”).

     WITNESSETH THAT:

     WHEREAS, the Corporation and Indemnitee entered into an agreement entitled Indemnity Agreement, dated as of                     , 200___ (the “Agreement”), and

     WHEREAS, the Corporation and Indemnitee desire to amend the Agreement in certain respects,

     NOW THEREFORE, the parties hereby agree as follows:

     1. The Agreement shall be, and it is hereby, amended effective immediately as follows.

(a) Section 4(b) of the Agreement is amended to read as follows:

(b) The Corporation shall not be required to purchase and maintain the Insurance Policy or any comparable policy if directors and officers liability insurance is not reasonably available.

(b) The Agreement is amended by adding a new Section 8A, immediately following Section 8, reading as follows:

8A. Vesting and Amendment or Repeal. The rights of Indemnitee under this Agreement shall be deemed to vest on the date when Indemnitee began or begins to serve as an officer or a director and shall continue after the Indemnitee ceases to be an officer or director. Such vested rights shall not be divested, diminished, or adversely affected, as to any such Indemnitee, by any amendment or repeal of any provision of the Articles of Incorporation or Bylaws of the Corporation made after that vesting date.

     2. Except as amended as set forth above, the Agreement shall be and remain in full force and effect between the parties hereto.

     IN WITNESS WHEREOF, the parties have caused this agreement to be fully executed as of the day, month, and year first above written.

STEWART ENTERPRISES, INC.

By:

INDEMNITEE

EX-10.6

Exhibit 10.6

Amendment to Stewart Enterprises, Inc. Supplemental Executive Retirement Plan

     The Stewart Enterprises, Inc. Supplemental Executive Retirement Plan (the “Plan”) was originally adopted effective April 1, 2002 and was amended effective May 2, 2005 and is hereby further amended effective as of June 17, 2008 ( the “Amendment”) to change the vesting schedule applicable to the supplemental executive retirement benefits to be provided to Thomas J. Crawford, which benefits were previously provided to Mr. Crawford through a Supplemental Executive Retirement Agreement between Stewart Enterprises, Inc. (the “Company”) and Mr. Crawford dated February 20, 2007.

     A new Section 4 shall be added to Article 5 of the Plan to read as follows:

     4. Mr. Crawford’s retirement benefit, commencing at the Annuity Starting Date, shall be a percentage of his Final Average Pay, which shall be calculated according to the following schedule, with pro rata additions for each full two-week pay period in a partial year of service:

Years of Service	% of Final Average Pay
1		4	%
2		8	%
3		12	%
4		16	%
5		20	%
6		24	%
7		28	%
8		32	%
9		36	%
10 or more		40	%

     Other conforming changes shall be made to the Plan as a result of the Amendment as well as other changes to the Plan to be finally approved by the Compensation Committee of the Board of Directors of the Company prior to December 31, 2008.

     The Amendment is effective as of the date set forth above.

Date: September 8, 2008
Stewart Enterprises, Inc.
By:	/s/ Thomas M. Kitchen
	Thomas M. Kitchen,
	Senior Executive Vice President and Chief Financial Officer

EX-31.1

Exhibit 31.1

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas J. Crawford, certify that:

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

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2008

/s/ THOMAS J. CRAWFORD Thomas J. Crawford

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas M. Kitchen, certify that:

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

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2008

/s/ THOMAS M. KITCHEN Thomas M. Kitchen

Senior Executive Vice President
and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Form 10-Q for the Quarter ended July 31, 2008, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

The undersigned Chief Executive Officer and Chief Financial Officer of Stewart Enterprises, Inc. certify, pursuant to Section 906 of the Sarbanes-Oxley Act, that:

• the Quarterly Report on Form 10-Q for the quarter ended July 31, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and

• the information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Stewart Enterprises, Inc.

This certification is being furnished solely to comply with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as a part of the Form 10-Q.

A signed original of this written statement required by Section 906 has been provided to Stewart Enterprises, Inc. and will be retained by Stewart Enterprises, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: September 9, 2008

/s/ THOMAS J. CRAWFORD  

Thomas J. Crawford 

President and Chief Executive Officer 

/s/ THOMAS M. KITCHEN  

Thomas M. Kitchen 

Senior Executive Vice President and
Chief Financial Officer